Financial advisors that have worked in the industry for a long time may have noticed a slow but steady change over the years: Their clients have become a lot savvier about their financial advisor’s fee structure.
This is a good thing. As advisors, you have a fiduciary responsibility to your clients, and part of that responsibility lies in educating them and keeping them informed. A client who understands their financial advisor’s fee structure and expresses curiosity about the services they receive will be better equipped to navigate their financial future and more satisfied that you helped them do so.
But while this growing fee consciousness means that clients are better informed than ever, it does create new challenges and expectations for financial advisors. Understanding this trend is key to providing a higher level of service for your clients.
In the past, if you asked a client how much they were paying their financial advisor, you might not get a confident answer. Some might not even be aware they were paying a fee at all! But ongoing market forces are changing that.
Before the internet and during its early days, clients simply had to trust that advisors were charging a fair and cost-effective fee. There was little understanding of what kinds of services were more or less common or effective. Thus, clients also had to trust that whatever services they were being offered were worth whatever fees their advisor charged. But modern consumers have the internet, and all the guidance it has to offer.
Traditionally independent financial institutions are consolidating, and entities that haven’t typically supplied wealth management services have begun to dip their toes into financial advising, presenting new sources of competition for financial advisors. These large institutions are able to capitalize on economies of scale, investments into productivity-enhancing technologies, and large cash reserves to charge lower prices than traditional financial advising practices. As a result, clients expect their financial advisors to meet those lower prices, and sometimes experience sticker shock when those expectations aren’t met.
Today, clients seeking investment services only have to go to Robinhood or similar investment platforms. Even if they’re looking for more involved financial advice, robo-advisors like Betterment are available to serve them. Clients want to know exactly how a human financial advisor justifies their fee in comparison with these sometimes-free platforms. This is doubly true because many investors investing on their own have enjoyed easy returns from the current bull market and have yet to experience the emotional and strategic demands raised when the market doesn’t go their way.
Growing fee-consciousness amongst clients might make a financial advisor wonder whether their services are really wanted anymore. But this isn’t the case.
Financial advisors are always going to be valued for their ability to provide guidance, expertise, and ability to empathize. Any individual is only going to be able to build a financial plan for their life based on limited data; financial advisors have the benefit of guiding many such individuals and are thus better equipped to handle market volatility, unexpected life events, and all of the surprises that make financial planning a much-needed service.
Rather, clients’ growing fee-awareness is changing how they interact with their financial advisors and what their expectations are. To be sensitive to clients’ new wants and needs in this respect, financial advisors should avoid certain circumstances that can create friction.
Faced with the competition from larger institutions and cheaper alternatives, financial advisors need to scrutinize their product mix and ensure they’re offering investment vehicles that truly deliver value. An excellent example of this is the growing preference for ETFs over mutual funds. It could be that advocating for a certain product earns you a commission, but this practice should only be continued if it truly meets a clients’ needs and keeps your fees competitive.
Financial advisors’ fee structures, their service tiers, the reasoning behind their decisions, their plans—these are essential items for a financial advisor to communicate and for a client to understand. After all, it’s difficult for an advisor to justify their fee if the client doesn’t understand what they’re being charged for.
With greater access to a spectrum of investment vehicles and self-serve financial advice, modern clients expect their financial advisors to be their one-stop-shop for financial expertise. Investment management, for instance, isn’t much of a draw when a client could just download an app instead. Clients will have a better time understanding the fees they’re being charged if their advisor has a diverse service offering and doesn’t just respond to requests with, “I can’t do that.”
Whether or not they bring it up, today’s clients use their financial advisor’s fee structure to inform their wealth management decisions. It’s best for advisors to get ahead of this, take action to ensure clients are getting the most value for their money, and transparently communicate the how and why of their fee.
Even if you just start thinking about ways to maximize client value, you’ll already be ahead of the pack. But there are some tangible steps you can take to make an impression on fee-aware clients too.
For one, you could outsource the more transactional aspects of your financial advising services, like investment management. In general, third-parties have more expertise and resources to dedicate to such tasks, providing a greater value proposition, and you’ll also gain more time to focus on your core competencies.
There’s research that shows clients respond positively when advisors maximize value in this way, too. In fact:
But outsourcing is hardly the only way to start delivering more value for your clients. Financial advisors can make their practice more efficient and streamlined to gain more time for client needs, diversify their service offerings, and improve the business and administrative aspects of their practice to lower costs—anything that increases the client’s value for their dollar.
Naturally, the sheer number of ways that a financial advisor can improve their practice to cater to fee-aware clients can be a bit intimidating, and it’s difficult to know where to start. That’s why we recommend getting in touch with a professional whenever you’re thinking of refining how you run your practice. Get in touch with one of our consultants today, and we’ll help you identify where you can make the biggest impact.
AssetMark is a leading provider of extensive wealth management and technology solutions that help financial advisors meet the ever-changing needs of their clients and businesses.
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