What clients want

For the first time since the 2008 meltdown, people have more confidence (84%) in mutual funds than any other type of investment vehicle.

That’s what Craig Worden, senior vice-president for public affairs at Pollara Strategic Insights, revealed at our 2012 Distributors’ Summit.

“Consistent throughout the study was that there are no lightning rods of discontent, [or] cries of concern,” says Worden.

“Mutual fund investors are very satisfied with their advisors, their relationships with them and the information they receive from both advisors and mutual fund companies.” As for the controversial area of commission products and fee structures, more than half (59%) of investors prefer to pay fees that are embedded in a mutual fund, while 33%prefer the unbundled route. That’s because when clients see a fee come out of their account on a quarterly basis, some find it disconcerting.

Turns out, they’d rather see it buried within the product, explains Chris Reynolds, CEO and president of Investment Planning Counsel.

According to Pollara’s research, 60% of advisors have embedded fees and 40% have fee-based platforms. But should advisors be segmenting their fee structures? Absolutely, says Reynolds.

Why clients seek advisors

• To invest for retirement (87%)
• To achieve a better return on money than they could achieve on their own (87%)
• Wanted to buy mutual funds (68%)
• Had just accumulated enough money to start investing (64%)
• To cover future expenses other than retirement (56%)

Source: Pollara Strategic Insights

“You should also have a fee structure designed around the segmentation of your client base, the size of the account, the services that are being provided, and the different fees that are being charged,” he says.

The key to keeping clients happy, regardless of your commission structure, is to be transparent about how you get paid. It’s also a good idea to explain why you think it’s a fair price for the advice you’re providing, and why it makes sense for the client.

Reynolds says there’s a disconnect between the services advisors provide and how they’re compensated. It may seem as if advisors are being paid to sell funds, when in fact they’re providing a variety of services, including financial, estate and tax planning.

“There are all kinds of different services [advisors provide] that seem like they’re being done for free, but that’s not the case,” he explains.

“They’re being compensated through the fee structure, so they must make that very clear. The client should understand exactly what they’re paying for.”

Suzanne Sharma is associate editor at Advisor Group.