It’s a phenomenon expected to hit advisors when commission transparency comes in next year and clients decide to divvy up their assets rather than leave it all under one advisor’s control.
CRM2 is undoubtedly going to test the patience of advisors – good and bad alike – when clients look to test the waters after seeing how many dollars they pay in management fees annually.
The fear is they may move to divvy up their assets, keeping a portion with their existing advisor – if only out of loyalty – but moving the rest to a new player, presumably one operating on the fee-based model. They’ll then be able to determine which advisor wins them a higher yield.
That kind of competition and client sharing is increasingly common in the U.S., especially among high-net-worth clients with assets spread across the globe.
Canadian advisors have been largely spared that open and ongoing competition for a client’s confidence.
“Would you accept one-half of a large account and enter into a competitive race with another advisor(s)? I am inclined to say ‘no,’” says Kitchener-Waterloo advisor Glenn Szlagowski. “These situations rarely turn out well and like all races (usually are very short-term) the short-term sprinter may fail to go the distance.
“Investing is a process – not a race.”
However, even if you’re doing an excellent job for clients, there are times when you won’t have total control of their entire portfolio. A possible example is when you manage the equity assets and someone else handles the fixed-income investments leaving you flying partially blind.
When faced with managing only a portion of a client’s assets it’s important that advisors have all of the information about the assets held elsewhere so that you can provide yourself and your client with a complete picture of their financial situation.
In an interview with the Wall Street Journal, Jeff Spears, CEO of San Francisco-based Sanctuary Wealth Services LLC, likens it to helping a friend clean house: “It would be like if you told me, ‘Jeff, I’d like you to go down and clean out my basement, ok? But all you can use is a flashlight as opposed to turning on the whole light in the basement.’ That’s the deal.”
So, in situations where you don’t have the client’s entire investment portfolio – full disclosure is a must.