Updated Thursday, July 31, 2014 as of 5:31 AM ET
Practice - Practice Management
Why Fee Transparency Is a Must
Monday, July 7, 2014
Partner Insights

It may not be the conventional wisdom, but a client made more aware of fees or commission payments is a more loyal client, according to Jeff Wildes. “You can overpay whether you are paying fees or commissions,” Wildes of Wildes Financial Strategies tells existing and prospective clients.

At his Georgetown, S.C., firm, an independent affiliate of Raymond James Financial Services, which manages nearly $70 million in assets, Wildes says he spends at least 10 to 15 minutes explaining to each of his clients how they will pay for his services. “When you are open and upfront and tell them how they pay for services, people appreciate the honesty,” Wildes says.

These sentiments reflect a growing view among advisors, according to a 2014 survey by the CFA Institute of its members. Rather than ban all commissions, survey participants said they prefer that regulators impose rules regarding fee transparency.

Wildes believes clients appreciate transparency and also like having a choice between fee- and commission-based payments for services.

Most of his clients opt for a fee-based relationship after his explanations. But Wildes doesn’t assume that is the way they should go. Instead, he tells the clients the advantages of both approaches and encourages them to consider what he calls the “behavioral aspect” of their situation. By that, Wildes means the clients need to match their personality type with the way the plan to pay for his services.

Some clients resist rebalancing their portfolio when necessary if they know a cost will come with every transaction. For those types—most of his clients—an annual percentage fee means they won’t need to conquer their concerns about transactional fees when their portfolios needs rebalancing. An annual fee also gives clients access to institutional share classes that will help offset the fees, Wildes says.

But when talking to new clients, Wildes also details advantages of paying on a commission basis, particularly if they have a portfolio for which he expects to engage in little trading.

Prospective clients often enter his office gun shy about commission compensation. They repeat warnings they have heard in the mass media about advisors who charge commissions just to bump up their own compensation and execute trades that do their clients’ portfolios no good. But when clients intend to buy and hold a large position in, say, bonds and blue chip stock, commission-based compensation is the least expensive way for them to invest, Wildes explains.

His clients, “appreciate being able to have a choice and some don't know all that means and they appreciate having someone help them make the right decisions,” Wildes says.

Miriam Rozen, a Financial Planning contributing writer, is a staff reporter at Texas Lawyer in Dallas.

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(1) Comment
Have the client look in (at through) the prospectus....and there are the fees. Do clients query their accountant...their attorney....their attending physician about fees?

not nearly as much as the DOL, FINRA, and the SEC have not focused there (yet)

Posted by Colin S | Monday, July 07 2014 at 3:49PM ET
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