First you have to start with savvy investors who are using the Internet to find and research financial advisors – however, not all investors are savvy.
In this case, our astute investors’ research will determine which financial advisors they will interview and select.
The Internet is a major game-changer. Investors can use it to find, research, and contact advisors while maintaining their anonymity.And, since investors will be initiating the contact they are free to choose the advisors they want to talk to.
Inbound vs Outbound
From a financial advisor perspective, this process (investors initiate contact) is called Inbound Marketing. This is the opposite of Outbound Marketing tactics that were used by advisors for decades to initiate contact with investors.
There is a quantum difference between brick & mortar marketing (Outbound) and virtual marketing (Inbound).
At the core of this difference is the control of information. In the past, financial advisors controlled all of the information that investors relied on to make their advisor selection decisions. In fact, investors had to talk to advisors to obtain this information, which made Outbound a viable marketing strategy.
The Internet has changed the game by making most of this information available in the public domain - not limited to FINRA (very few investors know FINRA exists).
The bigger change is the content on financial advisor websites and what investors see when they Google search advisor and firm names.
Financial Advisor Websites
The focus of this article is information that resides on financial advisor websites.
The new challenge for financial advisors is what information do they disclose to investors on their websites and what information is deliberately withheld from investors.
At the risk of stating the obvious, you should assume investors are going to visit five or more financial advisor websites before they determine whom they want to contact.
They have access to hundreds of advisor websites by entering a few geo-specific keywords. Their only limitation is the amount of time they want to spend researching financial advisors.
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Top 10 Questions
There is an easy way to determine what information should be disclosed on financial advisor websites. What are the top 10 questions investors ask advisors when they interview you?
Near the top of the list are the questions: “what will your advice and services cost me?” Or, “how are you compensated?” Or, “what is your compensation amount?”
Disclosure, also known as transparency, is epitomized by the information that is disclosed about financial advisor fees and combined expenses – including fees charged by third parties.
There are four distinct website strategies that impact the disclosure of fees:
- Provide no information about fees
- Provide educational content about fees
- Provide limited information about fees
- Provide comprehensive information about fees
The “No Information” Alternative
You can disclose no information on your website that describes how you are compensated or how much you receive.
Your argument is your fees vary by client so you cannot describe the cost of your services until you have more input from a prospective client.
This statement belongs on your website, if you choose not to disclose expenses.
Very few advisors disclose they may also be compensated with commissions – investment or insurance.
This argument is logical, but it may not fly if your competitors are disclosing their fees and other expenses on their websites.
The “Educational Content” Option
A more popular strategy is to educate investors about how you are paid without actually telling them what you receive.
For example, you might make one or more of the following statements:
“I am compensated with an asset-based fee (% of assets).”
“I am compensated with a fee just like you compensate other professionals (CPAs, attorneys) for their specialized knowledge, advice, and services.”
“I am compensated with a fixed or hourly fee for my planning advice and services.”
“I am compensated quarterly in arrears so there are no advance payments.”
The “Limited Information” Option
Another strategy is to disclose your fee, like the Robos and Virtual Advisors, but do not disclose the fees of third party service providers.
In this case you may or may not disclose your full fee schedule. For example:
- 100 bps on the first $1,000,000
- 75 bps on the next $2,000,000
- 50 bps on the next $2,000,000
- 35 bps on amounts over $5,000,000
Instead, you may communicate that your fee schedule starts at 100 bps and declines to 35 basis based on the asset amount that is invested with you.
You may also disclose a minimum fee without disclosing an actual fee schedule. For example, your minimum annual fee is $5,000 the equivalent of 100 bps on $500,000 of assets.
The “Comprehensive” Alternative
The comprehensive alternative is to practice full disclosure for all of the expenses that will be deducted from investors’ assets.
You may decide to use case studies on your website to describe expenses for various scenarios. For example:
- The fee for your advice and services
- The fee charged by the money manager (ETF, mutual fund)
- The fee charged by a custodian (if applicable)
Very few advisors practice this level of transparency for good reason. Their services vary by client consequently their fees vary by client. For example, a client who wants active management will pay a higher fee than a client who wants passive management.
What about the Competition?
Whichever disclosure strategy you select it should be based on what key competitors are doing in your primary markets.
Which strategy are they using to withhold information, educating investors about financial expenses, or providing partial/full disclosure for their expenses?
Based on a 2016 Paladin survey 71% of financial advisors are concerned about the potential for fee compression. They believe the Robos and Virtual Advisors are creating increased awareness about what advisors charge for their advice and services.
Transparency does not create fee compression. However, it will create the need for better value propositions that justify fees and differentiate advisors.
Investors’ Best Interests
There is a good chance you are a financial fiduciary (RIA or IAR). You are obligated to always put investor interests first.
It is hard to rationalize how withholding key information about expenses is in the investors’ best interest.
It stands to reason, withholding expense information, is in the advisor’s best interest so it can be communicated during a sales call.
Withholding this information on websites will be increasingly risky when some financial advisors disclose the information and some choose not to.
Even if you are using the services of a lead generation company you may be impacted by how investors use the Internet to determine whom they meet with.
For example, a lead generation company sends you a referral. It is your responsibility to follow-up to convince the referral to meet with you. Follow-up may be by telephone or email.
The lead generation company also sends information about you to investors. The introduction includes a link to your website. What if the prospect visits your website, but does not have a good experience?
When you call the prospect to schedule an appointment the investor does not take or return your call.
The problem is your website and you may not even know it is having a negative impact on your ability to convert leads into meetings.
Credibility & Trust
The role of website transparency is to create credibility and trust. Trust is the key to convincing investors to give-up their anonymity and initiate contact with you.