With increasing media scrutiny, regulatory pressures and the rise of robo-advisors, fees are once again in the public eye. Regardless of the catalyst, there are two primary reasons why financial advisors are reticent to discuss fees:
1) They haven't formulated a simple and elegant way to articulate the rationale behind their fee structure. Fortunately, this is a relatively easy fix.
2) They have a nagging suspicion that their practice isn't worthy of their asking fee. If this suspicion pans out, it’s a much more lengthy and difficult fix.
So, let's tackle the more challenging issue first.
Finding Out Whether Your Practice Justifies Its Fees
How can financial advisors determine whether the fees they charge are commensurate with the value of the service they deliver? In our Client Engagement Toolkit, you will discover the three critical components upon which your clients judge your practice—as well as a detailed roadmap of how to upgrade them. Those components are:
1) Personal information and insights (the understanding that wealth does not exist in a vacuum but reflects your clients’ dreams, goals and aspirations): We've provided a tool to help complement and augment your traditional financial-planning questionnaires. Clients who feel understood trust those who understand.
2) Wealth Management Implementation Guide (the recognition that the vast majority of financial advisors have evolved from investment advisors to wealth managers): We provide a checklist to ensure that you actually implement your plan’s comprehensive set of recommendations. Once the plan is fully implemented, your clients will begin to relax.
3) Stratified Client Service Standards: After completing our segmentation process, we give you a stratified (platinum, gold and silver) "best practices" framework that you can simply plug into your existing practice and/or refine it to your specific needs. At the end of this exhaustive process, you will either know your practice is more than worthy of the fees you charge—or realize that you may need to take the necessary steps to upgrade your practice to justify those fees.
Articulating the Rationale Behind a Fee Structure
Once your practice is structured and systemized in a way that fully justifies your fees, the next step is to articulate your rationale in a clear and compelling way.
Here’s a suggested script you may consider:
There are two ways our industry charges for advice, products and services: commissions on transactions, and products or fees based on assets under management. This fee structure exists 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 on the basis of the longevity of our relationships. As a result, our investment strategy and client service models are built with the aim of helping you achieve your long-term dreams, goals and aspirations. They are meant as a service for you, your family and your business throughout your lifetime.
2. Charging a fee puts us on the same side of the table as our clients. As your assets and income grow, so do ours. If there’s a downturn in the markets, it affects us as well.
3. The fee structure also allows us to remain totally agnostic with respect to the advice we give and the selection of products and services we offer. Whether we offer you to buy individual securities or invest with professional portfolio managers—and regardless of whether we recommend that you buy, sell or hold—our fees remain constant. Our clients know there is never an economic incentive to move them in or out of particular investments or products just to generate revenue.
Where Do We Go from Here?
In closing, the investment business—from advisory services to portfolio management—is under immense pressure from discounters, regulators and the media. If that’s all you provide, your clients are likely questioning why they are paying fees for a service they can outsource at a much lower cost. To maintain and even increase your fees, you must become a sophisticated financial-advisory practice that not only handles its clients’ investment needs, but also their comprehensive, multigenerational wealth-management needs. You must help wealthy clients solve their complex financial challenges; construct sophisticated and nuanced investment strategies; provide philosophical and historical context to keep clients buckled into your overarching strategy; and develop a comprehensive set of solutions to bring order to their financial lives. Fulfilling these missions won’t only justify your fee structure to your existing clientele, but also have their friends and colleagues beating a path to your door.
Contact us to learn more about these topics and/or reach out to your local OppenheimerFunds consultant to schedule a complimentary consultation.
You can access the entire suite of the CEO Advisor Institute’s interactive tools and video resources by downloading the free CEO Advisor Institute app for the iPad or iPhone, available at the App Store, or by visiting oppfunds.com/CEOApp.
OppenheimerFunds is not undertaking to provide impartial investment advice or to provide advice in a fiduciary capacity.
Mutual funds and exchange traded funds are subject to market risk and volatility. Shares may gain or lose value.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.