Justifying your fees

One of the questions advisors will be asking themselves more and more as they move towards complete transparency of fees is…How do I justify my fees to clients?

The answer is simple. Below are six easy tips you can use when this sometimes uncomfortable but necessary conversation arises.

Show them the money – Full, upfront disclosure

What we do at our branch with each new client is review the investment policy statement (IPS) with them. As part of our IPS and introduction agenda, we tell them how much their fees are and how much we earn in percentage terms and then translate that into dollars for them. For example, we will advise a $500,000 client that our annual service fee is 1% of the assets under management, which is equal to approximately $5,000 a year.

One of our mandates is to also educate clients on all aspects of financial planning so that they feel that they understand the process and how it works. We feel comfortable and confident of the services we provide for the fees we charge and I think clients understand that.

Explain the benefit of trailers

We make it clear that receiving a trailer fee (or fee-based compensation) is a benefit for client as our interests become completely aligned. Our income increases or decreases based on the value of their assets. When their assets go down, our income goes down. This allows us to be proactive in the servicing of their account because we are receiving regular compensation as well. Since the business is not commission driven, we can be unbiased in our decision making process.

Show them the value you provide

For a great visual of our value added on the investment side, we show clients our investment analysis, research and recommendation folder that contains hundreds of pages of fund reports, holdings, correlations, etc. This helps shine a light on the “behind the scenes” work we do that they may not be aware of.

Highlight your services

We go on to explain that we provide approximately 10 to 15 hours of servicing per account and we outline the client service process which includes;

• Financial plan implementation including insurance implementation.
• A phone call every 90 days.
• A semi-annual review and goals tracking (including a Client Dashboard™ ).
• Quarterly workshops.
• Ongoing portfolio analysis, tracking, and maintenance.
• Cashflow management help.
• Consultation calls for any financial matters such as mortgage questions, buy vs. lease etc.
• A one-pager that illustrates all these services for the client. To view a sample, click here .

Handling objections

In most cases clients understand that we are professionals and we do not work for free. There have been a few occasions though where we were questioned about our fees by clients. When we are, our response is the same every time.

Mr or Mrs Client,

Other than our regular financial planning services (see list above) that are quite tangible, including the $2,000 of yearly tax savings we implemented from your financial plan, let’s not forget the hidden value that we provide to you that you may not see on a regular basis.

For example, being an emotionally detached advisor, whom the client can rely on for objective advice, has tremendous value in itself. We create solid financial plans based on long-term client objectives. One of the roles we provide to clients is that we act as an unemotional advisor during difficult and challenging times and our role is to help them avoid making crucial mistakes that drastically alters their plan.

During the recent market correction, we called to reassure you to stay invested and focus on the plan we had prepared based on your wishes. Had you opted out of the market in March, like many Canadians did, you would have missed out on the substantial bounce back that has occurred since then. In dollar terms, how much do you think that decision was worth?

As well, what would happen if you passed away? In your family, you are the one who handles the financial affairs, if you should pass on you would certainly want a trusted advisor to help your surviving spouse with his/her finances during their time of need. What value would you place on the reassurance and comfort your spouse would feel coming to see the same professional advisor that you had been working with and built a relationship prior to your passing?

Share real stories

I sometimes tell the story of the client who during the tech bubble insisted on investing in techs. I refused to help them on this due to client suitability and ridiculous valuations. The client was insistent, so I disengaged them as clients. They went on to a discount brokerage and proceeded to turn their $400,000 into less than $50,000 within 6 months. When they contacted us after this asking if they could come back as clients, we advised them that due to our differing philosophies and the decreased size of their portfolio, they no longer qualified as clients of our firm and we wished them best of luck with their future endeavours.

I find that stories like the one above help clients see the actual dollar values that we can help them avoid losing. We all have stories like these. I suggest you spend some time thinking about your stories so that if you are ever challenged on fees, you have one on hand to emphasize the value you bring to clients. If, after all of that, you still have a client who feels that your fees are not justified then it’s time to part ways. Remember clients have every right to ask about our fees. So, do take a good hard look at your practice and the services you offer.

We as advisors have to decide if investment advice is now simply a commodity or does the real value we offer to clients lie in helping them achieve their life and financial goals, which includes investing as part of an overall financial planning approach.

Robert Abboud, CFP, PFP, is the co-founder of AdvisorPractice.com, which offers advisors practical solutions to help transition to a financial planning practice and offers a 12 week training program. He is also the author of ‘No Regrets, A Common Sense Guide to Achieving and Affording Your Life Goals’. He has been offering life goals financial plans for over 15 years through his firm Wealth Strategies. Robert is available to speak at conferences and educational days. You can contact him at rob@wealthstrategies.com.