Educating clients on ETFs

When we made the decision to incorporate ETFs as a core in our advisor business model, we knew the changes we were proposing were major. Clients weren’t yet well versed on the new instruments. They also had to struggle with new nomenclature, a new portfolio structure, transparency of fees and index-based management.

By Guy Lalonde | January 1, 2011 | Last updated on January 1, 2011
6 min read
  • Increased frequency of client meetings: From the initial presentation of the new management model to the day the client has developed a good comfort level, face-to-face meetings and telephone contact should be stepped up.

  • Increased e-mail contact: We took to sending out an e-mail to all clients who hold the ETF core portfolios whenever a rebalancing or other change is made to the holdings, explaining what was done and why. We also continue to send out a brief monthly e-mail that touches more generally on how the investments are doing.

  • Increased focus of our quarterly newsletter: The newsletter is ideal to invite the client into the new way of doing things. Here, we believe we can get the client used to the lingo and the principles we put forth. For example, as opposed to a report of what an economist is forecasting for interest rates, we might focus on messages specific to our own work.

    Initiating the conversation

    When we began the transition to an ETF-based model, we felt it would be better received by clients if we communicated the values and principles that motivated the shift. We also wanted our clients to understand how this would be a better value proposition for them.

    Initial client meetings are essential, as noted in the sample letter (see “Opening proposition to clients,” for a letter similar to the one we sent out). And being totally prepared for these meetings is critical. Documents supporting our stance, which we had prepared during earlier and off-site brainstorming sessions, were invaluable to these meetings.

    Remember: Every sale is made before the meeting ever starts.

    Keeping the client involved

    As advisors well know, clients can’t always fully retain what’s explained during one meeting — especially when dealing with concepts of portfolio management, indexes versus active management or fee structures. It takes a few meetings before a concept really sinks in.

    In time, the reasons for the changes themselves can become blurry in the client’s mind. That’s why reinforcement through regular client meetings is essential.

    In addition to portfolio reviews and keeping up with clients’ changing needs, advisors should use client meetings to come back to the core message and reinforce it with any presentation tool they can find or develop on their own. We also suggest a regularly circulated newsletter, which can be a major tool of reinforcement and client education — one that clients can keep referring to between meetings and phone calls.

    Frequent contact also enables the advisor to gauge client reaction to the new way of doing things.

    Sometimes misunderstandings creep in despite our best efforts. Case in point: Several of our clients were under the impression a commission was going to be charged every time we rebalanced or otherwise intervened in their portfolio, when in fact all transaction costs are included in our flat management fee. Simply because of this misunderstanding, what we considered to be a major advantage to the client was in fact perceived by some as a negative.

    If that weren’t enough reason enough to increase communication, consider this: In our particular situation, the timing of the process didn’t play to our favour. As the transition occurred over the period from the end of 2006 through the end of 2007, our clients lived through the financial crisis of 2007 to 2008 with a new and unfamiliar portfolio. Consequently, it wasn’t easy for some to distinguish between the effects of the crisis and the impact of having the new portfolios.

    Explaining client statements

    Once the transition to ETF holdings is complete, additional communication with clients will likely be necessary to quell any new waves of uncertainty that arise. ETFs now make up the majority of our clients’ portfolios. This obviously has an impact on the look of monthly client statements. Imagine an investor opening his or her account statement to read something like:

      iSHARE Univ DEX BND ETF iSHARE Univ DEX Corp BND ETF iSHARE Univ DEX RRB ETF iSHARE CDN REIT ETF Claymore PFD share ETF Vanguard Em Mkt ETF

    Of course, to the client, that’s complete gibberish.

    ETFs have their own nomenclature that most people are still unfamiliar with. So in addition to the market uncertainty of these last few years, we had to walk our clients through all the code names and strange symbols. And advisors with French-speaking clients beware: This process may be even more difficult for you to explain.

    Our response to this problem included the writing of an in-house guide explaining every ETF holding in our portfolios. We sent a copy to all our clients, and then sent it again six months later. And even now, following each client meeting, we ensure the client leaves with yet another copy.

    It may also be a good idea to supplement this with updates in, again, a regular newsletter. Through this medium, advisors can provide additional descriptions and explanations of specific asset categories of their portfolios, and reinforce specific messages. This could include, for example: Explanations of the holdings and the purpose of each of the fixed-income ETFs held; Characteristics of the various classes of fixed-income securities such as government versus corporate, real return versus nominal, or preferred shares versus bonds; and Advantages and disadvantages of holding bond ETFs versus holding bond mutual funds or individual bonds.

