Taking the fear out of fees

Historically, financial professionals have often been a little wary of discussing their fee structures with their clientele. With increasing transparency, regulatory pressures, and the rise of robo-advisors, this fear seems to have increased.

Regardless of the catalyst, there are only two real reasons why financial professionals might be reticent to discuss fees:

1. They haven't formulated a simple and elegant way to articulate the rationale for their fee structures. Fortunately, this is a relatively easy fix.
2. They have a nagging suspicion that their practices aren't worthy of their asking prices. This is a much more difficult fix but not impossible to overcome.

So, let's tackle the more challenging issue first. If a financial professional feels that his/her practice may in fact not be worthy of referrals, how can he/she determine whether that assessment is accurate or not? We have created a diagnostic toolkit built to allow you to benchmark your practice against a best-in-class model. We use the metaphor of a house to illustrate the structure of your practice. That house — your practice — is, in our view, made up of four rooms: the New Business Development Room, the Wealth Management Room, the Client Service Room, and the Practice Management Room. We give you five questions to answer per room that are designed to give you an accurate barometer as to how well each component of your practice is performing.

Optimizing your practice

The two rooms upon which you will likely be judged most harshly by your clientele are the Wealth Management and Client Service Rooms.

• The Wealth Management Room is where you analyze the complex challenges facing your wealthiest clients, architect a comprehensive set of solutions, and most importantly, implement all of the discrete components that are likely necessary to actually fulfill the plan. It is this final step that we have found is often missing. Too many financial professionals, once the assets come in and the portfolio is structured, fail to follow through on the remainder of the plan and therefore leave the client, his/her family, and often his/her business exposed to significant risk. You must understand that portfolio management, as a singular value proposition, is becoming increasingly commoditized and digitalized, and is therefore being priced accordingly. We believe it is only a comprehensive, fully integrated and implemented wealth management approach that is capable of maintaining healthy and justifiable margins.
• In our view, the Client Service Room must rapidly evolve from a generic and often reactive engagement model to one that is highly personalized, systematized, and proactive. We have put together a comprehensive tool titled "Crafting a High Performance Practice" toolkit, built to help you systematically analyze, hone, and refine both your wealth management implementation structure and your client service platform.

Communicating your fee structure

Once these two "rooms" are optimized, you are likely positioned to have the following conversation with new and/or existing clients to explain your overarching fee structure.

"There are two ways our industry charges for its guidance, products, and services: commissions on transactions and products, or fees based on assets under management. We utilize the fee structure for the following reasons:

1. Charging a small fee each year rather than a large commission at the beginning of a relationship means that we are rewarded based on the longevity of our relationships. As a result, our comprehensive wealth management approach, our highly personalized and long-term investment strategy, and our concierge-level client service model have all been designed to help you and your family achieve all of your long-term dreams, goals, and aspirations.
2. Charging a fee also puts us on the ‘same side of the table as our clients'; as your assets and income grow, so do ours, and if we have a downturn in the markets, it impacts us as well. At the end of the day, our success reflects yours.
3. And finally, it allows us to remain completely agnostic with both our guidance and our selection of products and services necessary to fulfill your comprehensive financial plan. Whether our guidance is to buy, sell, or hold, and whether our product mix is individual securities or utilizing professional portfolio managers, our fees remain constant. There is never an economic incentive to move our clients in and out of particular investments or products to generate revenue."

In closing, basic investment guidance and portfolio management is under immense pressure from discounters, regulators, and robo-advisors. If that's all you provide, your clients are likely questioning why they are paying fees for a service they can either outsource at a lower cost or obtain from another financial professional who also addresses their needs above and beyond what has now become the expected norm. However, if you help relatively wealthy clients solve their complex financial challenges by providing nuanced financial insights, philosophical and historical context meant to keep them "buckled in" to your investment strategies, and a comprehensive set of solutions built to help bring order to their financial lives, your clients might be more likely to stay, and even better, they'll perhaps be inclined to using your praises to their friends, family, and colleagues.