In most businesses, it’s critical to first identify what clients want and then deliver those desired services to the clients.
I believe that certain firms in the Financial Services industry have not offered the necessary services and tools that clients desire. The following five attributes enhance the relationship between the client and advisor, and allow the advisor to deliver maximum value. While there are dozens of value propositions an advisor strives to offer, I have identified the five that I think will be critical in the future.
It is prudent for clients to consider the following when working with an Advisor.
- Has your advisor gone beyond the minimum requirement of passing a couple of basic tests, and pursued higher education in the form of a Designation or MBA?
Obtaining a designation or advanced degree shows that your advisor takes his craft seriously. The Advisor took time out of his schedule to increase his knowledge with the intention of leveraging what he has learned to benefit clients.
2. How is your advisor compensated? Fee based or Commissioned?
Investors engage with an advisor hoping the advisor is incentivized in a manner to help them successfully work towards their goals.
In my opinion, the best way to ensure that the client and advisor are aligned “on the same side of the table” is in a fee based relationship. In this type of model, the Advisor strives to help clients grow assets in a bull market, and to prevent steep declines in a bear market.
A fee based compensation arrangement increases the odds of the Advisor staying engaged with the client and offering a high level of service.
3. Can your advisor provide accurate performance reporting tools at your semi- annual/annual meetings?
Investors deserve to know the performance of their portfolios. There are plenty of Performance Reporting Tools available, and it’s important that a Financial Advisor delivers accurate performance data.
Performance reports should be in the form of charts or directly stating what the Performance is net of fees.
4. Goal based Planning?
It is critical for Financial Advisors to learn about clients’ goals and risk tolerance prior to executing an investment plan. Every client is unique. Advisors can help plan for specific goals such as college education or retirement rather than investing to target an arbitrary return.
Even those in retirement should have a plan. As many people are living longer, and interest rates pay less than inflation, it’s critical retirees plan so they don’t outlive their money. In contrast, I have gone through a plan with retirees to discover they can actually afford to increase portfolio withdraws and spend more money.
Leveraging a financial planning tool that can run reports that project expenses, inflation, and investment returns into the future is critical. These types of plans can be used to give the client more confidence as she works towards her goals. If not on track, the advisor can make recommendations such as working longer, or saving more. These suggestions are made to increase the odds of the client working successfully towards her goal.
5. Access to Alternative Investments?
Based on low yields and higher stock valuations, I believe that incorporating Alternative Investments into a traditional stock and bond portfolio will be beneficial to certain clients. Alternative Investments are usually used with the intention of targeting better risk adjusted returns. An advantage of some Alternative Investments is low correlation to stocks and bonds.
Not every investor requires Alternative Investments, but it will be important for an advisor to have access to certain Alternatives and understand which clients should be investing in them.
In conclusion, Snyder Asset Management stresses the five value propositions mentioned above. Obtaining higher education in the form of the CFA designation and managing portfolios primarily in a fee based relationship have both been cornerstones of my practice. LPL Financial supports advisors by offering excellent Performance Reporting and Financial Planning Tools. LPL Financial understands the importance of Alternatives, and gives advisors access to a wide array of different Alternative Investments.
Philip B. Snyder, CFA