Navigating Change as an RIA – Tips for Prosperity in a Transparent Environment

The investment industry is a client-driven market, which relies heavily on customer satisfaction. Unfortunately, their level of satisfaction is often tied to portfolio performance, much of which depends upon market conditions beyond anyone’s control.

Even though the Department of Labor’s (DOL) Fiduciary Rule was struck down on March 15th, it may “live on” until the outcome of the appeals process is fully known. This means the advisor-client relationship will likely continue to undergo additional transformation when it comes to greater transparency surrounding fee schedules, conflicts of interest, and any upfront fees or commissions, known as a “front-end load.” Despite the uncertainty of what will happen, there are several reasons for why rule-inspired changes can have a very positive effect for Registered Investment Advisors (RIAs), in particular.

RIAs are Ahead of the Crowd

The fiduciary duty required by the Rule impacts the entire spectrum of financial professionals with clients, but acting as a fiduciary is old-hat for most RIAs. It’s simply a part of the way they do business as usual. Their experience provides them with a better understanding on how to approach transparency and clarity with clients, as it relates to fees. While other professionals may struggle with this concept, the change may have little to no impact on most advisors—giving them an immediate head start.

Embrace the No-Load Investment Options

The complexity of the different types of loads attached to different investments is part of what led to the Fiduciary Rule. Historically, many investors have remained oblivious to whether or not their investments carried a load. With the increase in transparency that is occurring, it is not difficult to foresee a corresponding increase in their popularity, especially with those investors that take an active role in educating themselves on all of their options. By embracing this change in consumer preference, RIAs may be in a better position to maintain high customer satisfaction levels. This is a key strategy for offsetting any lost income from a decrease in loaded investments.    

Focus on Referrals

When RIAs approach their business model by prioritizing customer satisfaction, it naturally leads to a very satisfied clientele base. While their repeat business is quite important, satisfied customers also usually provide another huge benefit. They become a source for referrals, which is the most effective way to attract new clients, especially ones with greater affluence.

Assign Value to Knowledge and Experience

The increase in popularity of no-load investment options will likely induce a reduction in income for some RIAs, which will need to be mitigated. The best way to do this is to help investors tie compensation rates to the value of advice, rather than on transactions. The emphasis has historically been on portfolio performance, and this is still a very important component, but clients need to understand that they are paying for insight and experience—the same way most other professional services are compensated.

Overall, RIAs are in a better position for achieving transparency while maintaining, or increasing, customer satisfaction. For many, accepting this change may be the hardest part, but once that happens, the rest can fall into place, and many will realize this is a better long-term business model.

 

 

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