What’s the biggest challenge facing financial advisors today? Everyone has their own personal set of hurdles, but a new survey by Cerulli Associates finds that new client acquisition tops the list nationally.

According to the report, new client acquisition was listed as a challenge by 55% of advisors, far ahead of other top concerns, including compliance and regulatory responsibilities (40%), managing technology needs (31%), building multi-generational client relationships (29%), optimizing portfolio construction process (25%) and developing a practice succession plan (23%).

The difficulty acquiring new clients might seem surprising, given the high level of satisfaction reported by existing clients. According to Cerulli, 80% say they’re satisfied with their primary financial advisor, and those with over $5 million in investable assets are the most likely to be satisfied (88%).

Additionally, 59% of investors say they are willing to pay for financial advice, up from 45% in 2015, according to Cerulli. And 89% of investors say they are willing to recommend their primary advisor, compared with 73% in 2011.

The Problem is Clear: Transparency

The problem, Cerulli reports, is that unadvised individuals are concerned about the transparency and affordability of advisor services.

“Anecdotally, the fee discussion has become much more prevalent in the last half decade,” says Andrew Blake, associate director of wealth management at Cerulli Associates, who spoke with Rethinking65 about the report findings. Blake says questions like, “How am I paying these, and how does that stack up versus the industry average?” are typical.

Cerulli’s research shows that 59% of investors identify transparency and interactions as extremely important factors when selecting an advisor, he said. Among heads of household in the 60 to 69 age range, 65% rate transparency and interactions as extremely important, Blake says.

Unadvised individuals’ lack of understanding about cost is a big factor in their hesitancy to use an advisor, says Noah Serianni, a Cerulli wealth management analyst who also spoke with Rethinking65. “The unadvised investor often thinks that they can’t afford an advisor, or they’re unsure of the nature of the relationship, and that prevents them from seeking the advice of somebody,” Serianni says.

Paul J. Brahim, president of the Financial Planning Association (FPA) agrees that new client acquisition is a challenge, and that it is driven by unadvised individuals’ concerns over costs. In an interview, he recalled an engineer who was approaching retirement and had been referred to him. The man was “very analytical” but lacked understanding about financial planning fees. As Brahim questioned him about his situation and goals, the man interrupted him: “I’m really concerned that I don’t have enough money to qualify for your services,” he told Brahim. “So, there’s this perceived lack of access that quality advice is relegated to the ultra-wealthy,” Brahim says. “Or, if I’m going to get quality advice, I have to pay a fortune for it.”

A Different View from Investment Advisors

Not all industry leaders agree with the Cerulli assessment. Karen L. Barr, president and CEO of the Investment Adviser Association (IAA), tells us members of her organization are experiencing robust new-client acquisition. Growth in client numbers has averaged 8.5% over the past six years, she says, citing an annual IAA report analyzing data on 15,000 SEC-registered investment advisor firms.

“When I talk to our members, they don’t list client acquisition as their biggest concern,” says Barr. “They’re growing. They’re listing talent management and acquisition as their biggest concern. They’re listing keeping up with infrastructure, cost, technology.”

Why the discrepancy between Cerulli’s findings and IAA members’ experiences? Barr notes Cerulli’s study looks at a much larger “universe” of financial services professionals and not just SEC-registered investment advisors. “For investment advisors, there is transparency of fees,” she says. “They’re required in their regular regulatory filings to disclose their fee schedule. They’re required to give a very detailed disclosure document to their clients describing their fees.”

Brahim notes that FPA members also must provide such detailed disclosures to potential clients, but he says those individuals don’t always review them.

Have Disclosure Discussions Upfront

Blake, of Cerulli, says lack of fee transparency is a real problem that can be dispelled only through direct discussion.

“(Fees) are coming out of the back end from a lot of (clients’) investment accounts,” he says. “So, having those discussions right up front is critical for investors. And that is the primary thing advisors can do to build transparency.”

Advisors also need to explain the value they are providing, says Blake. “It’s really a two-part issue. One, where is the fee coming from? What is it? How much am I being charged, and how am I paying that? And the second part is, what am I receiving for that?” he says. “And that seems like it would be very basic in a lot of industries, but in dealing with advisor relationships, it’s been a little blurred, historically.”

