To fend off the many threats that investment advisors face—from robo-advisors to competitors reducing fees—advisors need, above all, to learn to fully describe what they do for their clients, said Andrew McFetridge, CRPC®, national sales manager for the wirehouse channel of John Hancock Investments.
“Advisors unquestionably are worth the fees they charge,” McFetridge said recently in a session at IMCA’s 2017 Investment Advisor Forum. “The money saved in just one instance when an advisor talks a client out of an impulsive, misguided investment is likely to exceed the advisor’s fee alone.”
Recounting how financial advisors’ roles have evolved just in the past 20–30 years from those of brokers, he said that clients now most value advisors who motivate them to action, look out for their best interests, understand their needs, and are straightforward about fees. It is when advisors let their clientele think they merely assemble portfolios that they become vulnerable to robo-advisors and demands that they reduce fees.
“Advisors should not be sheepish about their fees,” McFetridge noted. “Rather than leaving a discussion of fees to the end of a meeting, or leaving it out entirely, advisors should bring up fees early on with clients. And in doing so, they should be prepared to enumerate the long list of things they do for their clients, from assessing risk tolerance and financial goals and advising on portfolio construction to developing retirement plans and monitoring and making adjustments to ensure that clients’ plans continue to meet their goals.”
However, because no one can keep more than a handful of services in mind, McFetridge suggests that it is best to “boil down one’s value to three large categories.” He recommends using goals-based wealth management to create a financial plan; developing a personalized investment process; and executing the plan, drawing on the expertise of an advisor’s entire firm. Advisors should stress to clients that each one of these functions alone is worth a fee of 1 percent of assets under management. Then, when asked if they charge 3 percent for their services, advisors can say that their goal is to far exceed that value.
The recent Department of Labor (DOL) ruling holding that investment advisors have a fiduciary responsibility to put their clients’ interests before their own when offering retirement advice provides a great opportunity for advisors to introduce and elucidate the value of their services, McFetridge added. He urged advisors to raise the following questions with clients or prospects and suggested meetings with them to discuss key questions, such as:
- Have your heard about the new DOL regulation?
- Has your advisor met with you to discuss the new regulation?
- Has your advisor gone over all the fees in your portfolio?
“Remarkably, it has been found that nearly half of Americans believe that investment advisors were already required—before the effective date of the DOL ruling—to put their clients’ interests first,” McFetridge remarked. “A TIAA-CREF survey found that nearly 40 percent of respondents did not know how advisors are paid or whether they are paid at all.”
According to a 2015 Cerulli Associates report, “Advisors should take heart that 80 percent of U.S. households are willing to pay a fee and only 10 percent said the fee was their most important consideration in choosing an advisor. They just want to know what they’re paying for,” McFetridge concluded.