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Window on wealth: For advisory firms, transparency is a growing necessity

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Pictured clockwise from left: Keith Aleardi, Clermont; Laurie Peer, RKL; Tom Reese, Conrad Siegel; Tom Terhaar, Conrad Siegel; stock image; Angie Stephenson, ParenteBeard
Pictured clockwise from left: Keith Aleardi, Clermont; Laurie Peer, RKL; Tom Reese, Conrad Siegel; Tom Terhaar, Conrad Siegel; stock image; Angie Stephenson, ParenteBeard - (Photo / )

Every so often, a potential wealth-management client will approach Tom Terhaar or one of his colleagues with a printed-out questionnaire.

These people want to know if their adviser will have a legal obligation to act in their best interests and what kinds of services they can expect for their money, among other aspects of a potential adviser-client relationship.

Not everyone goes to the same lengths to get answers ­— Terhaar, of Conrad Siegel Actuaries, says he has seen would-be clients with questionnaires only a few times. But this spirit of inquisitiveness is indicative of what some experts say is a growing demand for transparency from wealth-management clients.

It’s a trend noted everywhere, from smaller firms to multinational outfits like PricewaterhouseCoopers, which, in a 2016 report, described the call for increased disclosure as the heart of an industry revolution.

“Technology advances and regulatory changes have brought new transparency to the wealth management process,” the PwC report states. “No longer is it acceptable for financial professionals to hold clients at arm’s length and to build trust solely on the notion that the wealth manager is the expert.”

Competitive advantage

Midstate wealth managers are generally quick to point out that transparency is by no means a new value for their firms. Providing clear and up front communication around things like fees and fiduciary duties is not just the right thing to do, they say; it’s a way to get an edge on the competition.

When Terhaar sits down with new clients, he tells them up front how much they can expect to spend in fees. The conversation accomplishes two goals: It builds rapport with the clients, and it lets Terhaar show them how much money they could save by working with him as opposed to a competitor.

PwC predicts that such trust-building steps will prove especially crucial for firms as advisers try to attract millennials and Gen Xers.

These younger people — born between the 1960s and late 1990s — are expected to control more than half of the country’s investable assets by 2020 as they inherit wealth from the baby boomers, according to PwC. And when they do, they may not stick with their parents’ and grandparents’ wealth-management firms.

Some professionals have argued that younger people are warier than their predecessors of the people who handle their money because of the fallout from the Great Recession and high-profile investment scams.

Angie Stephenson, a partner at ParenteBeard Wealth Management, has noticed that more of her clients today — not just younger ones — seem to understand that the economy will not grow as fast as it once did. They no longer feel as secure in their jobs, and many boomers are finding they did not save enough money to retire. These pressures, she said, have pushed them to keep a closer watch on the hands handling their money.

Not everyone has noticed a clear pre-recession/post-recession or baby boomer/millennial divide. Laurie Peer, executive vice president of RKL Wealth Management, says her firm’s advisers still generally lead the conversation with potential clients when it comes to details like fees.

“(Clients) generally ask more questions about our philosophy and our services than they do about the fees in particular. We are generally the party that educates them about their fees,” Peer said. “That’s nothing different in 2017 than it has been for the last 17 years.”

Regulatory talk raising awareness?

The federal government brought the question of investment fees under increased scrutiny when the Obama administration proposed new regulations in 2016.

The Department of Labor’s so-called Fiduciary Rule would have applied to people who provide advice for retirement accounts. Under the rule, these advisers would have to act as fiduciaries, meaning they must make decisions based on their clients’ best interests.

While firms like ParenteBeard, Conrad Siegel and RKL are already fiduciaries, people like broker-dealer representatives, stockbrokers and insurance agents often only have to provide products that are suitable for their clients. That means these types of advisers could potentially offer an investor one type of product over another not because it is the best one for the client, but because it is the one that gives the adviser the best commission.

Rollout of the rule has proven complicated, however, with the Trump administration delaying parts of its implementation. But has all the talk at the national level driven clients to ask more questions about whether their adviser is a fiduciary?

Peer and Stephenson said such questions at their firms have been minimal, at most. Terhaar said several clients have asked him and his colleagues if they are fiduciaries, but it’s still not a question on everyone’s tongue.

