Planners want to be ‘transparent.’ What’s that really mean?

Even among financial planners striving to reduce their conflicts of interest to the fullest extent possible, the precise meaning of “transparency” in the field can be tough to pin down.

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But a dozen financial advisors and other planning professionals who gathered last week outside Chicago for the Transparent Advisor Movement’s first “Flat Friday” meeting pointed out many industry practices that clearly didn’t fit the definition.

Members of the more than three-year-old practice management and professional development group said that the accurate explanation and disclosure of any kind of fees paid by clients was more important than using any particular type of model. The group’s members predominantly use forms of flat charges rather than those tied to assets under management as a means of cutting down on conflicts tied to recommendations. But they stopped short of suggesting that every advisor adopt that approach.

Any advisor can be transparent, even if the industry isn’t always

In fact, they expressed agreement with Erik Barnes, the founder of Warrenville, Illinois-based registered investment advisory firm Retirement Portfolio Partners, who argued that “transparency isn’t a pricing schedule” and advisors “can be transparent through all sorts of pricing schedules, just as long as the client knows what they’re paying.” Since the fee discussion among advisors across the industry can often get “bogged down” in social media arguments criticizing each other, the clients must enforce some accountability as well, he said.

“I don’t think there is a right way to charge, as long as your client’s happy with it,” Barnes said. “I have a neighbor who does his oil changes in his driveway. I have mine done at the dealership. Like, theoretically, could I change my oil? Yes, but I find value in overpaying for oil changes, because of some of the things that go along with it.”

Nevertheless, the planners and others in attendance were also making a statement by being onsite together in the generic suburban office building with basic food and drinks in an industry with a well-deserved reputation for giant events with product sponsor-provided catering and conference swag. The movement, which began in September 2022 as the collaborative brainchild of lead generation and marketing consultant Sara Grillo and like-minded planners, has its own annual conference called “Immersion.” The conference’s official website expressly prohibits conduct like “sponsors and vendors pushing their wares on you,” and “monogrammed water bottles and other junk.” 

In addition, the group holds monthly webinars and — beginning with the event in Warrenville and five others planned for June and July in Philadelphia, San Diego, Denver, Durham, North Carolina, and Washington, D.C. — meetups on Fridays for local chapters. 

After introductions over coffee around a small conference table, Michael Hollis, who’s in the final phases of the formal launch of his RIA firm, Aurora, Illinois-based TapestryFP, asked the group to discuss their answers to the question of, “What does transparency really mean?”

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Prices vs. financial and ethical values

The price of $36,000 kept coming up. That was the amount of annual fees that Charlie Horonzy, founder of Chicago-area RIA firm Focused Up Financial, said a client of his firm had previously been paying in AUM-tied charges and fund management expenses in a portfolio with a value of about $1 million at a large wealth management company. 

As a prospective customer, the client had told Horonzy that it was going to be “too expensive for me to work with you,” based on the contention that the prior fees amounted to just $500, he noted. Horonzy came up with the real, much higher cost by analyzing the investor’s holdings. Planners who use flat fees often face a behavioral disadvantage with prospects based on the sound of their prices, Horonzy said.   

“I really don’t know how this movement’s going to get off the ground,” he said. “If I’m going to someone and I really believe in transparency and say to you, ‘You’re going to pay $10,000 to me,’ and someone next to you says, ‘You’re going to pay me 1%.’ … 1% psychologically is so much smaller than $10,000.” 

Hollis agreed that flat-fee planners must expect and address those concerns — whether or not they are using that model on all of their business or taking it to an even further extent by refraining from the direct management of assets. 

“The movement is growing. There’s no question that people are specifically on the lookout for something like a flat fee, advice-only option,” Hollis said. “What you’re saying is absolutely a challenge.”

One solution can stem from aiding clients in going beyond “the shock” of finding out the amount they’re paying or simply “bashing other advisors” for not abiding sufficiently by the fiduciary duty, according to Linda Rapisardo, founder of Riverside, Illinois-based RIA firm Canela Wealth.

“Let’s see how much you’re actually paying, and then you can decide, are you getting value?” Rapisardo said. “Are you getting value for that, regardless of whether they’re a fiduciary or not? Then you could talk to them about the fact that you were clear that, ‘You’re paying $36,000.’ But let’s show a client how to go through their statements and figure out how much they’re paying, and then they could decide whether they want to work with you, because you’re clear, ‘I’m going to charge you $20,000 a year.’ Maybe it’s $30,000 a year. But I just gave you this education and I’m empowering you to know how to handle your financial life a little bit clearer, and give the client, again, the option based on that transparency, instead of bashing the other advisor for not being a fiduciary.” 

The concept of bias and the perspective a planner is bringing into the relationship, and how that ties into each recommendation often proves beneficial to that conversation, according to James Brewer, founder of Chicago-based RIA firm Envision Wealth Planning. He noted that he had given up his insurance license at the end of last month, so that transition had eliminated one potential bias that may have influenced his services to clients.

“I have a different mindset, so if I’m telling people my bias, if you think flat fee is the way, there’s a bias,” Brewer said. “I think that that’s the ultimate in transparency, because I’m telling you why I am doing business the way that I’m doing business, because, to me, hey, if you pay $36,000 and got a 30% return, that’s great value.”

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The missing pieces of conversation

The nuances involved with driving change in planners’ individual practices, on the one hand, versus across an entire industry, on the other, may distract from the overarching critique among many advisors and professionals that there just isn’t enough talk and understanding about fees in general. And the avoidance could be adding to the confusion for advisors and consumers. 

For instance, Alex Graf, an investment consultant and head of model integration with Modelist, a portfolio management modeling technology firm, said what has been “very, very shocking to me” has been the number of advisors who don’t want to implement much cheaper systems that are “a meaningful recapture of business value” for many advisory practices.

“As great as I can make that case, they don’t want to go back to their clients and talk about fees, even though it’s going to be a better outcome, more tools, etc., because they don’t want to talk about fees with their clients, which has been kind of mind-blowing in this business,” Graf said. “They view talking to their clients about fees, or a lot of them do, as that’s the moment at which I may get fired. Now, I could also make the argument that, if that’s the case, then you’re not really providing value. And part of what irks me the most is that there are a lot of people in this industry that plaster ‘fiduciary’ all over their website, but when you show them the case — and these are people that work with numbers — to show not only business value, but more importantly, client value, and they don’t do it because they don’t want to have that conversation.”