You think your advice is valuable? Prove it

What began 14 years ago with CRM1 is now hitting a crescendo with CRM3. Total cost reporting means that both management and trading expense ratios will be disclosed in black and white to investors — in dollars, not percentages. Advisors will need to show value in a more measurable way for their clients to feel confident they’re worth it.

It’s taken a long time to reach this point. But while CRM3 enhances fee transparency, investors may still see this as a checkbox effort that does the bare minimum. Firms have been forced into this, after all. It will be up to advisors to ensure clients feel that they’re paying a reasonable price for a valuable service.

When clients read those numbers for the first time, several instincts will kick in. The perception of real money will emerge as they compare what else they could have spent $1,000 or $50,000 on. The small-number bias investors experience when they see their fees reported in percentage terms will vanish.

Investors who understand compound interest will start to imagine the value of all those dollars that they paid in investment fees, and how much that would be worth over 10 or 20 years.

Advice beyond investment selection

Simply earning your client a reasonable rate of return may not be enough. There are plenty of low-cost options clients will be tempted to explore. Advisors need to ensure they are offering obvious value beyond investment selection.

Services like tax planning can have a measurable value, especially if the client sees that impact in real dollars on a regular basis. A written financial plan is another way to demonstrate value, provided the client follows it. But if the value of your financial plan is merely investment growth, investors will see that.

Another way financial advisors can show a measurable and nearly immediate value is cash flow and debt management advice. This is not budgeting, which can feel more like torture than value. Instead, it’s actionable, easy-to-follow spending strategies with behaviour in mind.

An effective cash flow plan includes safe-to-spend recommendations and advice on any changes in a client’s current debt structure that could save them significant interest costs. This approach works for most income levels.

The client impact can be even greater than tax planning, especially for those in the mass affluent category. Many people can free up several hundred to a thousand dollars a month or more by changing how they spend money.

They can also save $50,000-plus in debt interest. This type of advice has a clear and verifiable impact on a client within only a few months. By adding cash flow planning and debt management advice to your investment management skills, it can increase your value significantly.

Costs could rise

Total cost reporting will likely increase the complexity of reporting, at least temporarily, which could increase costs. Converting a percentage into a dollar amount shouldn’t have an ongoing cost, but initial changes in processes and statement templates likely will.

The greater expense will be the time advisors and firms put in to prove they add value.

Overall, if your clients’ investment fees are $30,000 this year, simply earning them a return may not be enough to justify your value. Being able to add layers of service and advice that your clients really see is a must.

Advice or services that are more easily measurable and aren’t impacted by the market will be a game changer. CRM3 is an opportunity for those who are willing to let go of how it used to be and lean into advice that goes beyond products.