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Financial Advisors’ Value Proposition and CompensationThe Value of Financial AdviceQuantitative Research Frequencies

Blame complex fee models, squeamishness about discussing money, or hesitancy to ask uninformed questions. Whatever the reason, many investors are mystified when it comes to advisory fees - and they’re seeking greater value from their financial advisors along with a clearer understanding of services provided. It’s important that advisors and investors are on the same page when it comes to understanding the fees an advisor charges vis-à-vis the services they provide.

During the third quarter of 2014, State Street Global Advisors Practice Management conducted a study among a nationally representative sample of financial advisors and individual investors to explore their perspectives on the topics of communicating value and discussing fees.

This findings summary document is one in a series of practice management offerings that explore topics within the comprehensive value of the advisory relationship of interest to both advisors and investors.

Investment professionals can obtain these and other materials by contacting their Regional Consultant or the SSGA Sales Desk at 866.787.2257.

1. n How important do you think each of the following is to clients when they are selecting an advisor?

n How important is each of the following to you when selecting an advisor?

Understands my financialneeds and goals

Is upfront with me and represents situations truthfully

Has a high level of integrity

Follows through on goals and promises

Welcomes open and honest communication

Has my best interests at heart

Keeps me informed on a regular basis

Acts and performs consistently

Works for a reputable firm

Knowledgeable about new and innovative investment products

Is highly recommended by a family member, friend or colleague

Is a top performer

Charges low fees and/or commissions

90 96

90 97

89 95

89 91

87 95

87 95

87 89

87 95

84 90

83 89

81 61

76 84

74 76

Advisors Investors%

I. Choosing an Advisor

State Street Global Advisors 2

Financial Advisors’ Value Proposition and Compensation

2. n What traits result in clients feeling like they are being provided excellent client service?

n What traits result in you feeling like you are being provided excellent client service?

Trustworthy

Knowledgable

Responsive

Active listener

Consistent

Proactive

Personable

Transparent

2.81 2.33

3.67 2.95

4.46 4.52

4.81 5.32

4.93 4.88

5.00 4.63

5.16 6.03

5.16 5.34

Advisors Investors%



3. n How do you charge for your services?

n How do you pay for your advisor’s services?

Percentage of assets

Retainer flat fee

Project–based flat fee

Fee plus commission

Commission only

29 29

13 18

17 10

25 15

16 28

% InvestorsAdvisors

6. n Is your compensation bundled or unbundled?

n Is what you pay bundled or unbundled?

Bundled

Unbundled

Don’t know

76 61

24 21

0 18

% Advisors Investors

7. n Do you collect performance fees?

n Does your advisor collect performance fees?

Yes

No

Don’t know

61 18

39 62

0 21


8. n Is your compensation negotiable?

n Do you or did you negotiate what you pay your advisor?

Yes

No

Depends on asset size

60 30

20 70

20 0


4. What percent of your clients do you charge each of the following?


Fee plus commission

38

32

30

Commission

% Advisors

5. How would you prefer to pay for your advisors services?

18

27

16

8

30

%


Retainer flat Fee

Project-based flat fee

Fee plus commission

Commission only

Investors

II. Compensation

9. n How well do you think most clients understand the fees and/or commissions being charged?

n How well do you understand the fees and/or commissions being charged?

Top 2 box (net)

Understand completely

Understand fairly well

Do not really understand

Do not understand all

96 77

53 33

43 47

3 17

0 3




10. n Do you discuss fees and/or commissions with your clients?

n Does your advisor discuss fees and/or commissions with you?

Yes

No

92 67

8 33


11. n How frequently do you discuss fees and/or commissions with your clients?

n How frequently does your advisor discuss fees and/or commissions with you?

Quarterly

Yearly

Once every 2–5 years

Only when fees are increasing

Only when client raises subject

40 32

44 44

8 8

3 10

5 5


12. n How satisfied do you think your clients are with how fees and/or commissions are discussed?

n How satisfied are you with how fees and/or commissions are discussed?

Top 2 box (net)

Extremely satisfied

Reasonably satisfied

Somehwhat satisfied

Completely unsatisfied

95 92

40 31

55 60

4 8

1 0


13. n How fair do you think your clients feel the fees and/or commissions being charged are?

n How fair are the fees and/or commissions being charged?

Top 2 box (net)

Extremely fair

Reasonably fair

Somehwhat fair

Completely unfair

94 89

38 19

56 70

4 10

2 2


14. How much do you agree with the statement: “My advisor provides objective advice without regard to the fees or commissions he/she collects”?

Top 2 box (net)

Strongly agree

Agree

Disagree

Strongly disagree

93

39

53

6

1

Investors%



17. Overall, how satisfied are you with the compensation you are collecting from your clients?

Top 2 box (net)

Extremely satisfied


Somewhat satisfied

Completely satisfied

97

40

56

2

2

Advisors%

16. n Overall, how satisfied do you think your clients are with the fees and/or commissions they pay for the value of services they receive?

n Overall, how satisfied are you with the fees and/or commission you pay for the value of services you receive?

Top 2 box (net)

Extremely satisfied


Somehwhat satisfied


97 91

44 24

53 67

2 8

1 1


15. n What is the number one reason why you think your client would rather be charged a fee versus commission?

n What is the number one reason why you would rather be charged a fee versus commission?

Know what they are going to be paying upfront

They trust that their advisor is not selecting costlier investment products to drive up commissions

Advisor is invested in their success

An actively traded account could result in high commissions, costing more than fees

They can deduct advisor fees on their taxes

27 36

24 20

20 27

18 10

11 7




III. Communication18. n How frequently do you communicate with your clients?

n How frequently does your advisor communicate with you?

