Most-Read Client Retention Story: Wells Fargo Scandal Fallout Ripples Through Industry (May 2)
The Wells Fargo fake accounts scandal was a hot issue in 2017 – one that affected every corner of the wealth management ...
Dateline May 2: Wells Fargo is expanding its class-action settlement to customers wronged by aggressive sales practices, increasing the bank’s tentative payout to $142 million. But it’s not alone among major wirehouses and big brokerages in facing heightened scrutiny about cross-selling financial products and services.
In a new industry survey by compensation consultant Pearl Meyer, 73% of banking executives and board directors report they’re now reviewing “risk and control” policies regarding incentives and pay plans. While mainly looking at retail policies, the study’s authors say it points to wider-scale reviews of compensation plans across financial services.
“The Wells Fargo scandal has created a chain reaction that is spreading across the entire industry,” Laura Hay, a managing director at Pearl Meyer, tells FA-IQ. “Boards are realizing they’re facing wide-scale problems and are starting to challenge the status quo in terms of incentives and compensation plans – the stakes are too high.”
Meanwhile, indie advisors are sensing new opportunities to promote themselves as true fiduciaries. Along those lines, some veteran FAs are expanding their advocacy profiles by highlighting to prospects and new clients their willingness to shop and research a wide range of consumer-related issues.
“The big focus in this industry historically has been on managing investments,” says Roger Ma, founder of indie RIA lifelaidout in New York.
But increasingly with a new generation of clients and greater market competition, other goals with “a more immediate impact on household budgets” are becoming key ways for advisors to separate themselves from the pack, adds Ma, who works mainly on retainer.
For new clients, he starts by breaking down financial planning into two main areas – offense and defense. “Everyone wants to play offense by getting a better job, picking the best funds and growing their overall household revenues,” says Ma. “Playing defense is less sexy and something people just naturally don’t want to do.”
Recently Ma discovered that a couple was spending a large amount on travel and restaurant-related costs. So he compared credit cards that offer rewards points for such expenses. They wound up picking a card that gave them $1,250 worth of upfront bonus points for signing up. It also accumulates points on a regular basis that closely align with their biggest spending categories.
The result, Ma reports: His clients are on pace to net more than $1,500 a year in savings, not counting their one-time signing bonus. Perhaps just as importantly, he says, is that such consumer-related advice is spurring greater discussion between both parties about more traditional ways to save money to build wealth.
Ma doesn’t just restrict his consumer advocacy to credit issues. When New York City recently raised its subway rates, the veteran FA developed a report for his clients modeling optimal usage levels and “breakeven” cost points between buying monthly passes and paying per day.
“I really like doing this sort of shopping and research for my clients – it gives them some practical ideas about how to improve their financial situations right away,” Ma says.
Will Thomas, an indie advisor in Washington, D.C., worked for years at wirehouses. Now he’s a sole practitioner who manages nearly $90 million. “The culture to cross-sell down to the banking channels at Wells Fargo, in particular, pushed me into pursuing a more independent advisory role,” he says.
Constant changes in compensation packages stressing cross-selling revenue also soured him on working at big brokerages. “I just feel so much more free these days to put my clients’ best interests at the forefront of what I do on an everyday basis,” Thomas says.
As a result, he’s putting “front and center” his ability to act as a consumer advocate for investors. “I’m getting people all of the time coming to me because their previous advisor only wanted to talk to them about investing and issues related to assets they help to manage,” Thomas says.
For example, he’s now working with a millennial couple planning to get married and raise a family. Along those lines, he’s helping them scour the housing market for top loan packages. But knowing they want to start having children right away, Thomas is also putting them in touch with articles and real estate pros to help them choose their city’s best school districts.
His advocacy includes shopping for Medicare supplement insurance, comparing long-term care insurance plans and researching different health plans and employee benefits options for small business owners.
“In being my clients’ true consumer advocate, I don’t put any boundaries on what I’ll look into in order to advance their financial agendas,” Thomas says.
Although that can take more time than traditional advising, he says that “since I do it every day, I’ve gotten very efficient at expanding my consumer advocacy.” Thomas adds that he’s developed a "robust professional network" of outside experts to support such work.
“Advisors like to tell people how individualized of an experience they provide,” Thomas says. “But I really wonder how true that is these days – being a great investment advisor doesn’t make you a great consumer advocate for your clients.”
Read the original May 2 article here.