DOL: Do Your Clients Know What They’re Paying For?
Investor frustration over poor investment results and market volatility came to a head last year when the Department of Labor proposed stringent new “fiduciary” rules for advisers and asset managers. The new administration may still shelve the rule, but investor scrutiny isn’t going away so easily. With expectations raised, advisors and asset managers need to ask: do my clients appreciate the benefits they pay for? Do they even know what they are?
The aim of the DOL rule was to hold anyone who receives compensation for giving advice on retirement accounts to stricter standards – to minimize conflicts of interest and put the interests of their clients above their own. But at a practical level, complying with the rule left even the most client-centered firms scratching their heads.
The ensuing scramble saw investment managers moving to lower costs and adjusting the products that advisors and broker-dealers use for retirement accounts. The advisor community started rethinking its costs and services as well, in a search for new ways to demonstrate value to paying clients.
The So What
These efforts are welcome. But in our view, they miss an important opportunity: to clearly and consistently explain the value you bring to clients today.
When working with our own clients, we advise them to not be afraid to talk about fees and expenses. Increased conversation around compensation reminds clients what fees and expenses pay for, and why your firm may still be a good choice even in down markets. From marketing to investor education to portfolio reporting—every communication should showcase how you deliver value for your clients.
How can advisors and asset managers tackle this challenge? Start by writing a list of ways your firm uses client fees to improve client outcomes. For asset managers, that list will likely include having highly talented professionals who:
- Conduct in-depth research and monitor market trends
- Use sophisticated data to direct strategy, portfolio construction, and diversification
- Anticipate and manage risk
- Create investment products designed to match specific client needs, such as retirement date portfolios
- Answer client questions and aid client decision making
- Develop technology to expand client services, such as online account access
Advisors offer the additional benefits of:
- Developing a personalized understanding of the client’s goals
- Constructing a personalized portfolio appropriate to those goals
- Ensuring that taxation, financial planning, and estate planning rules are managed in the client’s favor
- Executing structured strategies that have a history of improving results, such as dollar cost averaging
- Maintaining a network of investment providers and other service professionals to benefit client needs
Next, evaluate your reporting, marketing, education, and client service materials. Does every piece highlight at least one point from your list? Even statements and portfolio data reports should reflect some aspect of the value you provide. If not, initiate a project to update them.
Or, if you don’t have the internal resources, a firm like Purcell Communications can quickly evaluate and update content across your organization. The cost is modest, but it pays dividends in client retention when the markets turn against you.