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Practice Management > Compensation and Fees

8 Strategies for the Fee-Sensitive Prospect

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“A cynic is a man who know the price of everything and the value of nothing.”

Since Oscar Wilde lived from 1854 to 1900, he made this observation long before price comparison websites, no-load funds and commission free trading was invented. Advisors often encounter people who push back on pricing. What can you do?

Who Are These People?

These prospects have been around forever. They think the world is out to cheat them. They give their mechanic a hard time. The plumber, too. They ruthlessly bargain at flea markets. When they travel, they think everyone they meet is going to overcharge them. Guess what? They invest, too.

What to Say When Prospects Push Back

Some advisors will get into a price cutting war. The prospect will say “can you match…” You’ve seen wireless carriers doing the same thing. More on that later. 

1. Build common ground.

I would say to prospects: “You need to understand how we make money.” If I was explaining stock purchase, it’s commissions. It’s added on, like sales tax when you buy wine. If it’s a bond purchase, there’s a wholesale to retail spread, similar to buying milk at the supermarket. Getting the fees out from reduces anxiety.

2. Transparent pricing.

The industry moved away from transactions many years ago. Many accounts utilize asset-based pricing. It’s easy to explain. Although investing is meant to be long term, pricing is “pay as you go.” If you decide to leave the program, you only pay for the time you were in it.

With wireless plans, you might have a “free phone” but you are locked into a multiyear contract to pay off the phone.

3. Common sense.

Prospects might bring up no-fee transactions. This implies there’s a monastic order running the operation, collecting no wages. They are still making money. The fees are hard to find or discovered later.

Back to the wireless provider example. Your bill isn’t usually just the quoted fee. There are out-of-network calls. Taxes. Additional services. No one is working for free.

4. One less person being paid.

No-load funds have always sounded attractive. Who wants to pay a sales charge? “No load” doesn’t mean “No fees.” Everyone else is still getting paid, except the advisor, because the prospect theoretically bought directly from the fund company.

5. Full disclosure.

“You pay nothing.” Wow! That sounds great! Fortunately the financial services industry is highly regulated. There are websites where you can enter a mutual fund symbol and see the trading and administrative charges built in.

6. Vive la difference!

Your prospect might be asking: “Why should I pay 1% when these guys will manage my money for free?” The above point reveals the built-in fees for the alternative they are considering. Suppose it’s 50 basis points. Now the discussion isn’t about 1% vs zero, it’s about 100 basis points vs. 50 basis points. You make the case for the added value you bring for the difference.

7. What should we take off?

A New York City advisor had a great strategy. He explained his process and the service he provides. The prospect loves it. He explains the cost. There’s pushback. He says: “That’s fine. We can lower the price. What of these services should we take out?”

This is similar to your car insurance bill. You can lower it by removing certain aspects of coverage, but when you consider each component, you realize you want them all.

8. Look at the big picture.

Clients might balk at pricing for a certain product in the portfolio. They forget there are other pieces with little or no fees involved.

Suppose they own bonds, Treasurys or CDs they intend to hold until maturity? They might have been bought in a separate account, not subject to wrap fee pricing. You are giving attention to those assets, too. Look at the pricing as a percentage of total assets at the firm, not just one segment.

You wouldn’t use the terminology, “You get what you pay for.” I recall a cartoon from a New York City newspaper after the crash of 1987. “A destitute fellow was sitting with his hat on the sidewalk. He had a sign: “Lost it all in the Crash, but I saved a fortune in commissions.”

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