Advisers must face the facts of life

We live in an age when everything is the “new” something. Not only has brown been declared the new black, but age 50 is the new 30, property the new porn and Iraq the new Vietnam. For financial advisers, having an open and honest discussion with clients about the fees they charge is the new “birds and bees.” That’s because, much like it is the responsibility of every parent to squirm their way red-faced through an uncomfortable conversation with their preteen about the facts of life, financial advisers have a responsibility to explain to clients the details of the fees they charge for the advice and guidance they provide. Unfortunately, many advisers are doing too much throat clearing and not enough talking. A recent survey of 500 financial adviser clients found that only 43% said they understood their adviser’s fee structure “completely” or “fairly well.” Although that is abysmal, it’s better than a corresponding survey of 366 advisers which found that only 37% believed that their clients understood the fees they were being charged “completely” or “fairly well.” The surveys, which were conducted by Boston-based State Street Global Advisors and an online business journal at the University of Pennsylvania’s Wharton School in Philadelphia, call into question the actual degree of communication that takes place between advisers and their clients about fees. Fully 95% of advisers surveyed said they discussed their fees with their clients, yet only 61% of clients said that their adviser initiated such a discussion. The gap in perception between advisers and clients on the issue of fees should not be underestimated. To do so poses a threat to the very foundation of the adviser-client relationship: trust. Whether fees are earned through commissions, based on assets or charged hourly, lack of transparency negates trust on all levels and threatens to undermine the credibility of the financial advice profession.