One advisor is already meeting with an increasing number of clients seeking a second opinion and suggests the threat of CRM2 full disclosure is anything but overblown.
“I think that investors are going to be in for a pretty big shock when CRM 2 is launched, and they see in dollars how much they are paying,” Paul Shelestowsky, a fee-based advisor, told WP. “It is surprising how many second opinions I do for prospective clients and when I ask them about their purchase method or fees paid, they have no idea what I’m talking about.”
His comments come as the industry ramps up its preparation for CRM2, with FundSERV Inc., the latest player to announce network upgrades to support implementation of new disclosure rules.
But whether advisors themselves are doing enough to prepare their clients for the sticker shock associated with a complete transparency around fees is another question.
While the implementation of CRM2 regulations will lay bare the dollars earned by advisors for providing financial advice, the new regs will also heighten the ongoing battle between fee-based advisors and commission-based players.
The latter make the argument that their compensations structure actually works to protect investors’ access to financial advice, at least for those who might see their costs increase under a percentage-of-assets compensation model.
That messaging is something embedded-commission guys may have to better communicate to clients, suggests Shelestowsky, if they want to stem any future losses due to full disclosure.
“There are a lot of investors that don’t know how much their MERs are, how much trailer the advisor’s getting, how much the fund company is getting, whether or not they bought the investment DSC, low load or front end; if it was front end, what was the fee? A lot of investors don’t even have the first clue,” he said.
Advisors who are up front about MERs, he said, “and can relate that expense to values the advisor and fund company are bringing to the table will benefit from the advisors who lose accounts because they have not been up front about expenses.”