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How CRM2 can strengthen relationships with clients

As long as lines of communication are kept open, new disclosure rules can help clients understand the value of financial advice


Date: December 12, 2016

Investors will be getting a clearer picture of the cost of their investments in the new year as a result of new disclosure rules, which will also give advisors a chance to drive home the value of the services they provide.

The new rules called Client Relationship Model – Phase 2 (CRM2) are meant to increase transparency around the fees investors pay firms or advisors to service their portfolios, and how well those portfolios perform.

It’s a change some observers have warned may cause questions for investors, but most experts suggest it will help pave the way for increased honesty and transparency in client-advisor relationships.

“Clients value advice from advisors, but they’ll want more information about what they pay for their investments, and how those investments are performing,” says Rocco Taglioni, senior vice-president, head of distribution, individual insurance and wealth with Sun Life Financial.

“Advisors who put their clients’ interests before their own will have a head start, since they’re already establishing strong and trusted relationships with their clients,” he says.

According to Chuck Grace, an industry expert and finance lecturer at Western University’s Ivey Business School, CRM2 is a part of a worldwide trend to bring more transparency to investors following the 2008 financial crisis.

“A lot of people were scared and questioned whether they were in the right investments given what had just happened, and because of the lack of transparency, they didn’t know,” says Mr. Grace. “Investors and clients have every right to make informed decisions, and when you bring transparency to those interactions with advisors, you get informed decisions.”

Many financial professionals have been preparing clients for these changes for the last two years. The new fee transparency has also been covered in the media, so most investors shouldn’t be surprised when they open their annual account statements early in the new year, he adds.

But while a lot of the preparation for CRM2 has already happened, Mr. Taglioni says it’s crucial to keep lines of communication open as these latest amendments roll out.

It will be key for clients to be aware of how much they’re paying for their investments, and how the different terms and costs on their statements break down into categories such as trailing commissions, transaction fees, operating charges and taxes paid. They should understand the value of the various services an advisor may offer them.

It’s also a good idea to help them understand how a firm’s fees compare to the rest of the industry.

“Many clients may think they’re paying too much for the cost of advice,” says Mr. Taglioni. “Understanding all the costs clients pay is very important; when they know how much they’re paying, they’ll have key information to help them compare the total of these costs to the value they’re receiving.”

It’s especially important for advisors to highlight that value in the face of technological advancements like robo-advisors and other online platforms that promise to help investors manage their portfolios with little human help.

Technology can be used to help build and maintain a relationship with clients, notes Mr. Taglioni. For example, email can be used to send material to clients before face-to-face meetings or stay in touch if a major world event causes market values to fall drastically.

But he notes that technology can never fully replace the value of a holistic, person-to-person approach.

“Clients are more than an investment portfolio – they have dreams for their children’s education and their retirement, they have major life events that require a unique plan that meets their needs,” says Mr. Taglioni.

“Self-investors may be tempted to time the market … and some robo-advisors could automatically sell quality investments in a down market, rather than riding out the storm.”

As long as advisors explain the reasons behind the fees and keep lines of communication open, the new disclosure rules could strengthen relationships between advisors and clients by making everyone’s roles and contributions clear, says Mr. Taglioni.

“The value of advisors’ advice has never been more important.”

Advisor SunLife


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