Have you ever felt there should be a code of conduct posted at buffet restaurants? It’s human nature to want to get as much as possible while paying as little as possible. They crowd around the shrimp. People who run these restaurants want to make as much as possible while laying out as little as they can. Yes, those pink things are shrimp, but they are the smallest ones you’ve ever seen. These factors come into play when a prospect asks: “How much do you charge?”
7 Ways to Answer That Question
Let’s assume you primarily utilize managed money and asset-based pricing. Clients see plenty of ads promoting stock trades that are virtually free or absurdly low. They see “no load” funds and assume they aren’t paying anything. In reality, everyone except the financial advisor is being paid. Everyone else gets their cut. They don’t understand hidden fees, either. Here are a few ways to answer: “How much do you charge?”
1. Cents on a dollar. It’s hard to believe, but not everyone understands percentages. Years ago, someone said: “It’s becoming a 1% business.” If your prospect has $250,000, you might be charging them $2,500 a year. That’s one cent on a dollar. It’s also $6.85 a day. While $2,500 might sound like a lot, $6.85 is more manageable. It gets into the gourmet coffee category.
2. Pay as you go. Managed money has a great advantage over transactional business. There’s no buying and selling commissions. There’s no upfront load or surrender charge. It’s the ultimate in “pay as you go” pricing. If you stay with a money manager for three years, two months and one week and leave, you only pay for the period of time they were managing your money.
3. Paid three ways. This one has been around forever. As an advisor, you are paid on the commissions clients pay when buying and selling. That’s traditional. You are paid on assets under management, which is your fee-based income. You are also paid a third way, in referrals, when satisfied clients tell their friends about you.
4. Rationalizing built-in fees. Years ago, a U.K. bank ran an ad: “What we won’t do is charge you for advice you decide not to take.” They continued: “Because the cost of our advice is included in our products. So if you don’t buy, you don’t pay. (In our book, this is a realistic long-term way to do business.”