Many people have asked me what they could do to demonstrate that they are indeed acting like a STANDUP Advisor. As you might imagine, the basic principle here is that real professionals make disclosures of everything that could possibly impact a client decision.
Indeed, one could easily re-phrase Scientific Testing And Necessary Disclosure Underpin Professionalism to “real professionals disclose material considerations and make evidence-based recommendations”. I could add that it is generally accepted by the broader public that professionals charge fees for giving advice, while sales agents earn commissions for placing products.
While I think you can be a STANDUP advisor while earning commissions, I also think that, given the choice, many consumers would think a fee-based advisor is more credible as a STANDUP advisor than a commission-based one.
With that said, here are ten things that I think would help convince any reasonable observer that you’re a STANDUP advisor:
10. Use an Investment Policy Statement for every client. Compliance people like it and clients understand what you’re doing and why you’re doing it.
9. Complete a full financial plan for yourself and your family. Credibility starts at home.
8. Have a one-page statement of investment philosophy. It helps to clarify your ‘value proposition’ and makes it easier to find like-minded clients.
7. Be honest about your motives. If you’re an MFDA registrant, for instance, don’t downplay ETFs as if you could offer them, but choose not to. The FACT is that, as an MFDA registrant, you’re not licenced to recommend ETFs to clients. I’m not slagging MFDA registrants here. I’m just concerned about people who don’t give the real reasons when they explain things to clients. Similarly, if you’re commission-based, that’s fine, but don’t go making up excuses for not recommending perfectly good mutual funds just because they don’t pay commissions and/ or trailing commissions. Just tell it like it is.
6. As with #7, don’t fudge facts about products. I once overhead an advisor say “This product won’t cost you anything” to a client, when the product in question was a mutual fund wrap account (recommended at front end 0%) with an MER over 3%. Just because the client isn’t opening his or her wallet doesn’t mean there’s “no cost”. The poor person on the other end of the line would have been paying over $3,000 a year on a $100,000 account – and probably had no idea.
5. Get a designation. Ever heard of a doctor or lawyer, anyone else holding out as a ‘professional’ without one?
4. Disclose all costs to clients. This includes the amount you get paid and the amount the product costs. Both those things are client costs. Add them up for the client.
3. Be as client-centred as possible. Example: Why not write to the Competition Bureau – You know, the people coming down on people earning real estate commissions due to restricted access to MLS – and point out that we have a similar situation in mutual funds where do-it-yourself investors have to buy A Class (You know, the kind that pays commissions in exchange for advice) funds, even though they neither request nor receive advice. Imagine going to Canadian Tire to buy a muffler, installing it yourself, but being billed for BOTH things! That’s what “discount” brokers are doing to consumers every day with mutual funds. It’s scandalous and advisors should STAND UP for what’s right.
2. Make sure your client understands HOW and HOW MUCH you’re being paid.
1. As much as your compliance department will allow, put all of the above information on your web site so you can be as transparent and accessible as possible.
