From the June 2005 issue of Investment Advisor • Subscribe!

June 1, 2005

Advisors' New Role: Matchmaker

As "Am I going to outlive my assets?" becomes the overriding concern of your clients, rather than "How can I grow my assets?" your role will shift from finding the best performing mutual fund to matching client assets to liabilities, according to a number of speakers at the General Membership Meeting of the Investment Company Institute last month in Washington, DC. In a period of low personal savings and low equity returns, the somber consensus is that advisors are going to have to take a new look at active management and guaranteed products in order to increase returns. Inside that job is a responsibility to keep costs low, to avoid losing money for your clients, and to enhance the long-term relationship with those clients. Wholesalers, it was suggested, will become a more valuable source of help in gathering research, education, and marketing.

Future business growth will not come from asset growth, speakers warned: With the newfound focus on IRA rollovers, the issues of distribution and income in a low-return environment will trigger more investors to look for advice, which will require advisors to employ more proactive marketing if they wish to continue to grow.

This change in role from performance to guidance will involve making costs and conflicts of interest more transparent; simplifying paperwork; increasing regulatory costs; and placing a bigger emphasis on relationship-building skills.

If the fee-based model is to continue to fit into the philosophy of lifelong advisory relationships, transparency must become its leading characteristic. Clients are suspicious, more than one speaker said, and the best way to deal with that suspicion is to keep nothing secret. They have the choice of how they pay for advice--whether that is through a fund with A or B shares or a fee-only approach or a managed account with a fee overlay. While they don't ask directly for it, clients want to know you are thinking of their best interests, part of which is keeping them informed.

Being absolutely transparent forces you to put more emphasis on the front end of the conversation and establish a real-life context for the product being used: for example, "If you retire in the next 10 years, you will need $300,000 just for healthcare costs." It removes the tension and potential for distrust--no hiding behind jargon and fine print.--Larry Chambers

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