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/[email protected], 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.