J.D. Power: Investors Clueless on Suitability vs. Fiduciary Standards

David Lo, director of investment services at J.D. Power and Associates, said of the findings, “While higher levels of satisfaction are generally associated with clients in fiduciary relationships, legislating all advisors to this standard carries an unintended consequence of additional compliance oversight, which could translate into significantly higher costs—likely to ultimately be passed back to investors.”

Lo instead suggested another approach: “Placing more focus on key best practices in client management empowers advisors with more actionable direction and achieves satisfaction levels on par with satisfaction among investors in a fiduciary relationship—844 vs. 841, respectively.”

What are those key best practices? Lo lists, in order of importance, the following:

• Clearly communicating reasons for investment performance
• Clearly explaining how fees are charged
• Proactive advisor contact regarding new products and services or accounts four times in the past 12 months
• Returning client calls/inquiries within the same business day
• Reviewing or developing a strategic plan within the past 12 months
• Providing a written financial plan
• Discussing risk tolerance changes and incorporating into plan where appropriate in the past 12 months.

Lo added, “Proactive outreach from advisors goes a long way in developing the client-advisor relationship, and expectations as far as frequency of contact have increased coming out of the recession. Advisors can meet this increased need by utilizing more nontraditional forms of communication, such as e-mail and the firm’s website, which is much more widely accepted by full-service investors of all ages.”