On Transparent Fees

If you earn income by arranging investment funds for clients, you must address the MER question. There is a quite a lot of discussion going on, so you clients probably already know part of the story. You don’t know which part yet.

If you are a financial adviser, you should be able to explain where the investment fees go and who gets them. Disclosure has questions though. The key to the distinction between should disclose and should not is a fairly easy one.

From the old days of consulting, I found this note. Should you post the salary list of all the people who work for you on the bulletin board in the lunch room?

Answer. Probably not; but you should not refuse because it would embarrass you.

If it would be embarrassing, the recommendation was always adjust salaries until, if you had to disclose, you would be comfortable with their amounts and could explain your reasoning.

Same thing with fees. If it would embarrass you to disclose then you have a problem and you have the option of dealing with it or risking discovery.

From the client’s side understanding of how much is paid and to whom is important and is part of the perception of fairness.

People see things this way. “What you cannot explain harms me in some unknown way.” Disclosing solves that or at least clarifies the conflicts so you can address them.

The bigger problem now is that, being human, people extend the idea to, “What you do not explain probably harms me in some unknown way.” You cannot deal with this until you disclose.

Truth is as much perception as it is fact, so if you care what others believe, you will need to address transparency. Tell the folks what they get for their money and tell them the costs they incur to avoid the fee.

If that explanation embarrasses you, then you must adjust what you do until it does not.

Transparency will not automatically lead to acceptance of the facts you present. Some will argue with you. That has value too:

  • It will help you clarify your own thinking on what you do and do not do. Hopefully that leads to delivering what clients want. Perhaps a buffet of services they can choose from.
  • It will identify clients who have issues that you cannot deal with and who you are better off without.

In either case, you win. You can be businesslike.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com

Follow on Twitter @DonShaughnessy

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