Industry insider explains how money managers can prove their value to dubious clients
Fees have hit rock bottom thanks to Fidelity but good advisors will always have the ammunition to prove their value, according to an industry veteran.
The US division of the investment giants this month launched two index-tracking mutual funds at 0% expense ratio, winning the race to the bottom and sending shockwaves through the profession.
Rob McClelland, founder and president of The McClelland Financial Group of Assante Capital Management Ltd, believes a segment of the investor market will be enticed by low fees and the mistaken belief they can do it solo.
“But they are the very person that needs me the most because they are the very person that wants to deviate from the plan,” he said. “It’s like Noah’s Ark, you can’t save everyone.”
Fidelity’s aggressive strategy, said McClelland, is not so much about investors getting something for free but more the firm asset gathering, increasing its ability to attract investors to its whole fund line-up.
No one does anything for free, he said, adding that there are other ways for Fidelity to make money on those funds through cash balances, security lending and trading costs.
Plummeting fees also have a knock-on effect on the industry, with clients now increasingly inclined to question the value of an advisor. McClelland said he is asked more regularly whether he will lower his charges given the extra competition.
He said: “My response is no, we’re increasing our value. We’re making sure we use those funds that we know provide great value for the price they charge and you’ll pay that price. And in terms of what we’re doing, because we’re fee based, we’ll charge what we believe we provide in terms of value.
“It’s always a tough one because the real value that a financial advisor provides you is lumpy. It never happens year by year even though you pay the fee year by year. It happens when you prevent a client from making a 10% or 12% or 20% mistake. That’s where you earn your keep.”
He said: “We go back and say, remember a year and half ago, you were worried about the US, or you wanted to get out of all US equities and we talked you out of it, well here’s why. There is always ammunition you can use to defend your position to why you create the fees you do.
“Everyone thinks that the US and Trump market is going to be poor but that hasn’t worked out, or that bonds are guaranteed to lose money because interest rates are moving up. They haven’t been great but they haven’t lost money.
“So there are always opportunities to explain the value you provide as an advisor, and a big part of what we do is behaviour management.”