EDITORIAL: DON’T LEAVE CLIENTS IN THE DARK OVER COSTS
The guiding ethic for all financial advisers should be: Serve the client’s interests first, and always do what’s…
The guiding ethic for all financial advisers should be: Serve the client’s interests first, and always do what’s best for the client in the long term.
If financial planners and advisers follow that ethic, they will prosper in the long run — and so will the financial services industry. If they do not, they may well lose their clients, and they most certainly will be burdened by more regulation from federal and state governments.
Unfortunately, too many advisers and other financial services providers haven’t yet accepted that simple message.
A case in point:
Advisers know that individual investors often can get lower trading costs from electronic services run by E*Trade, Ameritrade, DLJ Direct and others — lower than what the advisers are paying on behalf of their clients.
Yet many advisers apparently are making no effort to win lower trading costs for their clients, and many keep their clients in the dark about these higher transaction costs by burying them in all-inclusive fees.
Why the inaction and silence?
Some advisers clearly are protecting their own backsides. They don’t want to rock the boat by challenging their clearing brokers.
Others are just too lazy to challenge the status quo.
Others truly believe they get services from the clearing brokers that benefit the clients and justify the higher transaction costs.
The first two groups are breaching their fiduciary duty. The last-mentioned group may have a point, but if so, why not make the case to the clients?
Break out for the clients the trading costs. Explain to the clients what services are received in return from the brokerages that make those higher trading costs worth bearing. Let the clients decide if they are in fact justified.
A sound long-term relationship is based on trust. A client must be able to count on the adviser in all matters, including such things as trading costs.
Likewise, the adviser must respect the client, and show that trust by revealing all the pertinent information affecting his or her acco
unt.
Unfortunately, some advisers clearly don’t trust their clients.
As the electronic trading cost issue shows, some advisers don’t deserve their clients’ trust.
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