Advisor clients are clueless about compensation.
When it comes to what they are paying their advisors, investors are clueless. A 2011 survey by Cerulli Associates and Phoenix Marketing International found that 31 percent of investors were not sure how their advisors were compensated, while another 33 percent actually thought they didn't need to pay for the service. “You can have your clients' best interests at heart, but it doesn't mean you're doing it for free,” Cerulli analyst Bing Waldert observes. The bottom line: nearly two out of every three investors in the survey were confused about how they were paying their advisors. Some advisors may think ignorance is bliss where their clients are concerned, but don't be too sure. About 3,200 RIAs are moving to state regulation this year, and the states will expect those advisors to mail regular compensation notifications to every client. As Cerulli puts it: “With increased disclosure requirements likely in the near future, advisors must be ready to explain their compensation as well as the exact nature of the service they provide.”