    This helps make the client aware of the holdings and thinking behind the code name, while the regular updates make the concept of ETFs more familiar to them.

    But even after all of this, teaching clients how to read the monthly statement is often not enough. They’ll also need some education on what the ETFs actually comprise. For example, we received a panic-stricken phone call from a client one day who was supposed to be invested 85% in fixed-income ETFs. Her confusion stemmed from the actual names of the ETFs she was holding: iShares. If she was invested in fixed income, why the word “Shares” in the name?

    It never even occurred to us that this could lead to confusion.

    As advisors, our business is based on trust. This trust has to be earned and maintained through the reams of information and data from an unending and usually self-interested number of sources, through gyrating emotions, through hope and fear, and through uncertainty.

    The exercise of transitioning to an ETF-based portfolio core stirred up a lot of these elements. And market conditions and the relatively low level of familiarity with these new instruments added to the challenge.

    So yes, the challenges of transparency, education and communication were formidable. But, looking back, it was well worth the effort.

    Communication, reinforcement of values

    Essentially, we see three major components to client communication, in the context of educating them about ETFs: Prior to the transition, advisors need to communicate to clients, in detail, the reasons for adding ETFs to their portfolios, and the core values behind the proposed changes; During the process, frequent reinforcement of these reasons and values is necessary; and Once the transition is complete, advisors need to help clients understand the investments they now hold.

    All this takes time — and constant communication. But in our opinion, it’s worth the investment.

    • Guy Lalonde

    When we made the decision to incorporate ETFs as a core in our advisor business model, we knew the changes we were proposing were major. Clients weren’t yet well versed on the new instruments. They also had to struggle with new nomenclature, a new portfolio structure, transparency of fees and index-based management.

    We realized educating our clients on the proposed changes — and ensuring they received constant reinforcement of the value of the business model — would be essential to our success. Accordingly, we adopted an intense and focused client contact regimen, which included some of the following:

  • Increased frequency of client meetings: From the initial presentation of the new management model to the day the client has developed a good comfort level, face-to-face meetings and telephone contact should be stepped up.

  • Increased e-mail contact: We took to sending out an e-mail to all clients who hold the ETF core portfolios whenever a rebalancing or other change is made to the holdings, explaining what was done and why. We also continue to send out a brief monthly e-mail that touches more generally on how the investments are doing.

  • Increased focus of our quarterly newsletter: The newsletter is ideal to invite the client into the new way of doing things. Here, we believe we can get the client used to the lingo and the principles we put forth. For example, as opposed to a report of what an economist is forecasting for interest rates, we might focus on messages specific to our own work.

    Initiating the conversation

    When we began the transition to an ETF-based model, we felt it would be better received by clients if we communicated the values and principles that motivated the shift. We also wanted our clients to understand how this would be a better value proposition for them.

    Initial client meetings are essential, as noted in the sample letter (see “Opening proposition to clients,” for a letter similar to the one we sent out). And being totally prepared for these meetings is critical. Documents supporting our stance, which we had prepared during earlier and off-site brainstorming sessions, were invaluable to these meetings.

    Remember: Every sale is made before the meeting ever starts.

    Keeping the client involved

    As advisors well know, clients can’t always fully retain what’s explained during one meeting — especially when dealing with concepts of portfolio management, indexes versus active management or fee structures. It takes a few meetings before a concept really sinks in.

    In time, the reasons for the changes themselves can become blurry in the client’s mind. That’s why reinforcement through regular client meetings is essential.

    In addition to portfolio reviews and keeping up with clients’ changing needs, advisors should use client meetings to come back to the core message and reinforce it with any presentation tool they can find or develop on their own. We also suggest a regularly circulated newsletter, which can be a major tool of reinforcement and client education — one that clients can keep referring to between meetings and phone calls.

    Frequent contact also enables the advisor to gauge client reaction to the new way of doing things.

    Sometimes misunderstandings creep in despite our best efforts. Case in point: Several of our clients were under the impression a commission was going to be charged every time we rebalanced or otherwise intervened in their portfolio, when in fact all transaction costs are included in our flat management fee. Simply because of this misunderstanding, what we considered to be a major advantage to the client was in fact perceived by some as a negative.

    If that weren’t enough reason enough to increase communication, consider this: In our particular situation, the timing of the process didn’t play to our favour. As the transition occurred over the period from the end of 2006 through the end of 2007, our clients lived through the financial crisis of 2007 to 2008 with a new and unfamiliar portfolio. Consequently, it wasn’t easy for some to distinguish between the effects of the crisis and the impact of having the new portfolios.

