Fees and Thank You: Advisors Should Appreciate and Articulate the Value They Bring

Jul 16, 2013

A few weeks back, Burton Malkiel wrote an Op Ed in the Wall Street Journal entitled “You’re Paying Too Much for Investment Help” cubes
(Sorry, a subscription is required). Just about every day, I see advertisements telling investors how easy it would be for them to invest on their own, avoiding “huge” fees other places charge (that’s code for you).

Overseas, the U.K. and Australia are requiring licensed financial advisors to move to a fee-for-service model, which is being closely watched by U.S. regulators. Seems like every day someone is attacking or questioning advisory fees – and for good reason.

Bob Veres wrote an interesting article in Advisor Perspectives called “Six Reasons You’re Charging the Wrong Fees.” As Veres points out, he conducted a survey of Inside Information readers and got 150 answers to his fee questions, with 119 different fee schedules. Veres wrote that “fee structures may be the least standardized, least logical part of the financial advisory business.”

Doing more, for less?

The fee question comes at a very important time. The CEB Wealth Management Leadership Council reported recently that clients are demanding more and more from their advisors in these “post crisis” years. More meetings, better and timelier communications and customized product offerings are now designed to focus more on protecting wealth, rather than increasing it.

So let me get this straight – we are working harder than before, providing better and more customized service than before, yet the media, government regulators and the do-it-yourself investment firms say you should be paid less, or at least differently.

When it comes to pricing our services, it seems that many advisors set up a fee schedule using 1% and try to create various breakpoints to entice clients to sign up. Why use 1%? Because that is what you heard others do. But when challenged, as there is no real science behind the numbers, the average advisor backs off his or her fee. In fact, a recent Pricemetrix article showed a 13% decline in overall new fee RoA on new fee accounts.

Make your case

So what’s an advisor to do? A long time ago, I heard a quote, “Price is only an issue when value is not perceived.” In other words, you need to show your value.


• Be confident. Sell on value the client will receive, not on being the least costly advisor.

• Look beyond the numbers. Investments are fast becoming commoditized; planning is not – and neither are you.

• Do the math. Know what it costs you to service a client and all the steps that it takes to deliver advice.

• Be prepared. Publish a list of all the services that you offer to your clients.

• Articulate your value prop. What is your unique value proposition? Know it and make sure they do too.

• Talk about your fees. It is the elephant in the room; don’t ignore it.

Don’t fear the Fee-per

In a report by State Street Global Advisors called “Bridging the Trust Divide: The Financial Advisor – Client Relationship,” the research shows that many advisors avoid fee discussions with clients out of fear of disturbing the relationship. If you are not showing value beyond investments and discussing your fees, you won’t have to worry about disturbing the relationship with clients… you won’t have any.

 Image courtesy of FreeDigitalPhotos.net. 

John Anderson

John Anderson

John Anderson is the creator and lead author of Practically Speaking blog and Managing Director of Practice Management Solutions for the SEI Advisor Network.

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