The personal approach

Efficiency isn’t the driving force for Brian Himmelman when it comes to contacting clients about Phase 2 of the client relationship model (CRM2) and what it will mean for them. The process needs to be effective, and that means outreach must be personal, says Himmelman, president of Himmelman & Associates Financial Advisors Inc. in Halifax, who is a certified financial planner. “It can’t just be a white paper or a mass email campaign. It’s a very personal thing. It requires being on the ground, being in front of people.”

The need for one-on-one conversations reflects both the personal relationships advisors have built with their clients and the magnitude of the shift that is happening. “It’s all about transparency; it’s not about rule changes,” says Himmelman. “This is major. It’s truly going to change the way we do business with people.”

Clients need to be informed of the specific changes and the context in which these are happening under CRM2. Connecting with clients is, of course, standard operating procedure for advisors, but the nature of the conversations will change. “We’ve always been catalysts to make things happen. That is sales,” notes Himmelman, who has been an advisor for more than 20 years. “The movement [now] is to more of a profession. I applaud it.”

For Himmelman, the key to conversational success lies in shifting the focus from fees to what clients get in return for those fees. “It’s all about affordability,” he says. “You need to articulate the value [clients] get for the money.”

That may not be easy. The discussion still will be about what clients must pay for a service, a payment that is not new but which often has been invisible to them. The conversation is made more difficult when prevailing market conditions are rocky or some returns are low for reasons mostly outside an advisor’s control, such as the current, very low interest rates: “These are trickier conversations,” says Himmelman.

Timing also is an issue. Most clients are not aware of CRM2, why it exists or how it is being phased in. They are both surprised by the conversation and cautious about why they are being told this now, says Himmelman: “They are trying to understand why this is being imposed.”

In answering those questions, objectivity and balance are essential. Distancing yourself from the regulators or the need for enhanced transparency does a disservice to the advisory profession as a whole, as well as your own professional reputation, Himmelman believes. “You need to be careful not to paint the industry and competitors as unethical,” he says. “I take the position that the majority of people are acting appropriately. I talk about the industry and my competitors this way.”

Frankness also is important. Information should be presented in a way that is both transparent and accountable, the foundation upon which CRM2 is built. Take, for example, the issue of fees and how these are explained to clients. “Percentages aren’t perceived as real money,” says Himmelman. “Telling someone they paid $2,800 in fees last year is far more meaningful.”

This disclosure also can be startling, especially if the conversation is a first. Himmelman, who has approximately $80 million in assets under management, relies on a pie chart that shows how a client’s costs are used to run the advisory firm’s office and provide services to clients. The breakdown includes such items as staff compensation, compliance costs and monthly rent. “They need to know I’m getting 40 cents on the dollar; not the full dollar,” says Himmelman. “It is about painting the full picture.”

Himmelman uses a six-step process with each client that builds the relationship and the client’s insight into the financial planning process over time. It includes preparing written recommendations and producing a written financial plan.

When clients can see both the forest and the trees, they are better able to appreciate their advisor’s role and to make informed decisions. “It is really a simple model,” says Himmelman. “The better the information for the client, the more they understand. Then they can understand clearly where they are getting value. If they are not getting value, they can go elsewhere.”

For a certain group of clients, those in the larger investment brackets, the information that advisors such as Himmelman sit down to share ultimately will be neither very surprising nor completely unexpected. “Most mid-level and above investors would understand this,” says Himmelman. However, he adds, he is concerned that the new disclosure rules under CRM2 may deter entry-level investors: “My fear is that the information may be misunderstood. It could potentially hurt them.”

There is concern that with the focus on fees, the extent or the amount of payment to an advisor will become the issue rather than the advantages of investing and the most appropriate investment options. As a result, clients, especially those with fewer investible assets, may opt to look for alternatives, which could be less secure or appropriate, or may decide not to invest at all. This concern is amplified by negative media coverage of the “big, bad” investment industry, says Himmelman: “This may deter people from being proactive and seeking investment help.”

That concern is exacerbated by two factors: the cost of informing clients and the potential demand for discounts. The former is a fact of doing business the correct way, but such disclosure “is an enormously expensive undertaking,” says Himmelman. The latter, he adds, is going to make taking on smaller accounts less feasible for advisors.

Until recently, conversations about the costs of investing tended to be more informal, Himmelman notes. Advisors were waiting for more definitive guidance to move forward with more structured approaches.

“It seemed like [formal disclosure of fees] was discussed for a long time and it became background noise,” says Himmelman. “Things are clearer now.”