Good advisors are used to challenging conversations with clients about unrealistic expectations and sticking to plans in tough markets. But going forward, no conversation will be more difficult than the one about how much you charge – especially when we enter the next market downturn.
You need to do three things to handle those conversations effectively.
- Be truly confident in the value you’re delivering. If you come across as tentative or defensive, it’s game over.
- Be proactive in initiating these conversations. If you wait for clients to raise the topic, it puts you at a big disadvantage.
- Most important, shift your mindset away from your process and concentrate squarely on the concrete outcomes you deliver for clients.
Why clients don’t care about your process
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Dan Richards
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If you look at a sampling of advisor websites, you’ll see a proliferation of four-, five- and six-step processes that promote a supposedly unique distinction. These multi-step processes typically have catchy brands and glitzy graphics that are intended to achieve differentiation and convey value, .
There are two problems with relying on this approach to convey value: These processes often look similar and don’t address what clients care about.
It’s no different than when you run into a problem with your car and go to the dealership where you bought it. You have zero interest in the state-of-the-art computer scanning used to diagnose the issue, the hundreds of thousands of dollars invested in the latest equipment or the hours of training that the technicians have received. All you care about is that your problem gets solved quickly and at a fair price.
The same thing applies to discussions about the fees your clients are paying. Most clients are only tangentially interested in your teams’ training and credentials and the process you go through to create financial plans and build portfolios. Rather, they want to talk about what they’re getting for the dollars they’re paying. Today, many advisors struggle with that discussion. Because of the unpredictability of markets, it’s natural that many advisors are reluctant to rely on the returns that they generate for clients. But even if you don’t want to talk about what clients are receiving for the fees they’re paying, many clients are anxious to have this conversation.
Talking about outcomes
Clients are paying more attention than in the past to the value for the dollars paid to their advisors. Low-cost options for investment advice (from robo-advisors) and for financial planning (from alternatives such as Vanguard, albeit by telephone) will create a new frame of reference for what’s reasonable. This is similar to what happened in the real estate industry and to new-car pricing. Even though most consumers have no desire to buy a car on eBay or to sell their house themselves, lower-cost pricing options put downward pressure on margins.
Just as more and more clients will be laser-focused on the value that they get, so advisors will need a single-minded focus on the value they deliver. Here are some ways to do that:
- Advisors need to either “grow big” and provide a full range of comprehensive advice or “go niche” and build differentiated expertise among a narrow client community.
- If your focus is on managing assets rather than on planning, present proof of the value that you’re adding. I’ve written about an advisor whose largest client with $5 million in assets questioned the $50,000 he paid in annual fees. That advisor was able to present that client with a spreadsheet showing his returns for the past five years compared to a 60/40 stock/bond index, demonstrating that the advisor had added substantial value for $200,000 in fees over that five-year period.
- Another advisor shows clients data comparing losses in their portfolio in 2008 and early 2009 to the market as a whole, providing concrete evidence of his ability to mitigate risk in down markets.
- Advisors who take a wealth-management approach often talk about helping clients reduce taxes. But talking about reducing taxes isn’t enough – if you’ve used strategies such as tax harvesting or trust structures to reduce a client’s tax burden, quantify those savings. Similarly, if you’ve structured cash flow to increase government benefits, put a dollar amount on the positive impact on your client’s situation. And if rebalancing is part of your value-add, document how it left your client better off, whether by increasing returns or dampening volatility.
Of course, it’s not always about dollars and cents. Some advisors add significant value and build deep bonds by addressing clients’ needs regarding their parents and adult children – whether by helping facilitate difficult family conversations, assisting clients in evaluating options for assisted living or having a junior associate discuss budgeting and credit cards with clients’ children heading off to college.
Whatever your core deliverable is, be prepared to point to concrete results. Ask clients if they’d like to add a conversation about what they’re getting for the fees that they pay to the agenda of your next review. More and more, clients are wondering about this. By proactively putting this topic on the table, you are sending a positive signal about your confidence in the value that you deliver to clients.
Dan Richards conducts programs to help advisors gain and retain clients and is an award winning faculty member in the MBA program at the University of Toronto. To see more of his written commentaries, go to www.danrichards.com or here for his videos.
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