Prove financial advisor value with a written comparison

By MBA, CFP® - Chief Executive Officer, Vernon C. Sumnicht on August 6, 2015

I agree with much of what the authors conclude in the recent State Street Global Advisors survey, The Price of Financial Advice, Communicating Fee Value Proposition with Clarity. However, I do think that the distrust of financial advisors stems from much more than the 2008 market crash, fee complications and lack of good, upfront fee communication.

financialadvisorsandclientsThis lack of confidence in the financial service providers also stems from a healthy distrust of the financial industry brought about through other more serious ethical issues we’ve encountered over the last few years. We’ve seen bankers, investment brokers and financial firms indicted and convicted of numerous felonies including things such as the manipulation of commodity prices, the manipulation of LIBOR, the making of loans to borrowers who could not afford them and then foreclosing on those mortgage loans, hedge fund fraud, investment advisor fraud such as Bernie Madoff, bank and insurance company bailouts by taxpayers with no convictions, and huge bonuses with no performance paid to bankers and investment brokers. I think these things cause investors substantial and healthy concern when it comes to working with investment advisors.

Clients want real helpful advice, real solid planning, creative solutions to the financial issues. Clients know good advice when or if they see it, but also never forget that “clients don’t care how much you know until they know how much you care.” To understand an advisor’s fees for investment services, advisors need to show all of their fees. That is all of the fees clients will pay to all parties including the advisor’s fees.

When clients realize that advisors don’t tell them about all other fees they will pay, they feel like the advisor deceived them. If an advisor’s fees and investment approach deliver a truly cost competitive service, the advisor should provide the client a written comparison to the cost of other approaches and fees for investment advisory services. In doing so, that advisor will never have a fee issue with clients. Although I also would agree that written comparison needs to be periodically reviewed with clients so they don’t forget.

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