When looking at the value of advice the conversation needs to focus on more than just fees, according to Alessandro Previtero, professor at the Richard Ivey Business School, University of Western Ontario.
The recent focus on fee transparency and the debate around eliminating trailer fees is pushing investors to think of the value of their advisor strictly in terms of fees and returns, said Previtero, who spoke at the 2013 Univeris Summit in Toronto on Wednesday.
While transparency is important, said Previtero, focusing the conversation around fees could lead investors to thinking that to find better advice they need to find an advisor with cheaper fees. “By saying to people, you should just focus on fees, what’s the message here,” he said, “is cheap better?”
That is not how people generally value other industries, such as healthcare, according to Previtero. For example, most people trying to decide which treatment to go with for an illness know that the cheapest option may not have the best outcome for their health.
As such, the industry and investors are missing a key component in measuring the value of advice, according to Previero, by focusing on fees. “They’re not framing the question the right way,” he said, “because there is no information on the benefits.”
In addition to being transparent about fees, Previtero said investors need to be able to see a full cost-benefits analysis of the advice they receive to properly evaluate its worth.