Fee Transparency: The Right Trend for Advisers and Their Clients

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We teach our kids to do the “right” thing, although we know it isn’t always clear what that right thing is. The same is true in business. In our profession, for example, you could very easily name 20 or more current trends that are at varying stages of awareness and implementation. Which of those trends are right for your business and your clients? Of course, the answer depends on many factors. But one trend that seems obviously right (to me, anyway) is fee transparency.

What Do Clients Want?

Clients have been articulating a desire for fee transparency for decades. After all, isn’t it in their best interest? A recent InvestmentNews article titled, “Investors Want More Information About Financial Advisers’ Fees,” highlights just this issue. Specifically, it discusses the SEC investor roundtables that were held to explore the “so-called Form CRS … designed to give investors a summary of the differences between investment advisers and brokers in terms of their services, the standards of conduct they must meet and the way they charge fees.”

Much of the feedback and suggestions from roundtable participants centered around adviser fees. According to the article, investors want more specificity in this area. This included accounting of the actual dollars they pay; explanations in short, plain language rather than the dense text often found in multiple-page government documents; and access to an online cost calculator that would allow the investor to easily compare the fees of various financial professionals. So, what should advisers do with this information?

What Do Advisers Fear?

Let’s say that an adviser found a way to itemize every piece of the compensation puzzle. In today’s environment, that adviser would stick out like a sore thumb. Rather than being rewarded as an early adopter of fee transparency, he or she may find it hard to be the lone trendsetter and fear that clients would end up shopping around.

Impostor syndrome is a pattern of an individual doubting his or her accomplishments and the resulting fear that he or she will be exposed as a “fraud.” One might wonder if ambiguity of fees contributes to the syndrome or vice versa. Perhaps there is fear that clarity of fees would cause resistance among clients—especially in light of another trend toward fee compression and yet another trend of expanding the number of online ETFs and index funds available to clients. That fear may prevent some advisers from following the fee transparency trend—but should it?

The Rightness of Fee Transparency

The profession of today is designed so that fees and charges are tucked away here and there. Because many of these charges are not obvious, however, it gives some the impression that something is being hidden. Advisers know this perception is not grounded in truth but rather in the complexity of processing business. Nonetheless, you also know that client perception is important and that their trust is essential to the success of your business.

I think you will find that the rightness of the fee transparency trend is obvious if viewed through the lens of the clients’ needs. The bigger question? Whether our profession is up to the challenge of addressing it.


Joni Youngwirth_2014 for web

Joni Youngwirth is managing principal of practice management at Commonwealth Financial Network in Waltham, Mass.

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