Advisors who don’t discuss fees risk losing clients: survey

More than a fifth of affluent millennial clients say they expect to leave their current advisory firms within the next 12 months, a J.D. Power survey shows. And, for many clients, fee transparency will be a primary reason for leaving.

The survey found that, while advisors risk losing clients by not adequately disclosing fees, milliennials with more than $100,000 in investable assets “definitely will” or “probably will” leave their advisory firms in the next year.

Although milliennials represent just 5% of full-service clients, their numbers are growing, and 23% of the younger generation used robo-advisors, the survey found.

Full-service clients with a full understanding of their fees are much more likely to recommend their firms to others, the poll results indicate.

“Establishing a clear link between fees charged and value provided is very important for full-service advisors, especially now as they confront new threats coming from generational and technological changes that have put a large chunk of customer assets at risk of attrition,” Mike Foy, senior director of wealth management at J.D. Power, says in a statement.

The poll indicates that fees are “still a mystery” for many clients. Despite CRM2 regulations for more fee transparency, only 23% of clients noticed any change during the past year in how fees and performance information was communicated by their advisory firms, J.D. Power says.

The number of investors who say they have a complete understanding of fees actually fell — to 24% from 27% in 2016.

The survey says 36% of clients report that their financial advisors did not clearly communicate the reasons for the performance of their investments, and 41% said their advisors “did not explain fees.”

A release adds: “Even among clients who were aware of the new disclosure requirements and did have a conversation about the subject with their advisor, just 35% say they fully understand their fees.”

The survey ranked Edward Jones as highest in investor satisfaction among full-service investment firms in Canada, followed by Assante Wealth Management and ATB Financial.

The study, conducted in May and June, polled 4,903 investors who use advice-based investment services from financial institutions in Canada.

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