JD Power report warns that fee transparency could fuel attrition
The old marketing adage is that people buy from or work with those they know, like, and trust. But increasingly they also need to see clear value.
With clients having more options for their investment and wealth management than ever before, a new report from J.D. Power highlights the growing importance of demonstrating value, especially with Canada’s Total Cost Reporting regulations ahead.
Fee transparency is frequently mentioned in investor surveys, but along with TCR raising the stakes, the way younger clients operate presents a risk of rising attrition for those advisors and firms that do not appear to be worth their fees.
The report shows that nearly one third of Millennials who work with an advisor have a second investment relationship. For those with assets of $1 million or more the percentage rises to 44%.
That does not automatically mean that younger clients are poised to jump ship, but one in five Millennials say they are ready to switch along with 13% of the older Gen X respondents. The main reason given is high costs.
The report found that more than half of the advised client experiences were ‘transactional’ which are vulnerable to attrition. Loyalty is already lower for these experiences and fee transparency will exacerbate willingness or desire to switch firms.
TCR will heighten awareness of what clients are being charged, but the answer is not necessarily to try to cut fees, which is often not possible, but to focus on value that goes beyond knowledge and expertise to create deeper, more meaningful relationships through truly personalized advice which shifts from that purely transactional feel.
“Firms must prepare to communicate their value, not just in terms of yields and returns, but also in terms of the broader benefits an advisor offers,” said Craig Martin, executive managing director and global head of wealth and lending intelligence at J.D. Power. “Being proficient in the technical know-how of wealth management is a base requirement, not a point of differentiation. To create client relationships that enable healthy organic growth over time requires a more meaningful connection that many say is missing.”
Deepening the relationship
One area that advisors can prioritize to enhance relationships is written financial plans. The poll shows that 43% of advised respondents do not have a written plan but satisfaction is 107 points higher on the 1,000 point scale for those that do.
The firms that are doing best according to the Canada Full-Service Investor Satisfaction Study are: National Bank Financial with a score of 716, Raymond James is second with 714 and Edward Jones ranks third with 697.