    Explaining client statements

    Once the transition to ETF holdings is complete, additional communication with clients will likely be necessary to quell any new waves of uncertainty that arise. ETFs now make up the majority of our clients’ portfolios. This obviously has an impact on the look of monthly client statements. Imagine an investor opening his or her account statement to read something like:

      iSHARE Univ DEX BND ETF iSHARE Univ DEX Corp BND ETF iSHARE Univ DEX RRB ETF iSHARE CDN REIT ETF Claymore PFD share ETF Vanguard Em Mkt ETF

    Of course, to the client, that’s complete gibberish.

    ETFs have their own nomenclature that most people are still unfamiliar with. So in addition to the market uncertainty of these last few years, we had to walk our clients through all the code names and strange symbols. And advisors with French-speaking clients beware: This process may be even more difficult for you to explain.

    Our response to this problem included the writing of an in-house guide explaining every ETF holding in our portfolios. We sent a copy to all our clients, and then sent it again six months later. And even now, following each client meeting, we ensure the client leaves with yet another copy.

    It may also be a good idea to supplement this with updates in, again, a regular newsletter. Through this medium, advisors can provide additional descriptions and explanations of specific asset categories of their portfolios, and reinforce specific messages. This could include, for example: Explanations of the holdings and the purpose of each of the fixed-income ETFs held; Characteristics of the various classes of fixed-income securities such as government versus corporate, real return versus nominal, or preferred shares versus bonds; and Advantages and disadvantages of holding bond ETFs versus holding bond mutual funds or individual bonds.

    This helps make the client aware of the holdings and thinking behind the code name, while the regular updates make the concept of ETFs more familiar to them.

    But even after all of this, teaching clients how to read the monthly statement is often not enough. They’ll also need some education on what the ETFs actually comprise. For example, we received a panic-stricken phone call from a client one day who was supposed to be invested 85% in fixed-income ETFs. Her confusion stemmed from the actual names of the ETFs she was holding: iShares. If she was invested in fixed income, why the word “Shares” in the name?

    It never even occurred to us that this could lead to confusion.

    As advisors, our business is based on trust. This trust has to be earned and maintained through the reams of information and data from an unending and usually self-interested number of sources, through gyrating emotions, through hope and fear, and through uncertainty.

    The exercise of transitioning to an ETF-based portfolio core stirred up a lot of these elements. And market conditions and the relatively low level of familiarity with these new instruments added to the challenge.

    So yes, the challenges of transparency, education and communication were formidable. But, looking back, it was well worth the effort.

    Communication, reinforcement of values

    Essentially, we see three major components to client communication, in the context of educating them about ETFs: Prior to the transition, advisors need to communicate to clients, in detail, the reasons for adding ETFs to their portfolios, and the core values behind the proposed changes; During the process, frequent reinforcement of these reasons and values is necessary; and Once the transition is complete, advisors need to help clients understand the investments they now hold.

    All this takes time — and constant communication. But in our opinion, it’s worth the investment.

    • When we made the decision to incorporate ETFs as a core in our advisor business model, we knew the changes we were proposing were major. Clients weren’t yet well versed on the new instruments. They also had to struggle with new nomenclature, a new portfolio structure, transparency of fees and index-based management.

    We realized educating our clients on the proposed changes — and ensuring they received constant reinforcement of the value of the business model — would be essential to our success. Accordingly, we adopted an intense and focused client contact regimen, which included some of the following:

  • Increased frequency of client meetings: From the initial presentation of the new management model to the day the client has developed a good comfort level, face-to-face meetings and telephone contact should be stepped up.

  • Increased e-mail contact: We took to sending out an e-mail to all clients who hold the ETF core portfolios whenever a rebalancing or other change is made to the holdings, explaining what was done and why. We also continue to send out a brief monthly e-mail that touches more generally on how the investments are doing.

  • Increased focus of our quarterly newsletter: The newsletter is ideal to invite the client into the new way of doing things. Here, we believe we can get the client used to the lingo and the principles we put forth. For example, as opposed to a report of what an economist is forecasting for interest rates, we might focus on messages specific to our own work.

    Initiating the conversation

    When we began the transition to an ETF-based model, we felt it would be better received by clients if we communicated the values and principles that motivated the shift. We also wanted our clients to understand how this would be a better value proposition for them.

    Initial client meetings are essential, as noted in the sample letter (see “Opening proposition to clients,” for a letter similar to the one we sent out). And being totally prepared for these meetings is critical. Documents supporting our stance, which we had prepared during earlier and off-site brainstorming sessions, were invaluable to these meetings.

