Marketing The Fiduciary Standard Will Never Work

Thursday, March 17, 2011 15:20
Marketing The Fiduciary Standard Will Never Work


If advisors want to be more successful at attracting new clients, they have to get over their love affair with the fiduciary standard as a marketing advantage. It will not catch on.
I have had my fill of breathless articles about how advisors are missing the boat by not marketing their fiduciary role. It ain't happening. Know why? Because it doesn't work.

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I make a living helping advisors engage their clients in a strategic way; to create a formal feedback process to take the practice where the clients wanted to go. The purpose is to drive referrals and attract new clients. One principal tool I use is the client advisory board. And I have yet to hear a client in that setting ask about the advisor's status as a fiduciary. In fact, despite articles that assume as fact that adhering to the fiduciary standard is a great differentiator in prospects’ minds, every study I have read so far except one indicates that clients are at best confused, and, at worst, assume everyone is held to it already.
And I likely never will. The whole fiduciary argument is a relatively complex legal concept, and most clients don't understand it. It will not work as a marketing proposition for the same reason that mutual funds do not make headlines of their Sharpe ratio.
What clients want to know is "Will you look out for me? Will you put my interests first?" What broker would answer no to those questions? And when it comes to clients with existing relationships, the public's attitude in this arena is similar to their opinion about health care– the system is lousy, but I love my doctor.
Besides, if we are successful at persuading the regulators to make the fiduciary standard uniform across our industry it will, by definition, cease to be a differentiator.
When I work with advisors to customize their practices for their target clients and create a marketing strategy around that, the most common struggle I have is getting advisors to listen to the clients’ ideas and opinions rather than pursuing their own. We believe it's important that everyone be held to a fiduciary standard, but clients think we already do.
I support the fiduciary standard. I worry how the concept will be diluted and distorted when the big brokerage firms start their lobbying in earnest. Fighting for it is a worthy cause. And it has little value in our marketing plans. Like a lot of things we do to maintain our skills as professionals, it is important, and we will get no marketing mileage out of it.
If you want to differentiate yourself from other practitioners, get out of the echo chamber of our own professional community. Find out from your clients what unique things cause them to choose you over everyone else in our business, and build your marketing strategy around that.

Comments (7)

I think it's important to note that while this may be true for individual clients and their considerations, I do not believe it is not true in the retirement plan space because of the inherent reduction of liability associated with shifting fiduciary responsibilites to a fiduciary willing to accept that responsibility in writing.
searcy , March 18, 2011
Steve, by and large, I concur with your findings and/or opinion on this matter. Having said that, and based upon my service in the corporate banking, investment, finance and insurance arenas over the past 38 years, I have found that all too often clients convey their trust to investment advisors, wealth managers, bankers, insurance agent, etc. without first exercising prudent caution. As a RIA, my sole compensation is derived from hourly,project, or retainer fees, and I do not take custody of clients assets. It is only after the prospective client retains my services that they fully appreciate/understand the fiduciary standard. Furthermore, the position from which I speak and operate my RIA permits me to clearly eliminate certain inherent conflicts that arise when one maintains AUM and/or sells commissionable products. Based upon numerous experiences with many well-educated clients, I have found they understand all too well the value of services rendered vs. their cost of obtaining same. And ultimately, the clients decide what type of professional they retain and at what price level they desire to pay for a range of services. In closing, my marketing efforts, to include newspaper advertising, are geared towards addressing the human needs, which trumps the public's general desire for understanding the fiduciary standard until it benefits them personally. Best, RB
rogerb540 , March 18, 2011
RB - I think you have it exactly right. When I do a new advisory board for an advisor, two of the first questions I like to get on the agenda are "Why did you hire this advisor?" and "Why do you stay?" The reasons are usually different. The fiduciary question may well play a part in the answer to the second question, as it sounds like it does in your situation. Our mistake is that it can play a meaningful role in answering the first question. Thanks for your comment!
stephenw585 , March 18, 2011

You may have a point. The retirement plan sale is a more technical one, and the decision makers can be assumed to be more legally sophisticated. I can see how the issue can play more of a role in that marketplace.
stephenw585 , March 18, 2011
Great post, Steve! Your challenge to advisors to "get out of the echo chamber of our own professional community" is a gem.

I agree that it's more important to solicit and act on feedback from clients and to strategically market to target clients. But mentioning in your marketing effort that you are a fiduciary is not a bad idea.

True, you cannot rely on being a fidcuiary to be your main differentiator. But explaining your status as a fiduciary sure can't hurt, and it may do some advisors a lot of good. Look at RB!

RB has adopted the business and compensation model that is truly at the top of the heap when it comes to professionalism--retainer and hourly fees. RB apparently takes no fee based on assets under management. This is a consultant's model. My point is that it has some real marketing advantage because few advisors have embraced this model.

RB's way with words ad ideas--displayed nicely in his comment to you post--makes it a natural for him to market based on the way he fulfills the fiduciary standard. In his case, it truly is a differentiator.

For advisors who are compensated based on AUM, however, the value of marketing based on your fiduciary status is less valuable.

And, as Steve points out, regulatory reform of the fiduciary standard and suitability rules over the next year or two is likely to produce one of two outcomes for the fiduciary standard, either of which will weaken the advantage of marketing your firm based on your embrace of the fiduciary standard.

One possible outcome of the regulatory wrangling is that the standard and rules that apply to RIAs will be based on the Investment Advisers Act of 1940. That is a high standard. If it is adopted and applied to all advisors--registered reps as well as RIAs--as was recommended by the SEC staff in its recent report, then ALL advisors will have to act as fiduciaries and it won't differentiate you anymore to market on that basis.

The other outcome is that the standard gets watered down as part of the political maneuvering that will occur when an SRO is selected to oversee activities of federally-regulated RIAs.

If the standard is watered down, then the standard will have less value and so will marketing based on it.

Strategically choosing niches and engaging people with intelligent content and personalized data about their personal situation is the way to go.

agluck , March 18, 2011
Thanks for the comments, Andy! On point as usual.

One comment - RB's differentiator is how he fulfills the fiduciary standard, not the standard itself. Being able to market an approach totally free of conflicts of interest (which advisors using an AUM model cannot do) is a significant differentiator. He need not bring "fiduciary" into it, and would get no additional benefit from it. Explaining the practical implications of it is what will get the attention of potential clients.

stephenw585 , March 18, 2011
An hourly model is not "totally free of conflicts." The hourly rate must be set. Higher may be better for the advisor. Lower for clients. The advisor is in control over how much time is expended on an engagement. Some advisors are slow. Bills can be padded, etc. If the advisor initiates a call, meeting or project, fees are generated. (Should an adviser or client think twice about initiaing a call to keep the fees down? This may ultimately be a disservice to the client.)

As far as AUM, presumably the client in an hourly model is self managing. Perhaps for some clients having a firewall between the client and their portfolios is a good thing. They might not pull the trigger in a panic attack. Also, advisors might have access to institutional products that subsidize a significant portion of the fees.

Fee-only RIA vs. commission B/D makes much more sense as a dividing line between what's in the best interest of clients than AUM/retainer vs. hourly. IMHO
stvnrsmth , March 21, 2011

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