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Compensation Transparency Pays Off

According to recent research by Hearts & Wallets, the best way for advice providers to build trust with clients is to help them to understand how they get paid. With over half of investors thinking that they’re getting ripped off and only 19% fully trusting their advisor — a number that’s down from 24% in 2010 — building trust is a key factor in closing and retaining clients, as well as cross selling.

Just telling a client how much the advisor is being paid is not enough. Clients want to understand the entire incentive system so that they have confidence that the advice is unbiased and puts their interest first. When clients think that their advisor understands their needs, is responsive — and makes them money, of course — trust goes up.

In a world where transparency is increasing via legal requirements and technology, advisors that are upfront about how much they make — educating clients or prospects about the system and how their compensation allows the advisor to put their client’s interests first — should yield great results.

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