Final Words: Advisors share their insights

In these Final Words, we feature some of the verbatim responses from our 2009 survey in which advisors talk about what it takes to explain compensation to clients, what topics the people they face across a desk every day are bringing up, and what they’re doing to prepare people for the transition into retirement.

Compensation Disclosure

Disclosure regarding how we’re compensated is part of the engagement agreement that’s reviewed and signed by my clients and me when they agree to work with us. If someone chooses not to complete the engagement agreement then our relationship effectively ends. If they have been directed or assigned to us for servicing because a previous representative is no longer around, then I will only respond to their inquiries and service the existing business – I will not provide other advice or solutions without the completed engagement agreement.

We go over the document when it’s presented to the client and I give some examples pertaining to the account they are setting up and the amount they are investing. I’m never 100% sure they understand it completely.

We try to ensure every client actually reads it before signing it, we provide them a copy for their files, and I happily answer questions about compensation. I also spend time reminding clients how mutual funds work and who pays for what.

We go through the document together and I ask clients questions to evaluate how well they understand.

We work with clients on a fee basis, so we review the fee agreement and have them sign prior to opening any new accounts. This allows us to clearly articulate how we are paid, the percentage they are paying, and what services are covered under that fee arrangement.

Client Concerns

Job Loss and the associated ability to provide income and pay debt and ongoing expenses remains, absolutely, the Number One issue.

There is a high level of interest in scams, frauds, and unregulated investment schemes such as real estate and offshore investing. People are asking if the government is doing its job to protect investors. Regulators are seen as unable to protect the general public from the bad guys.

There’s a general sense of uncertainty about how long the current recovery will last. People are still timid. My main challenge is convincing clients not to pull out of equities once they reach parity.

Market volatility and the appropriateness of their current asset mix considering their target retirement date remains top of mind. Many clients who thought they were comfortable with a more aggressive mix are reconsidering that in light of the substantial correction experienced in the last year, and we are running many retirement projections to factor in a lower real rate of return to establish the level of wiggle room.

Media noise is a huge concern. Clients want reassurance that they are doing the right thing, and they want reassurance that they are working with someone who can make sense of the information overload, and watch out for their best interests.

My clients want to understand financial matters so they enjoy my course in financial literacy. Then, they want to know who to see and who to trust to offer them services they need, so I connect them with professionals in my network who will be a good personal fit for the client. I take no compensation from my network for these referrals.

Tax minimization has been top of mind, especially in light of recent market conditions, as it’s among the best ways to improve cash flows and balance sheets.

Clients are worried about future market returns, and whether they are too exposed to equities – which most of them aren’t. These concerns largely stem from newspapers they’ve read or shows they’ve watched, so all I have to do is explain that we have a good plan and there isn’t a lot of need to adjust it.

Clients are concerned about MERs and other costs related to investing. And they want to know how they can invest without risk.

Preparing Clients for Retirement

All of our pre-retirement planning begins with this scenario: “You are now retired and do not have to go to work. What will you do today?” It’s essential that a client see retirement as a desirable goal, or there is no commitment.

I let them know the importance of transitioning well, and that this is a grieving period because of changes in routines and loss of work friends. I caution them against making too many changes and help assure them they have a known rate of return from instruments like GICs and annuities.

Many clients are unprepared for the psychological impact of actually retiring: the extra time, lack of structure, lack of social interaction and positive reinforcement they were experiencing at work.

It’s a vision process. If they can picture their retirement, they are more likely to buy into the planning.