Affluent investors need to understand the value of an advice relationship
February 5, 2024, BOSTON—Although Cerulli investor trust in financial advisors and providers is high among affluent investors, unadvised investors still may have some degree of trepidation when it comes to signing on with an advisor due to concerns over cost, according to the latest Cerulli Edge—U.S. Advisor Edition.
For prospective affluent clients, cost transparency (46%) and general expense (28%) are cited as the most difficult aspects of working with an advisor. Given the variety of ways in which an advisor typically charges for services, whether asset-based fees or commission-based, it can be a challenge for prospective clients to fully understand how much they are paying for financial advice, how they will pay for it, and what type of advice they will receive.
From Solo-Traders To Newly Advised
“Advisors must ensure their fee schedule is easy to understand and the services provided are outlined specifically so clients know exactly what they are paying for and how they will pay—while also understanding how clients wish to engage with their finances and with the advisory team,” says John McKenna, research analyst. “As more investors transition from being solo traders to seeking formal financial advice, they will want an advisor who understands their needs. That begins with the advisor being open not only about how advice delivery is carried out, but also the methods through which it is delivered.”
Given that investor concerns begin to ebb once entering the advice relationship—just 11% of those who work closely with an advisor say costs are not transparent, and only 12% say they are too high—it is paramount that advisors discuss the fee table, provide a good estimate of how much one can expect to pay and how that payment will be made, and show potential clients the types of services they will receive.
“Regardless of how one communicates with a prospective client, it must be transparent from the first encounter on,” says McKenna. “This will remain critical for growing one’s book of business and building long-term, loyal relationships,” he concludes.