Why being open about fees, performance drives client satisfaction

J.D. Power says most investors are unaware of CRM2 rules

Why being open about fees, performance drives client satisfaction
Steve Randall

It’s been more than a year since the CRM2 rules came into full effect but most Canadian investors are unaware.

The rules governing disclosure’s by wealth management firms relating to portfolio performance and fees are unknown by 79% of investors and of those who have heard of them, almost half have noticed changes in the reporting.

The knowledge gap has been reported by the J.D. Power Full Service Investor Satisfaction Survey released Thursday (Aug. 16) which has also revealed the top firm for investor satisfaction for 2018.

“The low awareness and understanding of CRM2 poses an ongoing challenge and opportunity for firms and financial advisors,” said Mike Foy, Senior Director of the Wealth Management Practice at J.D. Power. “While the industry’s concern that the new fee and performance reporting would trigger an exodus of investors hasn’t materialized, the risk of defections still exists. The study suggests that the best way to address that risk is for advisors to be proactively and regularly discussing fees and performance with their clients, rather than leaving them to figure it out on their own.”

Making clients aware means higher satisfaction
Although they are the minority, those investors who are aware of the changes the disclosure rules, have noticed the changes in reporting, and have had their advisor explain the fees in the past 12 months; are more likely to be satisfied.

They are more likely than overall investors to “completely understand” the fees (55% vs. 32%), more likely to say they “definitely will” remain with their advisor’s firm for the next 1-2 years (58% vs. 46%), and more likely to recommend the firm (53% vs. 37%).

“Advisors continue to be critical of CRM2 achieving goals of greater investor understanding of fees and performance,” Foy said, adding, “and the greater risk for both advisors and firms remains with inaction rather than taking action to engage with clients.”

The top ranking firms
The J.D. Power report shows that overall satisfaction among clients is higher in 2018 than in the previous year.

The overall ranking was 785 (out of 1000) compared to 771 in 2017.

Edward Jones ranks highest in overall satisfaction for a sixth consecutive year, with a score of 799. Assante Wealth Management (796) ranks second, while HollisWealth and National Bank Financial rank third in a tie (794 each).