A common refrain heard at industry conferences and in the trade press is that “the financial services industry suffers from a bad reputation. How can we rebuild client trust?”
Yet too often it seems as if the industry isn’t really concerned with building client trust at all.
Consider the recent debacle over the Certified Financial Planner Board’s lax standards when it comes to enforcing the way financial advisors label themselves. Turns out the board allowed hundreds, if not thousands, of financial advisors from wirehouses and other brokerages to call themselves “fee-only” advisors, when in fact they are anything but; these are advisors working for brokerages where commissions are part of the gig. Yet the CFP Board touts their listings as a way financial planners can get noticed by retail investors shopping for advice, and undoubtedly many advisors think “fee-only” sells better than letting the world know they may take a commission. (This is not a blight on commission-based business, by the way, which definitely has its place but is, unfortunately, losing the public relations war.)
The discrepancy in the CFP listings was first reported by Ann Marsh at Financial Planning magazine, then days later by Jason Zweig in The Wall Street Journal (with nary a hat tip to Marsh or Financial Planning that I could find, by the way). All involved promise to clean up their act and make the listings a more accurate reflection of their business.
That’s all well and good, but in reality few clients understand how their advisors are paid regardless of the words used. And few trust a financial advisor’s motives when the subject of fees comes up. At Ron Carson’s recent Peak Advisor Alliance conference in Omaha, Neb., consultant Michael Maslansky of Maslansky + Partners brought more than a dozen investors on stage and gave them dials to gauge their reaction to a series of pre-recorded advisor pitches. As the advisors spoke, the prospects’ reactions, positive to negative, were visibly charted on large monitors in the hall in real time.
Invariably the advisors talked about how theirs was a “fee-based” or “fee-only” business; clearly, to the advisor, this was a selling point that would be self-evident. In fact, the lines gauging investor reaction would fall whenever the word “fee” was uttered. (No doubt the word “commission” would have fared no better.) In interviews afterward, the investors said the way advisors talked about how they were paid—belaboring the concepts of “fees” and “fiduciary mandates”—made it seem as if they had something to hide. But aren’t these supposed to be the “good” words? What the clients wanted, they said, was a number. How much do I pay you? Who else pays you? How much do you make? “Every second you talk about fees and you don’t give a number, it becomes that much more important,” concluded Maslansky.
Building client trust will take more than simply pointing fingers at those who break the rules. It means advisors will have to become more humble, to start speaking in a language clients can understand, not in the language the gatekeepers of the industry expect to hear.
A follow up to last month’s letter: A shout out to reader Bruce Greig of Bloomfield Hills, Mich. for correctly getting the reference made in the headline “Let’s Active,” on American Funds’ push to get the word out on the success of their actively managed mutual funds. “I assume your ‘Let’s Active’ headline refers to the criminally underrated ’80s jangle pop band fronted by one Mitch Easter,” wrote Greig. “If not, it should!” It did indeed. Thanks to all those who sent in guesses.