When the U.S. Department of Labor (DOL) first announced it was pursuing regulations that would require financial advisors to operate as fiduciaries, it got me thinking about my days working with Vanguard’s 401(k) clients.
The plan providers I met were fiduciaries. Our discussions focused not on what I could sell them but, rather, on the investments that would best meet their participants’ needs. What a concept, right?
Although the DOL under the new administration has asked for additional time to review the rule, we strongly believe financial advisors should take a fiduciary approach and focus on the best interests of their clients—regardless of the final outcome of the DOL rule.
Make no mistake: The industry has already changed. Many firms have programs that align with a fiduciary standard or have stated that they intend to move forward with adding such a program to their business model. That’s a win for investors! Advisors who don’t act as fiduciaries and don’t put their clients first, risk being left behind.
Building trust is critical
In today’s environment, it can be challenging to earn the trust that’s required to forge a good relationship with your clients. As you well know, since the 2008 recession, many investors have a cynical view of Wall Street and the financial services industry overall and may turn a skeptical eye on the advisor-investor relationship.
Vanguard can help you strengthen that trust.
For more than 40 years we’ve built our reputation as an advocate for investors. By partnering with us, you can help build trust among your clients. Low cost, historically competitive performance, and confidence in the Vanguard products you’re purchasing on behalf of your clients are key elements to the success of your practice.
Through your partnership with Vanguard you can leverage our brand to bolster your own.
When your clients succeed, you succeed
At Vanguard, we’re owned by our funds, which are owned by each fund’s investors.1 This unique structure means we don’t have conflicting loyalties. Our sole focus is helping investors achieve their goals.
When I think back to every successful partnership in my life, the one thing they’ve all had in common is that everyone’s interests were always aligned. As partners, we’re all pulling the same oars, which means that when your clients succeed, you succeed.
The value proposition of advice is changing along with the nature of what investors expect from their advisors. Fortunately, the resources available to advisors are evolving as well. Our Vanguard Advisor’s Alpha® research outlines how Vanguard can help you with practice management and how you can add value for clients through relationship-oriented services.
The move toward a best-interest standard provides an amazing opportunity for advisors who embrace the spirit of the rule. Regardless of whether the government moves forward with implementation, we strongly believe firms that adopt these changes will have a distinct advantage in the marketplace.
Creating a transparent financial planning environment by eliminating any conflicts of interest in an effort to help investors reach their financial goals is an objective we should all try to achieve every day. Putting clients first is a proven business model that’s been at the core of our success. It’s a principle that today’s investors will simply demand if you want them to be your client.
One way to build trust with clients is by working to keep their investment costs low.
Research: Low cost can lead to better performance
Research shows low cost is usually associated with better performance because every dollar paid in management fees is a dollar less of potential return for your clients.2 While low-cost investments don’t guarantee higher returns, they should drive investment decisions, generally deliver better-than-expected returns at all levels of risk, and free you from investment trade-offs.
The impact of costs on overall investor returns
Hypothetical distributions of market returns before and after costs
Note: These distributions are theoretical and do not reflect any set of actual returns.
Advisors who recommend our low-cost investments recognize that’s one of the many ways they can add value for their clients.
Resources for building stronger client engagement™
With our Client Relationship CenterTM, we’ve dedicated a portion of our advisors website to provide you with the research, tools, and resources you need to optimize your practice while serving the best interests of your clients.
The bottom line: We’re in this together.
1 Vanguard is client-owned. As a client owner, you own the funds that own Vanguard.
2 Garrett L. Harbron, Daren R. Roberts, and James J. Rowley, 2016. The case for low-cost index-fund investing. Valley Forge, Pa.: The Vanguard Group.