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MAR
31
Is Cheaper Always Better?

It's with no small degree of amusement that I've been reading CEOs trading barbs with each other over robo advisor costs, cash positions and authenticity. Who provides the best deal in the do-it-yourself world for the financially unsophisticated consumer seems to be a very hot topic.  

A seemingly unrelated article the other day basically asked if Independent Broker-Dealer advisors were really cut out to be fiduciaries. Could they, should they? Can they? Will they?

 Fidelity and Vanguard's direct to consumer platforms are big potential threats as well. These firms' lower pricing alone could be an important and appealing factor to some people. Risk management along with litigation and settlements are a hugely expensive cost to all BDs, and ones that the wire houses try desperately to keep in check. This is what underlies their staunch opposition to a uniform fiduciary standard. Robo advisors do not incur these costs, and their business models sure looks enviable to most of us.  The contrast right now is stark. One large robo advisor investment firm has the same assets under management as my team of advisors at my firm!

Advisors who earn their fees by providing more than just simple asset allocation based on a series of questions will always have a growing client base. But it is not enough to stop there. Only when clients' interest come before our own will the fast moving and attention grabbing robo advisor beast be tamed. Until all financial advisors are fiduciaries many will be targeted expendable "has beens" who will perish. 

Robo advisor firms have sophisticated marketing communications strategies and the creative muscle to get in front of their clients. Have you put a client communication strategy in place?  Surveys conducted among high net worth and ultra high net worth clients indicate that costs are not a factor in determine whether to use the services of a financial advisor. They understand what and why they are paying you.    I urge my team of financial advisors to keep in constant contact with their clients - go beyond the basics; provide them with education and information.

 Costs are relative. I shudder when I see underperforming mutual funds with sky high expenses, and overlay managers who cost more than the "alpha" they "add". The truth is that people get it wrong all the time. We know that clients want to bail every time there is a major (or minor) downturn in the markets. Stats prove that few if any investors get the fabulous performance they "buy" with 5 star mutual funds. 

A true cost of working with an advisor is fairly easy to calculate in terms of real returns and real dollars. Your guidance and support is priceless. Let's make sure every one of your clients knows this!  

 



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 Securities offered through Royal Alliance Associates, Inc., member FINRA/SIPC. Advisory services offered through Affiliated Advisors, Inc. Insurance offered through Rita Robbins & Associates, Inc. Entities listed are not affiliated.


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