Just because individual investors are not using the word “fiduciary” does not mean, though, they do not care about how their adviser is being paid, said Keith Aleardi, chief investment adviser at Clermont Wealth Strategies, which also acts as a fiduciary. Clients might instead ask more broadly about details like fee structures and potential conflicts of interest between an adviser’s pay and the products they recommend.

“People aren’t asking that directly, but it’s important to understand,” Aleardi said.

Tom Reese has heard the question, or at least a variation of it, more than his colleagues. Reese is a partner at Conrad Siegel, and his job includes working with employers to manage their company retirement plans. Employers, especially in the nonprofit and higher education sectors, have been increasingly coming to him with questions about whether they are meeting their fiduciary responsibilities.

Service business

Transparency isn’t the only trait potential clients look for in an adviser. They also want personalized service, several advisers said, as well as the ability to access all of their accounts online.

Fulton Financial-owned Clermont, for example, is working to develop the latter in the form of an online portal that will aggregate all of a client’s financial information — investments, 401(k)s, trust accounts, etc. — into a single portal, Aleardi said.

The project, which the company expects to debut by early next year, is part of a larger trend in the industry toward communication via digital platforms. Clients not only want online statements; they want their adviser to be available to answer questions near-instantly, often via text message or even a video call.

This kind of instant-access technology plays hand-in-hand with the goal of increased transparency. And like transparency, it’s not necessarily a new concept. RKL, Conrad Siegel, ParenteBeard and other firms all have some level of digital communication with their clients.

The extreme end of this technological revolution is the so-called robo-adviser, an automated online financial planner. These tools can prove helpful and affordable for lower net-worth clients in the short term, Aleardi said, but will never replace the people who take the time to build trust with their clients and get to know their individual situations.

Peer noted that the new digital tools have also helped advisers as they look for ways to manage investment portfolios. But in the end, Peer said, the main goal of her job is the same now as it was decades ago.

“We just want to stay in tune with our clients and learn from them what we could be doing better,” she said. “It’s a service business.”

Asking the right questions

So you’re looking for a wealth-management firm. Here are some of the questions the professionals recommend you ask before starting a relationship with a new adviser:

How are you being paid?

Fee-only advisers are paid a more or less flat fee for their services, as opposed to a commission for selling certain kinds of products.

Are you legally obligated to act in my best interest?

Closely related to the “How are you being paid?” question, finding out whether your adviser is a fiduciary can help ensure you understand where your money is going. Fiduciaries are held to a different kind of scrutiny than other types of advisers and have a legal obligation to offer only advice that is in clients’ best interests. Non-fiduciaries like broker-dealer representatives and insurance agents, on the other hand, often receive commissions for the products they sell, creating a potential conflict of interest between the services they offer you and their own need to collect a paycheck. Non-fiduciaries still have their own laws by which they need to abide, but they only legally have to offer you products that are suitable, not ones that are necessarily the best for your situation.

What are your credentials?

While all wealth managers have to pass certain regulatory exams, good ones will go the extra mile to continue their education. Credentials to look for include Certified Financial Planner, Chartered Financial Analyst, Certified Public Accountant, Personal Financial Specialist, Certified Trust and Financial Adviser and Chartered Financial Consultant Professional.

What type of people do you typically serve?

Does this person or firm specialize in executives, business owners, people planning to soon retire or some other segment of the population? Firms also usually have different brackets of services based on the total value of clients’ assets.

What services do you offer?

Services at wealth management firms run the gamut from simple investment help to broader financial planning or even helping with loans or evaluating retirement communities.

Can I speak to some of your existing clients?

Firms should be able to offer references upon request.

What kind of security do you have in place to protect my assets from cyber attacks?

While the financial sector has led the way in safeguarding against cyber risks, making sure your wealth management firm has a plan in place to protect your money is never a bad idea.

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Jennifer Wentz

Jennifer Wentz

Jennifer Wentz covers Lancaster County, York County, financial services, taxation and legal services. Have a tip or question for her? Email her at jwentz@cpbj.com. Follow her on Twitter, @jenni_wentz.

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