Investors and savers rate transparent costs as their top priority when choosing where to conduct their financial business, a new study showed.
Six in 10 financial services customers ranked fees that are "clear and understandable" among their most important "wants" in a satisfaction poll of nearly 6,000 U.S. households released March 22 by Rye, New York-based
That answer won out in the survey over options including "explains things in understandable terms," (56%); "is unbiased, puts my interests first," (54%); "provides clear, useful statements," (53%); and "has made me money," (52%). Wealth management firms Ameriprise and Edward Jones, along with self-directed online investment firm Robinhood, earned "top performer" status over peers across brokerages, banks and retirement companies.
The poll quizzed 5,993 participants between Aug. 15 and Sept. 15. Its findings show how fees have emerged as
Those percentages are "troubling," according to Hearts & Wallets CEO Laura Varas, who said in an interview that no one should "give someone a Fendi bag and tell them it's free and then take $5,000 out of their back pocket."
When Americans buy other products such as hotels, flights or cups of coffee, "We know what we get and we know what we pay," Varas said. "That's really important to establish more strongly in investment services. We're very troubled to see people thinking that they don't know."
Among all participants, clear and understandable fees also beat out "has well-trained staff," (50%); "is easily reachable by phone," (48%); "quality of internet account access," (46%); "investment ideas are knowledgeable, timely and tactical," (45%); and "is proactive when market changes/when I'm losing money," (43%) in the 10 most commonly identified customer "wants." Top performers Edward Jones, Ameriprise and Robinhood received "distinctively higher" grades than their peers in those areas of service, according to the research firm.
The results suggest that financial advisors are meeting their customers' expectations better than are professionals in other financial service areas, though. Investors getting some form of advice were much less likely to say they didn't know their fees or to think they were paying nothing.
Still, just 27% of financial services customers said they knew how their firm makes money. Wealth consultants and coaches say fees loom large in their sessions with advisors — as well as in planners' meetings with clients and prospective customers.
Some clients will be searching for the lowest price, which advisors should never take as a personal insult if they have explained the value of their services, said Cameo Roberson, founder of Sacramento, California-based
She recommended that advisors list their costs on their website, if feasible, in language free of jargon.
"In my experience, advisors who clearly understand their value and can share the benefits and outcomes will have an easier time discussing fees with clients," Roberson said. "Pricing is only questioned in the absence of value. If an advisor is struggling in this area, I would advise them to do some deeper digging on their value proposition and service offering."
Diane MacPhee, the founder of Manahawkin, New Jersey-based
"I always coach my advisors, when you're holding these conversations, be gentle, go slow and we don't have to get in the weeds at the moment," she said. "Try to keep it very easy on the ears for a client or a prospect when they're asking about this."
Advisors can start the discussion by simply asking prospective clients whether they understood the fees charged by their last firm, MacPhee added.
When a prospective client inevitably tries to find out the exact fee right away, advisors ought to point out why they vary based on the level of service and the firm's business model. Besides the traditional expense model of charging 1% of assets under management, advisors these days are adopting retainers,
But there's one thing planners should avoid at all costs: thick disclosure booklets that are required by regulators and closely scrutinized by industry professionals but hardly ever read by consumers. Too many tier levels and permutations make clients' eyes glaze over, MacPhee said.
"I am not a fan of pulling out a whole worksheet and running through a calculation, because I don't think advisors realize they're losing the person in front of them," she said.
