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.”

5. Tax analogy. A prospect might think 1% on assets sounds high. Compared to what? What’s their federal income tax marginal rate? What do they pay in state income taxes? What does an ATM charge as a percentage of the amount you are withdrawing? “If you are paying X% in federal taxes and Y% to the state, our 1% is small by comparison.”

6. You need to know how we make money. Anticipate the question. Buying stock is like buying scotch. You pay sales tax on the bottle, you pay commissions on stock trades. Buying bonds is like buying bread at the supermarket. You pay the posted price and that’s it. You know they are making money. They buy the bread at wholesale, mark it up and sell it at retail. Municipal bonds work the same way. (Accrued interest is extra.) Using that logic, managed money is like staying at an all-inclusive resort!

7. Draw a grid. Not everyone’s situation is the same. Here’s another idea that’s at least 15 years old. Consider a chart with two axes. The vertical one is cost and the horizontal one is advice. One prospect makes all their own decisions. Investing is their hobby. They just need a place to execute trades. They do not want advice. They might be best with a fee-based account where they trade almost as often as they want. They might be best served with an online trading account where transaction fees are minimal. Another prospect might have a demanding job like chief of surgery at a hospital. They want to outsource everything. They might have money managers for everything. You meet with them quarterly, because actions like asset reallocation will need client approval. Other prospects fit in the middle. You outsource the stock portion to money managers. You advise on the fixed income and cash reserves directly.

“How much do you charge?” It sounds like a simple question. There are many ways to answer it.

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Bryce SandersBryce 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.