By John Anderson
A short while back, Burton Malkiel wrote an op-ed in the Wall Street Journal titled “You're Paying Too Much for Investment Help.” Just about every day, I see advertisements telling investors how easy it would be for them to invest on their own and avoid “huge” fees that other places charge (that's code for you).
Overseas, the U.K. and Australia are requiring licensed financial advisers to move to a fee-for-service model, which is being closely watched by U.S. regulators. Seems like someone always 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 Mr. Veres pointed out, he conducted a survey of his newsletter's (Inside Information) readers and got 150 answers to his fee questions — with 119 different fee schedules. Mr. Veres wrote: “Fee structures may be the least standardized, least logical part of the financial advisory business.”
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 advisers in these “post-crisis” years: more meetings, better and timelier communications, and customized product offerings designed to focus more on protecting wealth, rather than on 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 we should be paid less, or at least differently.
When it comes to pricing our services, it seems that many advisers 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. When challenged, because there is no real science behind the numbers, the average adviser backs off his or her fee. In fact, a recent Pricemetrix article showed a 13% decline in overall new-fee return on assets on accounts.
MAKE YOUR CASE
So what's an adviser 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. How?
• Be confident. Sell on value the client will receive, not on being the least costly adviser.
• 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 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.
In a report by State Street Global Advisors called “Bridging the Trust Divide: The Financial Adviser-Client Relationship,” the research shows that many advisers 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.
John Anderson (Janderson@seic.com; Twitter: @SEIJohnA) is a managing director and the head of practice management for the SEI Advisor Network, and the author of the practice management blog Practically Speaking.