    Remember: Every sale is made before the meeting ever starts.

    Keeping the client involved

    As advisors well know, clients can’t always fully retain what’s explained during one meeting — especially when dealing with concepts of portfolio management, indexes versus active management or fee structures. It takes a few meetings before a concept really sinks in.

    In time, the reasons for the changes themselves can become blurry in the client’s mind. That’s why reinforcement through regular client meetings is essential.

    In addition to portfolio reviews and keeping up with clients’ changing needs, advisors should use client meetings to come back to the core message and reinforce it with any presentation tool they can find or develop on their own. We also suggest a regularly circulated newsletter, which can be a major tool of reinforcement and client education — one that clients can keep referring to between meetings and phone calls.

    Frequent contact also enables the advisor to gauge client reaction to the new way of doing things.

    Sometimes misunderstandings creep in despite our best efforts. Case in point: Several of our clients were under the impression a commission was going to be charged every time we rebalanced or otherwise intervened in their portfolio, when in fact all transaction costs are included in our flat management fee. Simply because of this misunderstanding, what we considered to be a major advantage to the client was in fact perceived by some as a negative.

    If that weren’t enough reason enough to increase communication, consider this: In our particular situation, the timing of the process didn’t play to our favour. As the transition occurred over the period from the end of 2006 through the end of 2007, our clients lived through the financial crisis of 2007 to 2008 with a new and unfamiliar portfolio. Consequently, it wasn’t easy for some to distinguish between the effects of the crisis and the impact of having the new portfolios.

    Explaining client statements

    Once the transition to ETF holdings is complete, additional communication with clients will likely be necessary to quell any new waves of uncertainty that arise. ETFs now make up the majority of our clients’ portfolios. This obviously has an impact on the look of monthly client statements. Imagine an investor opening his or her account statement to read something like:

      iSHARE Univ DEX BND ETF iSHARE Univ DEX Corp BND ETF iSHARE Univ DEX RRB ETF iSHARE CDN REIT ETF Claymore PFD share ETF Vanguard Em Mkt ETF

    Of course, to the client, that’s complete gibberish.

    ETFs have their own nomenclature that most people are still unfamiliar with. So in addition to the market uncertainty of these last few years, we had to walk our clients through all the code names and strange symbols. And advisors with French-speaking clients beware: This process may be even more difficult for you to explain.

    Our response to this problem included the writing of an in-house guide explaining every ETF holding in our portfolios. We sent a copy to all our clients, and then sent it again six months later. And even now, following each client meeting, we ensure the client leaves with yet another copy.

    It may also be a good idea to supplement this with updates in, again, a regular newsletter. Through this medium, advisors can provide additional descriptions and explanations of specific asset categories of their portfolios, and reinforce specific messages. This could include, for example: Explanations of the holdings and the purpose of each of the fixed-income ETFs held; Characteristics of the various classes of fixed-income securities such as government versus corporate, real return versus nominal, or preferred shares versus bonds; and Advantages and disadvantages of holding bond ETFs versus holding bond mutual funds or individual bonds.

    This helps make the client aware of the holdings and thinking behind the code name, while the regular updates make the concept of ETFs more familiar to them.

    But even after all of this, teaching clients how to read the monthly statement is often not enough. They’ll also need some education on what the ETFs actually comprise. For example, we received a panic-stricken phone call from a client one day who was supposed to be invested 85% in fixed-income ETFs. Her confusion stemmed from the actual names of the ETFs she was holding: iShares. If she was invested in fixed income, why the word “Shares” in the name?

    It never even occurred to us that this could lead to confusion.

    As advisors, our business is based on trust. This trust has to be earned and maintained through the reams of information and data from an unending and usually self-interested number of sources, through gyrating emotions, through hope and fear, and through uncertainty.

    The exercise of transitioning to an ETF-based portfolio core stirred up a lot of these elements. And market conditions and the relatively low level of familiarity with these new instruments added to the challenge.

    So yes, the challenges of transparency, education and communication were formidable. But, looking back, it was well worth the effort.

    Communication, reinforcement of values

    Essentially, we see three major components to client communication, in the context of educating them about ETFs: Prior to the transition, advisors need to communicate to clients, in detail, the reasons for adding ETFs to their portfolios, and the core values behind the proposed changes; During the process, frequent reinforcement of these reasons and values is necessary; and Once the transition is complete, advisors need to help clients understand the investments they now hold.

    All this takes time — and constant communication. But in our opinion, it’s worth the investment.