Daily

Weekly

Monthly

Quarterly

Yearly

25 2

38 12

22 29

14 46

2 11

% InvestorsAdvisors

19. Would you prefer to communicate more often, less often or at the same frequency?

More often

Less often

Same frequency

51 19

12 2

37 79


20. What percent of communication is conducted via each medium?

Telephone

Face-to-face meetings

Email

US mail

Social media

Text

27 34

24 24

21 25

12 12

9 2

9 4

% InvestorsAdvisors

21. What percent of communication would you prefer is conducted via each medium?

Telephone

Face-to-face meetings

Email

US mail

Social media

Text

24 30

29 29

20 26

10 10

9 2

8 4

% InvestorsAdvisors



24. n Overall, how satisfied do you think your clients are with the services you provide?

n Overall, how satisfied are you with the services your advisor provides?

Top 2 box (net)

Extremely satisfied


Somehwhat satisfied


98 97

55 44

43 53

2 3

0 1


25. n Have you ever asked your clients for recommendations about how to improve your relationship?

n Has your advisor ever asked you for recommendations about how to improve your relationship?

Yes

No

80 35

20 65


26. n Has a client ever referred you to a family member, friend or colleague who as a result became a client?

n Have you ever referred a family member, friend or colleague to your advisor, who as a result began using your advisor?

Yes

No

87 13

56 44


22. n How much do you think your clients feel that each of the following statements applies to you?

n How much do each of the following statements apply to your advisor?

Is upfront with me and represents situations truthfully

Understands my financialneeds and goals

Has a high level of integrity

Follows through on goals and promises

Welcomes open and honest communication

Has my best interests at heart

Keeps me informed on a regular basis

Acts and performs consistently

Works for a reputable firm

Knowledgeable about new and innovative investment products

Is highly recommended by a family member, friend or colleague

Is a top performer

Charges low fees and/or commissions

Advisors Investors

88 91

89 93

91 92

90 88

90 93

89 89

86 84

89 90

87 91

85 89

84 61

85 81

76 70

23. n Overall, how much do you think your clients trust you?

n Overall, how much do you trust your advisor?

Top 2 box (net)

Completely trust

Reasonably trust

Somehwhat distrust

Completely distrust

98 95

65 47

33 49

2 4

1 0


IV. Overall Advisor Performance



31. Income

Under $50,000

$50,000-$99,999

$100,000-$199,999

$200,000-$299,999

$300,000 or more

10

42

37

7

2

4

31

30

16

16


V. Participant Profile27. Gender

Male

Female

64 54

36 46


28. Age

25-39

40-49

50-59

60-69

70+

55 22

24 26

14 27

6 25

1 0


29. Race

Caucasian

African American

Hispanic

Asian

American Indian

Other

84

6

3

5

1

1

65

11

10

11

1

1


30. Education

Some high school or less

Completed high school

Trade/technical school

Some college

Completed college

Graduate degree

1 0

3 6

3 4

12 14

47 45

33 32

% InvestorsAdvisors



34. n Firm Size

n Advisor’s Firm Size

Botique

Small

Medium

Large

12 8

17 18

41 28

30 46

% InvestorsAdvisors

35. Average Account Under Management

$500,000–$999,999

$1 million–$4.9 million



$25 million or more

27

31

16

17

9

Advisors%

36. Household Investment Portfolio Size

51

26

18

3

1

1

%

$150,000–$149,999

$500,000–$999,999




$25 million or more

Investors

32. Firm Type

4

18

4

10

15

10

14

16

5

ETF strategist

Independent broker/dealer

Insurance broker/dealer

Multi-platform/direct

National broker/dealer or wirehouse

Private bank

Regional broker/dealer

Registered investment advisor (RIA)

Retail bank

Retail defined contribution (DC)

%

4

Advisors

33. Advisor Type

50

25

17

5

3

%

Certified financial planner (CFP)

Registered investment advisor (RIA)

Broker

Insurance agent

Other

Investors



Research MethodologyA nationally representative sample of 300 financial advisors and 300 individual investors participated in an online survey undertaken by State Street Global Advisors Practice Management and a2b planning in August 2014.

The advisor sample is representative across different channels: independent broker/dealer; multi-platform/direct; national broker or wirehouse; private bank; and registered investment advisor, all with average accounts under management of at least $500,000. The investor sample is representative across both net asset bands: below $1 million; $1 million to $5 million; and above $5 million and age bands: 25 to 39; 40 to 49; 50 to 59; 60 to 69; and 70 and older. Quotas were established to ensure the sample reflected the investment landscape today. All statistical significance is reported at 95%.

The surveys explored nearly identical themes, which allowed us to compare financial advisors’ presumptions about their clients against how investors actually feel. The data collected from this survey were segmented and analyzed to extract insightful and actionable opportunities.

Questions were grouped into the following categories:How well do invesors understand financial advisor compensation?

• What role do fees play when an investor is choosing a financial advisor?

• Does understanding fees help or hurt how an investor views a financial advisor?

• Do investors think that the fees financial advisors charge are fair?

To further contextualize our learning, we also conducted qualitative research with a range of leading industry, business and economic experts to help inform our key findings and practice techniques. They included: • Phone interviews with 14 subject matter experts;

• In-home interviews with investors with a household portfolio of at least $150,000. If investment decisions were shared with a spouse, the spouse was included in the interview.

State Street Global Advisors


© 2015 State Street Corporation. All Rights Reserved. ID4288-IBG-15300 0615 Exp. Date: 10/31/2016 BG.PMCSR.1016

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For public use.

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The views expressed in this material are the views of the Practice Management team through the period ended September 30, 2015 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.

All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information.

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