Client service will differentiate you better than fees or fiduciary

Two new studies reinforce what I have been telling financial advisors for some time – clients are more interested in the service you provide and how you get paid or what legal standard of care you must provide. Service can differentiate you much more effectively than fee-only and the fiduciary standard.

A survey conducted by Cerulli Associates revealed that about twice as many clients prefer paying commissions to fees. About half of the 7,800 households surveyed preferred paying commissions, 27% referred the fee based on assets, about 18% say they prefer retainer fees and 8% said they opt for an hourly fee structure. About 33% of the investors surveyed said they didn’t know how they pay for the investment advice they receive.

The study also reveals that 63% of clients of the largest broker-dealers surveyed said they believe their financial advisors were held to a fiduciary standard of care. This confusion appeared in another recent survey as well.  According to a JD Power and Associates survey released last week, 85% of the 4,200 clients of full service brokers surveyed say they have never heard of, or don’t understand the difference between, the suitability and fiduciary standards.

While they did not understand the regulatory issue we have all been debating for the last few years, they have a very clear idea of what they want from their advisors – service.

“While higher levels of satisfaction are generally associated with clients in fiduciary relationships…placing more focus on key best practices in client management…achieves satisfaction levels on par with satisfaction among investors in a fiduciary relationship” said David Lo, director of investment services at J.D. Power and Associates. According to Lo, key best practices of client service include (in order of importance):

  • Clearly communicating reasons for investment performance
  • Clearly explaining how fees are charged
  • Proactive advisor contact regarding new products and services or accounts four times in the past 12 months
  • Returning client calls/inquiries within the same business day
  • Reviewing or developing a strategic plan within the past 12 months
  • Providing a written financial plan
  • Discussing risk tolerance changes and incorporating into plan where appropriate in the past 12 months

If you want to stand out from your competition and win clients, find out from them what they believe is most valuable in an advisory relationship and focus on delivering it to them.

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