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Practice Management > Compensation and Fees

5 Steps to Successfully Talk About Fees With Clients

By Greg Gohr, AIF

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No matter the industry, great service and reasonable pricing, clearly explained, typically lead to loyal customers. So as daunting and taboo as discussing fees with your clients might be, it is a vital component of forging a lasting bond. Conversely, failure to properly discuss your fees can cause confusion and diminish trust. 

Our industry has historically done a lackluster job of presenting fees. In fact, a report from State Street/Knowledge@Wharton, Bridging the Trust Divide: Advisor Best Practices for Communicating Value and Discussing Fees, found that clients were more concerned with fee clarity than with the absolute levels of fees. Nearly all of the advisors surveyed in the report—95%—claimed to have discussed fees with their clients, but barely 66% of customers reported that their advisors had originated the discussions!

In my experience, the more successful advisors are very comfortable talking about fees. They have taken the time to develop a fee strategy. They know their cost of delivering certain services and their profitability across various client segments. They recognize that their fee schedule is every bit as critical to their success as are their asset allocation models. Some of the very best advisors take it a step further by developing a script for presenting their fee schedule and associated services; they even practice the conversation in role-playing exercises with their staff.

Although you don’t want to be too scripted, the point is you should have a deliberate and documented strategy for your fee discussions. 

Five Steps to a Successful Fee Discussion

Here are five tips that can help you have more successful conversations: 

1) Take the lead.
Yes, it’s a touchy subject—and that’s exactly why it is important to take the initiative to start the fee discussion with your clients. Additionally, it shows that you are willing to open the door to talking about uncomfortable topics, no matter what they might be. It is always better to raise the topic yourself and control the conversation than to potentially find yourself on the defensive.

2) Emphasize services.
Be sure to describe the specific services that you will provide—from portfolio management to comprehensive financial planning—in as much detail as possible. This also holds true when renegotiating fees with current clients, as they may overlook what you had previously provided to them. Remember, we may hope that clients pay us for the value that we provide, but they are more likely to associate the fee with the services that they receive.

3) Describe fees with clarity.
Consider aligning your perspective with that of your clients—that is, toward a distinct set of services that you provide and away from a nebulous value proposition. Complement this with a discrete fee schedule that outlines your fees in a simple and concise manner. You should be able to explain how fees are calculated, the breadth of services provided for the particular fee, and any minimums or exceptions that are pertinent to the situation. 

4) Provide context.
As human beings, we tend to make decisions by comparing several alternatives. Helping your clients compare your fees with other providers can provide context and reassure them that your fees are fair for the services rendered. This is not as easy with financial advice as it is with some other services, but you should be able to access detailed pricing information on both high- and low-end advisory service providers by searching the SEC site for their ADV Part 2 brochures.

By no means am I suggesting that you lower your fee to undercut your competitors in order to gain business. True, some clients or prospects may look for the lowest absolute cost, but if you are up front about your fees and justify a proper set of associated services, the right clients will want to move forward with you. 

5) Put it on paper.
Practically every advisor with whom I speak knows exactly what he or she intends to charge a client or prospect, and this is typically driven by household asset size. But is your fee schedule a physical document that you provide to clients or prospects, or is it simply something that you recall from memory? Having a written fee schedule—complete with clearly defined services—provides a foundation for a successful, trusting relationship.

If we expect our clients to commit to us a certain level of fee, we should feel comfortable committing back to them a set of services, in writing.

Your fee schedule document need not be a complicated affair. One advisor with whom I worked used a simple one-page document with his mission statement across the top of the page (what the advisor stood for), a fee schedule based upon investable assets (what the advisor expected from the client), and a list of services provided (what the client could expect from the advisor).

With clients expecting more and more transparency, a slight change in your perspective and in how you communicate with your clients could have a dramatic and powerful impact upon your practice.

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