5 Steps to Navigating the Fee Conversation with Clients

Posted by Brian Lampron, AIF

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October 7, 2015 at 1:30 PM

navigating the fee conversation with clientsRecently, an advisor e-mailed me that one of his good clients questioned his practice's advisory fee. The advisor was caught off guard and found he was unsure how to handle this conversation. Sound familiar? In fact, for many advisors, navigating the fee conversation with clients can be surprisingly difficult.

Whether you're implementing a new fee schedule or announcing changes to an existing fee structure, you might find yourself having these uncomfortable conversations with your clients. In addition, as the less expensive robo-advisor makes headway in our industry, more of your clients may start to raise questions about your advisory fees. So, when the topic of fees comes up, what's the best way to approach it?

Based on research and numerous discussions with advisors, I've noted several common themes and would like to share some simple steps for navigating the fee conversation with clients.

Struggling with the fee conversation? Download our white paper on pricing your advisory business and learn how small changes can yield big rewards.

1) Be Up Front, Consistent, and Concise

This step can add clarity to the fee conversation. You'll want to consider the following questions:

  • How frequently do you talk about your advisory fee with clients?
  • Is it just at the beginning of your relationship?
  • Do you discuss it each time you meet?

Address your fee at your initial meeting and every time you're in front of clients. The better your clients understand the services you provide and what they're paying for, the less likely that your fee will become an issue.

Being clear and concise is crucial. At one of our in-house coaching programs, Power in Practice, my team offers a presentation on fees. Afterword, Joni Youngwirth, managing principal, practice management, typically asks advisors to role-play a conversation with a client. She acts as the client, and the mock discussions revolve around adjusting advisory fees. During these sessions, I've noticed that some advisors tend to ramble or use terms that clients might not understand.

So, when discussing your fees with clients, remember that long responses can seem insincere. On the other hand, keeping your explanation short and simple helps build trust. You'll also want to remember that using industry language sometimes doesn't ring true with clients. For example, it's better to talk in terms of actual dollars than of basis points. Ultimately, the goal is to articulate the services included in your fee and how the fee is calculated.

2) Put It in Writing

Another step you can take to help ensure that your clients are clear about your fees is to have a written fee schedule. A key component of your practice, it can:

  • Explain fee structure
  • Provide transparency
  • Help maintain profitability

When developing your fee schedule, consider the average fees charged by your competitors, as well as the value of your time and the services you plan to include in your fee. Be sure to list all of the services covered by the fee on your schedule, as this will help emphasize the value that you provide. It's important that you charge fees that are profitable enough to support your company's infrastructure—and are fair to your clients.

3) Don't Be Defensive

If a client questions your fee, your first reaction might be to become defensive. But it's important to get away from that mind-set. Instead, be confident and genuine while not underplaying all that you do for your clients.

Do you consistently deliver the services that you promise? Do you believe that you are worth the fee? The answer to both questions will likely be "yes." You earn your fee and deserve to get paid for what you do. Moreover, your experience and credentials help justify what you are worth.

Also, keep in mind that just because a client inquires about your fee, it doesn't mean that he or she wants you to lower it. Perhaps he or she is merely looking for clarification and truly doesn't understand how the fee schedule works.

4) Stress the Importance of Service

Another effective step is to remind clients of what you have provided throughout your relationship and to bring up specific examples. Here, you'll want to stress how essential your financial and investment planning processes have been to your clients' success and how you and your firm have helped them achieve their financial goals.

This is another opportunity to talk about added value, highlighting the amount of time and effort that you and your staff put into the relationship. Again, be specific. It's your responsibility to help clients make more informed decisions.

5) Be Prepared to Answer the Robo-Advisor Question

As mentioned previously, the ability of robo-advisors to provide low-cost investment solutions continues to be a hot topic and may cause some clients to question your fees.

Is the robo-solution really new? Do-it-yourselfers have obtained well-allocated portfolios of passive investments over the web for the past 10 years. Robo is just a web interface for this, and it can't provide what real, live financial advisors can provide for their clients.

The biggest benefit of working with an advisor is the human element. You protect your clients from themselves—helping to remove the emotion from investing and guiding clients to make better, more informed choices. As Commonwealth's Darren Tedesco, managing principal, innovation and strategy, noted in "I, Robo-Adviser? Creating the Blended Adviser Experience":

Almost all clients need more than just investment management (asset selection, asset allocation, rebalancing, and the like); they need a plan and someone to help choreograph how they'll carry it out. . . . It balances art and science, emotions, and execution.

By offering services beyond investment management, you will be well positioned to combat the robo-advisor threat.

Are robo-advisors causing fee compression? Not yet. According to PriceMetrix's "The State of Retail Wealth Management," in 2014, the average fee on fee-based accounts increased from 0.99 percent to 1.02 percent. So, although the robo-solution has been promoted in many media outlets, average advisory fees have risen only slightly.

Your Worth Goes Beyond Your Fee

The fee conversation doesn't have to be uncomfortable. After all, pricing is just one factor that clients consider when making decisions regarding financial professionals. Ultimately, clients will make the choice to work with you based on the services you provide, your trustworthiness, and the quality of their relationship with you. If clients perceive that your services are essential to their financial well-being, they will likely stay put—your fees notwithstanding.

What's your approach to having the fee conversation with clients? Do you think robo-advisors are causing fee compression? Please share your thoughts with us below.

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