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98% Would Change Relationship With Their Financial Advisor

By , January 17th, 2006 | 8 Comments »

Some quite interesting numbers (original press release) from a MyWay Investment Advisors (MWIA – an independent financial planning and investment advisory firm) survey about what wealthy clients (incomes greater than $75,000 and $150,000 to $600,000 in invested assets) think about their financial advisors. This included 98% who said they would change something about the way they work with their financial advisor. On the filp side, only 13% of financial advisors answering the same questions thought they needed to improve how they currently operate. Obviously there is a huge gap in perceptions between consumers and financial advisors.

money in the news

Of those surveyed, not a single person wanted to pay a financial advisor on commission. There has been a lot of discussion in the personal financial blogoshere about commission and flat fee personal finance advisors, but it seems that nobody trusts those advisors on commision.

Over half the people surveyed (56%) are unhappy with their current financial advisor and an additional 23% are not sure how they feel. Again, these numbers don’t reflect well on the industry.

Part of the problem is that the consumers aren’t demanding to know important financial information about how their financial advisor is being paid. Not a single respondent could answer the exact dollar amount in fees they paid their financial advisor or how much their advisor was paid as a dollar amount based on their investment management business in 2005. Respondents also didn’t know if they were working with a broker or a financial advisor (83%) or even what the differences between the two are. They also didn’t know that commissions or compensation was paid to advisors for Variable and Fixed annuities and Certificates of Deposits (82%).

It seems to me that both sides are failing in the system. Consumers should know more about who they are getting advice from and how they are paying their advisor. Financial advisors, on the other hand, need to be better at letting their customers know both how much and how they are getting paid. With such a wide gap in perception between the two sides, it isn’t going to be long before financial advisors have an extremely poor reputation among the general public (or maybe they already do).

I know there are a number of financial advisors that also write in the pf online world. I would be interested to hear their thoughts on this matter.

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  • Interesting survey.

    Brokers, financial advisors, and even fee-only financial planners do not bend over backwards to let clients know how much they charge. The reason for this is simple: clients don’t want to pay anything for advice and most clients would be very surprised if they knew how much a broker got paid on that annuity he talked them into.

    I think commissions are on the way out. More and more brokerage firms are moving towards the fee-based accounts, which are better than commissions but still leave the cleint in the dark as to the total amount that they are paying.

  • rarely right says:

    It’s hard for me to even clear my throat on this subject in less than 10,000 words. I agree and disagree with JLP who makes some thoughtful comments above. The current incentive structure of the retail investment world is almost hopelessly antiquated. There are band-aids on top of band-aids on top of patchwork.

    For many clients, paying commissions will wind up being substantially less expensive than a fee-based account. But, that doesn’t make commissions the right answer. Nor, does it make fee based the answer. In fact, many fee based accounts that i see in the marketplace charge what i consider to be egregious fees that make it nearly impossible for the investor to achieve good results. Having said that, i feel that a fairly priced fee based account is probably the best alternative.

    There really is no easy solution to this question. But, we can take investory of the situation. Many individuals need personal investment advice. No one is going to work as an advisor unless there is an opportunity to make a good income. Start from there and try to figure out a solution.

  • thc says:

    I imagine that at least 98% of people would like to change something about their relationship with their doctor, lawyer and plumber too.

    If this little survey is to be taken seriously then you must agree the solution is to work only with financial professionals with credentials who are bound by a code of ethics and must disclose all pertinent information to clients. Choose a CFP or CFA. (My little soapbox).

    Regarding fee-based platforms vs. commissions, anyone who claims that one is universally superior to the other is just a fool. I wish that all of my clients paid a quarterly, asset-base fee, but for many, that is just not in their best interest.

    As for My Way Investment Advisors, I never heard of them before your post today.

  • trip says:

    I am not in the biz, but I have received commission based advice. It seems there are only three was to pay for advice:

    Commission: % of product sold
    Asset-base fee: as thc states, a flat % of assets per quarter or year
    Hourly-fee advice: pay by the hour advice
    (are there others?)

    To me the least conflict of interest is found in the hourly-fee advice. It also seems to be the hardest way for an advisor to make a living. I understand the conundrum. I think that this issue will largely be fleshed out by the Internet and the sharing of information. The most efficient structure for retail/individual advice will rise permanently to the top in the next few years. Thoughts?

  • Shakey says:

    What is WRONG with making a profit off of the PROFIT that they make us and NOTHING more?

  • sushil says:

    Re: 98% Would Change Relationship With Their Financial Advisor
    … some investors are unhappy with their financial advisors.
    my questions is: why do they stay with their current advisors?
    Is it possible HNW clients who have accumulated capital gains will be saddled with capital gain taxes if they have to sell their investments especially if they are private clients?
    If the clients are in mutual funds why would they transfer those mfunds to another advisor who might ‘advise’ (read pressure) them to buy his choice mfunds?
    Some companies advertise (seek) for HNW clients with a minimum of 1 or 2 million dollars. these clients must have accumulated a considerable amount of capital gains over the last 5, 10, 15, 20 years. how do they manage this capital gains/tax issue if they were to move over (transfer) to another advisor/firm?
    any thoughts on this issue? or have you already written about this issue?


  • Be Capitalism » Carnival of Personal Finance says:

    […] Jeffrey Strain at Personal Finance Advice presents 98% Want To Change Their Financial Advisor Relationaship […]

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