Bad Messaging Drives Fee Discussions

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Why do many consumers fail to understand the importance of obtaining fiduciary advice, despite its overwhelming value? The answer lies in the fact that traditional brokers are able to compete against fee-only advisors by articulating a simpler, easier to understand message.

A tired story helps make my point. The worn-out fable goes like this: some fee-only clients want to pay off their mortgage, but the advisor faces a monster conflict of interest. Any withdrawal of investments would reduce the advisor’s income, so he’ll (naturally) advise against paying off the mortgage.

That simple story is easy to understand, which explains why it just won’t die. But that simplicity also prescribes a streamlined remedy: Explain and discuss mortgage pros and cons. It’s the client’s money and decision. It’s doubtful any client will be influenced by an advisor’s obvious revenue needs! It’s akin to saying that a commissioned broker will suffer if a client decides not to buy. Lame.

The fee debate rages on

Fee-only advocates proclaim that divorcing sales charges from advice and service keeps their advice more objective.

Traditional brokers argue that sales or trading fees have historical precedent – a hundred years or more – plus a robust industry already serving millions of investors. No need to change what works so well. Besides, no fee scheme eliminates all conflicts of interest.

Both sides have passion. And, based on market share, traditionalists win many of the skirmishes. Part of the reason is that they are well-financed and buy powerful lobbying and advertising. A bigger part is that they own the easier message.