Transparency rules may not be empowering clients

By Susan Yellin | July 20 2017 11:30AM

Photo: Freepik

How much clients pay for products and services remains a core principle of unchanging, universal customer needs, but recent Canadian transparency requirements may not necessarily be empowering clients as much as regulators would like, says the senior director of the wealth management practice at J.D. Power.

Michael Foy told a recent conference put on by the Investment Industry Association of Canada (IIAC) that the introduction of CRM2 with its transparency and disclosure requirements has piqued the interests of some clients and provided advisors with an opportunity to showcase their value propositions.

Do they understand what they pay?

But just because the obligation is on financial services firms to ensure investors receive certain information about the costs and performance of their investments doesn’t mean investors truly understand what they pay, said Foy.

“When we look at the issue of fees in the context of the full-service investor market, what we’ve seen looking back to 2012 … [is that] despite all the attention paid to the issue of transparency and disclosure, we really haven’t seen any meaningful movement in terms of Canadian full-service investors who feel that they completely understand the fees that they pay.”

Foy said back in 2012, 30 per cent of these full-service clients said they understood fees, but in 2016, only 27 per cent said they understood them – fewer than in 2012. He said he is looking forward to new results coming out this fall from J.D. Power as to whether advisors are explaining their fees on a regular basis.

Regulation necessitates that more information be provided, he said, “but in a lot of cases, we see that an increase in disclosure can sometimes create more confusion and uncertainty than actually provide the transparency it’s intended to provide.” Still, Foy said explaining fees is an excellent way for some advisors and firms to differentiate themselves in a positive way.

Looking for convenience

Foy said the best-of-breed providers are building strategies around customer needs that don’t change over time even as technology and innovation are finding better ways to meet those needs. While cost is one of those strategies, the number one principle is convenience. He said investors are looking for firms that will deliver products and strategies that won’t require clients to make a lot of effort.

Many self-directed investors, mostly those in the boomer demographic, are looking for a single institution that can provide them with all their wealth management needs, he said.

What they want from an advisor

Investors are also looking for firms that view them as unique, individual customers, said Foy. J.D. Power has found that most investors who work with an advisor do not want to delegate all the decision making to the advisor. Rather, Foy said clients of all ages are using their advisors to help them validate their own decisions.

“If you are going to provide tailored services to your clients, it’s critical to understand what their expectations are, what their needs are,” he said. “All millennials are not the same any more than all boomers are the same. But these generational trends suggest that there is an evolution about the way people think about an advisor and what they value about that relationship.”

Strong appetite for traditional advice

While younger investors may be using robo-advice as a starting point for their portfolios, there is a strong appetite among all age groups for traditional advice through a financial advisor, he said.

“Even among millennials we see that those who are self-directed investors are increasingly likely to say that they also have a full-service account or that they anticipate the need for full service at some point over the next one to three years,” said Foy.

Broader range of options

“We certainly don’t see evidence that even younger investors are abandoning the value proposition of the traditional financial advisor, but at the same time there’s a broader range of options through which advice and guidance can be delivered because of things like technology.”

The final core principle that hasn’t changed over the years is the issue of trust, he said. Clients want to know that the advisor understands client needs, that the two are working as a team and that the advisor is taking long-term considerations into mind, said Foy.


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