Financial advice: the view from America
At last, it’s clients to the fore in the US financial advice sector.
The Australian wealth management industry differs in many ways from that of the US, but the two countries hold in common a single, urgent mission: improving consumer access to informed, unconflicted financial guidance.
Barron’s magazine, which in partnership with The Australian created this fourth annual ranking of Australian financial advisers, has tracked and rated America’s best advisers for 17 years. For most of that time, American financial advice has exhibited a split personality, with one part of the industry compelled by law to put their clients’ needs first and another part required only to place clients in “suitable” investments.
This imperfect situation is well on its way to changing.
As in Australia, a strong regulatory push in the US is altering the way financial advice is delivered. Regulation BI, for “best interest”, is wending its way through legal challenges that could delay its implementation at the end of this month. Regardless of when it is formally enacted, the rule already has had the effect of snapping clients and advisers to attention on the matter of best interest.
In short, Americans are awakening to an incredulous and legitimate question: “You mean all financial advisers have NOT been required to act in my best interest?”
With that genie out of the bottle, the industry has begun what many believe to be an inexorable march towards more client-centric service by advisers. The most obvious manifestation of this movement will be more advisers using investments that are not just suitable to a client’s risk appetite but that also exhibit the best combination of quality and price.
In full: The List - Australia’s 100 Top Financial Advisers
Even as the specifics of Reg BI’s future remain cloudy, other forces will compel change among financial advisers. Primary among them is a rising tide of educated consumers who require of their advisers a high level of service and integrity. Unsurprisingly, this same dynamic is also playing out in Australia.
“Financial services in the US and Australia have one primary similarity: advisers being challenged and regulated to act in the best interest of their clients,” says Ray Sclafani, founder and chief executive of ClientWise, a US consulting company that provides coaching services in the US and Australia. “New fiduciary standards are forcing every adviser to become more transparent and clear about their value proposition, their fees and the deliverables their clients expect to receive.”
The characteristics of a good advisory practice are more or less universal, says Sclafani. Here are some of the most important ones to look for when establishing a new relationship with a financial adviser:
NO CONFLICTS OF INTEREST
Ask your adviser to disclose and describe any income streams that come from sources other than serving advisory clients. Ask for details about how any of those might affect fees charged to you or decisions made on your investments.
A STRUCTURE BUILT TO LAST
The best advisers work in teams, and the best teams tend to be demographically and generationally diverse. The goal is to find an adviser “committed to building an enduring firm, designed to serve clients multi-generationally”, says Sclafani. Ask the adviser about a succession plan — who would take the reins if they could no longer run the business? Also ask about the roles various team members play and how decisions are made. Ideally team members have complementary skills that can bring alternative perspectives to the decisions affecting clients and their investments.
A CLEAR VALUE PROPOSITION
A good adviser should be able to articulate what will be delivered in exchange for what fee and why the cost is justified. Ask for specifics about their compensation structure and about measures of success and the value you should expect to receive.
“Advisers committed to full transparency, comprehensive planning and serving clients for a lifetime are the ones acting in your very best interest,” says Sclafani.
The good news for consumers in the US and Australia is that financial advisers are under increasing pressure to serve clients better. It’s a trend that many regard as too long in the making in both countries, but now that it’s in full swing, consumers have more power than ever to find good financial guidance.
Matt Barthel is executive editor, Dow Jones Wealth and Asset Management group.
