Some advisors are worried the surge of ETFs means the death of trailers. That’s wrong-headed. Instead, accept these six realities to create a mutually beneficial relationship with clients
The storm clouds are rumbling—not just over the markets but over the touchy subject of advisor compensation as well.
Compensation always becomes more of an issue when markets aren’t doing well. And that’s reasonable. After all, given the prospect of a second negative-performing market in four years, clients are no doubt questioning why they’re paying advisors, and asking what they’re getting out of the relationship.
It seems I can’t go a week without seeing an article on “the death of trailers.” Is it enough to push the Canadian system to adopt regulations similar to those in the UK or Australia? Probably not; such changes would represent an earth-shattering shift in how the industry functions. But that doesn’t mean we won’t see steps in this direction—the right direction.
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Reality #1
Not all clients are the same
Every client sits somewhere on a spectrum, with the do-it-yourself types on one end and the do-it-for-me types on the other. This extends not just to investing, but also to almost all aspects of financial planning.
While my firm specializes in planning, executing and coordinating the financial, investment, insurance, tax, estate and corporate planning needs of our clients, we are not for everyone. The same goes for every other advisor, since each firm offers a different value proposition. And that’s good, because different ways of doing business appeal to different types of investors. Everyone can find the right fit.
This is important because we too often speak about this industry in absolutes—we say one form of compensation is right and the other’s wrong; ETFs are better than mutual funds or vice versa. But the public we serve isn’t homogeneous. Instead, let’s say that as an industry, we focus on the real issue of compensation and transparency (see Reality #5) and continue to allow clients to have a range of options.
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Reality #2
We’re all here to make a living
No matter what you call yourself or how you charge for your services, both advisors and our clients need to acknowledge that we’re here to make money. I bring this up because a shocking number of clients I meet honestly believe they have gotten service for free (see Reality #5).
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Reality #3
This doesn’t mean we’re at odds with the client
Compensation is not an “I win, you lose” proposition. Current mechanisms in the industry provide for enough flexibility for each advisor to determine for themselves how they should be compensated. It’s not the structure of the industry that can put clients’ interests at odds with the advisor, but the advisor’s choice of compensation. How do we avoid being at odds with a client’s interests? See Reality #4.
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Reality #4
Value for money
What are we being paid for? This issue can either be at the core of advisor-client conflict or of a successful relationship. What determines this is fit and Reality #5.
We too often speak in absolutes—we say one form of compensation is right and the other’s wrong; ETFs are better than mutual funds or vice versa. But the public we serve isn’t homogeneous.
