A pair of articles in the first issue of The Insurance & Investment Journal for 2016 quote studies showing that most consumers want advice about financial and insurance products, and, at least in Canada, prefer to choose the manner in which fees are charged.
Moreover, they have definite preferences for what they seek in the professionals with whom they deal.
A study by marketing company ReMark International found that, for Canadians, the most important selection factors for a financial advisor (based on 2014/2015 statistics) were:
- # 1 = RELATIONSHIP
- # 2 = QUALIFICATIONS
Brand and referral were the next two qualities. Fees ranked no higher than sixth.
For Americans, the assessment was similar, with relationship a slightly lower # 1 and qualifications a slightly higher # 2. Of fourteen countries surveyed, including both developed and less developed economies, on average the pattern was similar.
Interestingly, with respect to selecting a life insurer, price was considered most important in developed countries, whereas brand and customer service were more cogent in emerging markets.
Fewer than 10% of life insurance buyers have been continuing to do this on their own. Of those seeking advice, the advisor’s qualifications were highly important. The report stated: “…customers value the quality of advice, hence the emphasis on advisors’ qualifications… Our research suggests customers want to make an informed decision, but still prefer someone helping them with the (at times, tedious) process…”
Insofar as how Canadians prefer paying for financial advice, the most popular method is via fixed commissions, according to a consumer survey initiated by Advocis, Canada’s Financial Advisors Association. A little more than half of those surveyed indicated a preference to pay for investment advice via 1% fixed commission on the product value. About one-quarter preferred paying a percentage of assets under management, as set by the advisor.
Perhaps the key point was that almost nine out of ten surveyed wanted to determine themselves the type of fees paid to financial professionals.
While almost one-third of participants agreed that the manner of payment to advisors could create a conflict of interest, 91% of respondents believed “my financial advisor has my best interests at heart and puts them ahead of his own financial gain”.
An important effect of proposed banning of third party commissions on investment product sales – which has occurred in the U.K. and Australia – has already emerged. For example, in the U.K., the amount of assets required to engage an advisor has risen, creating an ‘increasing advice gap’.
As the president and chief executive of Advocis put it, “…a ban on commissions…will (cause) a sharp decline in professional advice because those who need it most won’t be able to afford it”.
This looks like another example of potentially unintended consequences.
While Canadian (and U.S.) securities regulators have stated intentions of making transparency paramount for consumers in dealing with financial professionals, they need to be realize that translation of the supposed greater good may undercut what many, if not most, consumers want, and what may continue to be the most efficient way of accessing the advisor services they want to have.