What clients want: Transparency

Financial professionals serving individuals must find better ways to let clients and prospective clients know why they charge what they do and why they are worth it. Participants in a client panel at InvestmentNews' annual Retirement Income Summit last week said they do not attach a lot of importance to how they pay their advisers, but they seek transparency: in other words, an explanation of exactly what they are getting for their money. One attendee at the summit commented that if you have an electrical problem, you hire an electrician to fix it, and you pay him. You hire a plumber to fix a plumbing problem, and you pay him. But it's easy to see whether the electrician or the plumber has fixed the problem, and you don't pay them year after year. It's not as easy for ordinary investors to recognize the quality of the plan the financial planner or investment adviser produces, to comprehend its value and understand why they must pay an annual fee to maintain it.

WHY ANNUAL?

In particular, many investors do not understand why they should pay an investment adviser a percentage of the assets under management each year, which is a common payment approach. Financial advisers have to make it clear not only to current clients but to prospective ones that they don't simply prepare a plan or build a portfolio and then observe from a distance. They must emphasize that economic conditions are in continual flux, and that they watch those conditions to see if changes are needed in a financial plan or portfolio, and that they help clients make necessary decisions. They also should document the hours they spend developing, implementing and monitoring the plan or portfolio, and the hours they spend talking to clients in person or on the phone. Every contact should be an opportunity to reinforce the value message. Every public appearance likewise should tell the broader public of the need for professional financial and investment advice, and that it will pay for itself in the long term.