Most of the securities business seems to be priced based on assets under management. You can make a good case, explaining how everyone benefits. Online trading and robo-advisors are getting warmed up in the opposite corner. It would appear clients can get everything for nothing. What now?

Let’s Not Talk About Value

Let’s assume you can make the case for how you add value. Your client says, “That’s nice. I respect that. I still think you are charging me too much.” Where can you take this conversation?

Strategy One — The Big Picture

Their issue focuses on basis points or percentage. They are considering no-load funds or robo-advisors. You are higher, they are lower.

The client’s assets likely fit into three categories:

  1. Assets under management that are being billed at an annual percentage rate;
  2. Assets held at the firm bought via transactions. (Think CDs, muni and corporate bonds)
  3. Assets held away in places like their 401(k) at work, employee stock purchase plan and deferred compensation plan.

Do you advise on all three categories? Probably yes. Would they want you advising on all three categories? Probably yes.

Approach: Total all the assets you are discussing when you present a periodic portfolio review. Next, calculate the overall fees they are paying. This includes fee-based accounts, but also the transaction costs (if any) on fixed income, not held in a fee-based account. The percentage charged is likely far lower.

Strategy Two — Unbundle

Ideally, advisors would like all of a client’s assets to be held in fee-based accounts. The rationale is simple. If I’m, advising on everything, I should be paid on everything. It’s tough to rationalize a fee-based fixed income account when interest rates are so low.

Your client might also own some large positions they will “never” sell. They might have a large position in their company’s stock. As a senior officer of the firm, selling shares would send a negative message to other shareholders when that transaction is reported. They might own a blue chip stock with a cost basis measured in pennies.

Approach: If possible, buy CDs along with muni and corporate bonds in a transactional account. It’s highly likely they are intending to hold them to maturity anyway. Keep the concentrated and low-cost positions in a similar account. If changes are required, it’s a conventional stock purchase or sale.

You have now separated the actively managed assets from the passively managed assets. You are advising on everything, but most of the activity takes place in the fee-based accounts. Clients should feel you aren’t taking advantage of them.

Strategy Three — Discounting

The client insists on a lower pricing structure. You realize 80% of something is better than 100% of nothing. You agree to a discount.

Discounting is prevalent in other industries. You get a great rate if you shift your phone from one carrier to another. You transfer a credit card balance to a new card because of the great introductory rate on balance transfers. In both cases the time period for the preferential pricing is clearly specified.

Now here’s an amazing thing about our industry: The client wants a discount. You give them one. For some reason, this can stay in place for decades! We got the account. Problem solved. The discount is rarely revisited.

Approach:  Consider granting a discount for a year or two on the understanding you will be revisiting it down the road. This gives you the opportunity to demonstrate how you add value to the relationship. If the client bonds with you and transfers lots more assets in, maybe sticking with that discount is the right thing to do.

Strategy Four — The Coffee Analogy

This one’s been around forever. Your client is paying 1% on $ 300,000 in assets under management. They take issue with paying $ 3,000 a year. That’s a big number.

Approach: Break the larger number down to a per-day charge: $3,000 over 365 days is about $8.22 a day. OK, the market isn’t trading on Saturday and Sunday. Maybe you use 250 days instead. What’s a comparable expense? Their daily commuting costs? Coffee and a pastry at an upscale coffee shop? It makes a large number look smaller. You’ve seen the insurance ads on TV: “Coverage costs just pennies a day…”

Strategy Five — Pay as You Go

Some clients fear if they made a mistake it’s going to cost a lot to undo it. Front-end load charges and surrender charges are what they fear. Your fee-based structure for assets under management is different. In most cases you are only charged for the time you are using the service. If you are unhappy, take your bat and ball and go home. (Selling out at market prices.)

Approach: Although managed money and investing in general should always be viewed as a long-term strategy, fees on your account are charged on a pay-as-you-go basis. If you leave after four years, three months, two weeks and one day, that’s the period for which you are charged.

You bring value to the relationship. In some cases, it’s through activities that don’t directly ring the cash register. You celebrate births. You attend funerals. You explain to their children how investing works. Sometimes clients just want to talk fees. They either want a concession or an understanding they can leave if they are unhappy. You need to work with them.

— Related on ThinkAdvisor:


Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor,” can be found on Amazon.