Nearly a third of investors have no idea how they pay for financial services, and that issue is likely to be exacerbated by the proliferation of zero-fee funds and trading, a report this week from Hearts & Wallets shows.
That 31% of investors who don't understand what they're paying is up from 28% in 2019, according to the research firm. The confusion about fees has implications for the relationships that advisers have with clients, because understanding what they're paying correlates strongly with clients' trust in an organization, said Laura Varas, CEO of Hearts & Wallets.
When it comes to comprehension of a advisory firm's fees, there aren’t many firms that stand out one way or another. Across the board, a high proportion of investors said they lacked understanding about how they pay for the services they receive, according to the report.
It doesn’t appear to matter whether customers pay for advice via commissions, a fee set as a percentage of assets or a flat fee – what is more consequential is that they understand how advisers and other financial services providers are compensated, according to the report.
“Pricing is going to depend ultimately on how much access people want to buy. When you’re paying for an adviser, you’re paying for more than asset allocation,” Varas said. “You’re paying for someone to answer the phone.”
Given this year’s market volatility and the uncertainty many investors feel, answering the phone could determine whether advisers are retained. “If [advisers] are not answering the phone and looking at people’s portfolios, they don’t deserve the money,” she said.
People who pay for full-service financial relationships are OK with higher fees as long as they receive service that is also at a higher level, she said.
“It doesn’t make a lot of sense to hide under opaque pricing,” Varas said. “For highly sophisticated investors, everybody knows there’s no such thing as a free lunch.”
Understanding fees and having low fees are among the top factors that influence how much a customer trusts a financial service professional, according to a report late last year from Hearts & Wallets. The factors with slightly more sway over trust include being unbiased, understanding the client’s values and explaining things in ways that are understandable, according to that report.
The firms with the highest ratings in those categories are Ameriprise, Edward Jones and Morgan Stanley, according to the latest Hearts & Wallets report.
The report is based on a survey last year of more than 5,000 U.S. households, as well as information from the firm's database, which includes more than 50,000 households.
Improved Morgan Stanley
Across the categories that are most important to clients, Morgan Stanley has improved significantly over the past several years, Varas said
“A couple years ago, people really were not happy with Morgan Stanley’s online tools and research,” she said. The company “has made a concerted effort to improve that has taken them years.”
For a large firm, that is not easy, Varas noted. “Just by virtue of being big, you have more people in your customer base, and it’s hard to get 70% or 80% of them to love you.”
The combination of Morgan Stanley and ETrade, which Morgan Stanley is in the process of acquiring, is “a really formidable force to be reckoned with going forward,” she said.
Morgan Stanley declined to comment, though it has announced several additions to its services over the past two years that likely helped its relations with customers.
Last year, Morgan Stanley added services for its 401(k) plan clients, including financial wellness, one-on-one coaching and student loan refinancing. The company also rolled out its Morgan Stanley Impact Quotient, which helps its reps adjust client portfolios so that they better reflect social and environmental principles.
And last July, Morgan Stanley added a “digital vault” through cloud content management firm Box that allows secure online storage for wills, deeds, estate plans, tax records and other documents clients share with their advisers.
The company also undertook an initiative in late 2018 to help advisers make their websites more searchable, especially via commands from voice assistants such as Siri and Alexa. The firm moved back-end management of those sites to Yext, whose services include making sites appear near the top of search-engine results.
John S. Winslow, 57, was indicted just over a year ago for his scheme to steal from an elderly client.
Hamachi's new model portfolio partnership and an industry-first solution from Vestmark join the growing wave of AI tools for wealth managers.
Meanwhile, LPL attracted a five-advisor team managing $380 million in Kansas, while a veteran with stripes from Morgan Stanley, UBS, and Fidelity has joined Prime Capital Financial.
At Goldman Sachs’ RIA conference, Dynasty’s Shirl Penney said an AI clone trained on his emails and speeches could be the first of “hundreds of digital employees.”
The top-ranked RIA by total AUM continues to scale its wealth management arm, bringing its Pennsylvania presence to five offices.
As technical expertise becomes increasingly commoditized, advisors who can integrate strategy, relationships, and specialized expertise into a cohesive client experience will define the next era of wealth management
Growth may get the headlines, but in my experience, longevity is earned through structure, culture, and discipline