Serianni adds that financial advisors must be proactively transparent to attract new clients. “It’s an essential aspect of service for advisors,” he says. “Consistency in communication, being upfront about any substantial changes to a client’s portfolio and being explicit about costs are important discussion points,” he says. “For affluent investors, transparency is the most important factor when choosing an advisor, even more so than demographic or performance-based considerations.”

One solution, Serianni says, is to develop a marketing strategy that articulates a firm’s value and fee options. “Increasing visibility helps drive unsolicited clients to contact firms directly, which is how nearly one in five clients begin their relationship with their primary advisor,” he says. “Integrity and openness go a long way in the minds of hesitant investors, and advisors who prioritize and effectively market these aspects of their service will find success attracting and retaining clients.”

Diverse Fees and Services Attract More Clients

Brahim agrees that marketing is an essential tool for communicating transparency.

But he says financial advisors’ traditional AUM fee structure — charging an annual fee of about 1% of assets under management, which is taken directly out of those assets, and setting asset minimums — is an impediment to new-client acquisition. Individuals starting their careers lack assets but still need financial advice, he notes.

“The consuming public sees these minimums and often think that they can’t access high-quality services because it’s either too expensive where they don’t have sufficient assets,” he says. That’s why financial advisors have dramatically expanded their services to include a range of more “client friendly pricing structures,” Brahim says, such as subscription models, hourly fees, fee for service based on an issue, and fee for a financial plan.

The Cerulli report authors concur. “Advertising affordable fees and planning options also may appeal to younger investors seeking one-off planning help, and these interactions could turn one-time clients into long-term clients down the road,” they write.

Barr notes another new and affordable way to get financial advice. “Certainly, there are a lot of unadvised individuals out there who could benefit from financial advice but don’t feel they can afford it,” she says. “There has been more of a democratization of advice over the last several years through the use of digital advisors — some people call them robo advisors.”

Stand Out From the Crowd

Another challenge advisors face in attracting new clients is differentiating themselves from the competition. Brahim says that over the years, services that were once specialties have become the norm. “There was a day where financial planning, by itself, differentiated. There was a day when model portfolios were new and differentiated. As happens in any industry, those innovative things become the norm, and now you’re undifferentiated,” he says.

Blake offers a similar take. “The second you’re a new advisor right now, the baseline standard is operating with the CFP and delivering financial planning capabilities from day one,” he says.

Brahim warns that when everybody looks the same, firms may try to attract new clients by lowering their fees in a “race to the bottom.”

“And so better marketing, better advertising, is really about creating differentiation in the marketplace,” he says.

Brahim’s advice: Ask yourself what you do that’s different or better. “Advisors need to find something that they love to do in our profession,” he says. “They need to become specialists in that area to carve out a niche and appeal to a particular denizen of the market, establish themselves and or their firms as the people who do that best.”

“Maybe you carve out a niche for yourself working exclusively with women in transition, and you become an expert — people who have lost a spouse or have gone through divorce. Or maybe you work exclusively with business owners on exit planning, preparation, the financial planning that’s needed to have a successful exit from their business,” Brahim says. “And so, this is an old story that really needs renewed.”

Channeling Their Differences

Once advisors have established that differentiation, they need to communicate it through multiple channels, Brahim says. “If we think about marketing, think about social media. Can they communicate that (differentiation) through a YouTube channel? Can they communicate that through LinkedIn? … Do they do workshops? There’s a lot of different ways that multiple channels express differentiation in the marketplace.”

Another challenge that many advisors face is the consolidation trend in the industry, according to Cerulli. “The average advisor practice is getting bigger, with more staff,” Blake says. “That has made it really tough for smaller practices to compete with just investment management. … About 10% of advisors tell us that that their only value proposition is money management these days. It’s very hard to compete in that space.”

And Blake cites yet another hurdle new advisors face in attracting new clients. “Personal referrals are still the primary way advisors are generating new business,” he says. “And it is important to note that no matter how transparent, candid, honest, trustworthy a new advisor is, it is extremely hard to start as a new advisor without significant personal connections.”

Ed Prince is a writer for Rethinking65. In a four-decade career in journalism, he has served as an editor with many of New Jersey’s leading newspapers, including the Star-Ledger, Asbury Park Press and Home News. Read more of his articles here.