With consumer trust in financial services only starting to regain lost ground in the wake of the global financial crisis, many advisers are looking for strategies to help their clients understand the real value of the services they provide.
State Street Global Advisors’ SPDR ETF business has today released a new Practice Management paper titled ‘The Price of Financial Advice“, which examines how investors feel about the value of financial advice, specifically the sensitive topic of fees, and provides strategies for advisers to gain their trust and loyalty.
One of the key findings from the paper is that financial advisers significantly overestimate their clients’ understanding of advisory fee structures. Furthermore, the report found that investors who do not understand what they’re paying trust financial advisers less and are less likely to refer them to family and friends.
The research also found investors do not mind paying for financial advice but want to understand what they are paying for and receiving in return.
Key stats:
· 53% of financial advisers believe their clients understand their fees, but only 33% of investors actually do.
· 92% of financial advisers say they have discussed fees with their clients, but only 67% of investors agree.
· 60% of investors who understand the fees they are charged referred a friend or family member to their adviser, while only 42% of those who do not understand the fees did the same.
· 80% of advisers say they have asked clients for recommendations on how to improve their relationship, however, only 33% of investors say their adviser has done so.
· When choosing a financial adviser, charging low fees was the second least important factor for investors while being upfront and representing situations truthfully was the most important.
Strategies:
· Be upfront, consistent and concise – Fees should be clearly and simply discussed at the start of any new client relationship, and the discussion should be ongoing.
· Ensure comprehension – Assess your client’s financial literacy, make sure they understand your fee structure, and ask them questions to ensure information is understood.
· Critique the relationship – Check-in regularly with clients to discover what is working and what is not.
