Are advisors shady charlatans swindling clients out of their hard-earned money?
Some clients might answer yes—especially if they’ve taken to heart the messages crafted by a certain online brokerage in its ads over the last three years. In the commercials, clients confront their advisors about high fees and low returns, and in some instances declare they’re moving their money, thereby ostensibly saving a bundle.
You can file those ads under evidence of how technological disruption is stoking industry competition to a white-hot blaze. (We’ll forgo a critical analysis of the ads and whether switching to DIY results in lower fees and better investor outcomes. But note that a TD survey finds that only one in 10 Canadians feels “very comfortable” investing on their own.) Amid the heat, advisors are being forced to reconsider their value propositions as new business models call into question who deserves clients’ trust.
Earlier this year, an investor posting to a Reddit thread questioned where their trust should lie, saying that the brokerage ads “made me think harder about what I do with my money” and that they would no longer accept pat answers about fees, specifically from banks.
Such sentiment might be particularly common among younger clients. J.D. Power’s 2019 investor satisfaction study found that 29% of millennials are considering leaving their full-service advisory firms within the next year, compared to 4% of older investors. Re-evaluating the basis for the trust clients typically place in advisors is thus a timely exercise.
In his book The Wealthy Buddhist, Rod Burylo, business development manager for Western Canada at Croft Financial Group in Calgary, defines trustworthiness as the ability to provide as well as deliver on a clearly defined value proposition.
By those two measures, new business models might have the edge in convincing clients they provide superior investor outcomes, Burylo says, based on their technology-enhanced performance (better ability), which is unimpeded by human conflict (better delivery).
To compete, advisors must be as convincing about their own value. Yet, value propositions by industry participants often haven’t been well defined, Burylo writes. Clients are left to make inaccurate assumptions and be disappointed when expected value isn’t delivered.
For example, a client might assume they’ll receive value through certain products or from portfolio changes made as market opportunities arise. Unbeknownst to the client, however, delivering that value can be limited by the systemic challenges of registration categories and disincentives that make portfolio changes impractical, Burylo says.
Still, many advisors hold themselves to a higher standard than salesperson, as Burylo acknowledges, which bodes well for developing an effective value proposition. According to a U.S. study described in Great at Work by Morten T. Hansen, a management professor at the University of California, Berkeley, those employed in financial services report relatively high levels of purpose associated with their work, with “purpose” defined as making valuable contributions to others or society.
Top performers can offer even more value by following Hansen’s advice: “Avoid associating yourself with products, services and practices that harm others. Better yet, work hard to change products and practices that are causing harm, even on a small scale.” While Hansen isn’t specifically addressing financial services, the advice serves as an apt call to action in an industry under transformation.
In addition to detailing valuable contributions, a value proposition should include clear cost accounting, be accompanied by evidence of ability and delivery, and be communicated without emphasizing “mere branding and feeling,” Burylo says in his book. Further, he urges advisors to become skilled at communicating their value so they can deliver that value to more people.
Skilled communication can also be part of advisors’ value. People tend to like the brokerage ads because they portray client empowerment and informed decision-making, as evident from the Reddit thread. Advisors can support that by meaningfully explaining the information clients need to become financially literate.
Those who do so, while also being explicit about what they stand for, can’t easily be reduced to an industry caricature in an ad—at least not one that can be taken seriously.
Michelle Schriver is assistant editor of Advisor’s Edge. Email her at email@example.com.