Susan Silma: Understand the Client's Perspective

April 18, 2016/ Mackenzie Investments

Building on last week’s discussion on the CRM2 challenges that advisors may face, let’s shift our focus to the concerns that these changes may cause clients. This week, Susan shares more results from her work and insights to help advisors:

"When regulators began to develop CRM2, they conducted research to determine what information investors really wanted. Investors wanted the answers to two questions:

“How am I doing?” and “What is it costing me?”

CRM2 was designed to help them answer those questions.

However, it will provide clients with information they may have never seen before, or information that will be presented in a new way. As a result, clients are likely to have questions or concerns about this new information.

For example, fee disclosure will likely surprise many clients. Research shows that half of investors believe they do not pay any fees, while many others are unsure. Clients are even less aware of fees they did not pay directly, such as trailing commissions and other third party compensation. Many will be surprised by those fees, or the amount of those fees. Other regulators around the world have banned embedded compensation arrangements; however, I am unaware of any regulator that has required the disclosure of this information in the same way as CRM2. Of course, these fees will be taken into account in a fund’s performance, so it is important that advisors understand and position themselves to have very clear conversations with their clients.

This additional disclosure will undoubtedly make some clients ask what it is that their dealer or advisor does to justify their fees. Through our work, we have seen that, when investors receive the fee and performance reports, they inevitably compare the two. They wonder: who’s better off – me or my dealer/advisor? And focusing on the numbers deemphasizes all other aspects of value. Advisors must do a better job of articulating the value clients receive for the fees that they pay. This is where a strong value proposition can help.

Instead of comparing performance to fees, encourage your clients to compare performance to their goals. Last year, we commissioned research to understand how important goals were to clients. We found that a significant number of investors changed advisors simply because the advisor did not understand their goals. A real challenge and opportunity for our industry is to help our clients define their goals."