When higher fees build client trust

When higher fees build client trust
Advisors who compete with below market rates for their services might not be doing themselves any favors.
JAN 31, 2025

If I needed open heart surgery, I would want the very best surgeon I could find. And I would expect that surgeon to charge at least market rates, if not more.

If that surgeon charged rates that were far below the market, I would be very concerned. After all, why would an elite medical professional have to slash her fees? My impression of the heart surgeon would be degraded if she were the low-priced option.

I believe financial advisory clients, including prospective clients, have a similar mindset when it comes to choosing a financial advisor. They want to save on fees, but their perception of an advisor won't improve if it looked like he was trying to hard to compete on fees. In fact, it may have the opposite effect.

Roughly 30 years ago, I remember having a prospective client visit with me because he had heard I was an expert at his company’s pension plan. He said he already had a financial advisor, but wondered if I could simply help him make the right decisions in regard to his company’s retirement benefits.

Before offering up any sort of fee for my services, I asked about his current advisor. He proceeded to tell me how awesome his advisor was. They met every quarter, and the advisor would agree to go wherever was most convenient for the client. The last time they met, the advisor even picked him up at the airport and drove him to lunch for their meeting.

I told the client that this sounded like hands-on, old-school service, and I could understand why he enjoyed working with his advisor. Then I asked how much he pays his advisor. The answer: $1,000 per year. 

I expressed a bit of shock and dismay, admitting I certainly couldn’t beat his existing advisor in a fee fight. In fact, I told him, my fee was $500 per hour and all my client meetings were either in my office or over the phone. I didn’t make house calls.

Now, I had never actually charged anyone $500 per hour (this was 30 years ago, remember), but I wanted to stir up some doubt in the client’s mind. He’s paying his existing advisor about $100 per hour – even less when all the travel is factored in – and here I am telling him I’m five times more expensive.

You know how this story ends: the client cut ties with his existing advisor and hired me. He ultimately ended up entrusting about $3 million to me, where I charged him our standard AUM fee of about 1%. 

I’m certainly not advocating for overcharging clients. But I am strongly encouraging you to charge at least a market rate, and add a premium that reflects what your service is worth. Not only will you be fairly compensated for the value you bring, but clients will have a deeper level of trust and respect for you – and that will almost certainly pay dividends when offering guidance during turbulent times. 

 

Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA.

Latest News

Maryland bars advisor over charging excessive fees to clients
Maryland bars advisor over charging excessive fees to clients

Blue Anchor Capital Management and Pickett also purchased “highly aggressive and volatile” securities, according to the order.

Wave of SEC appointments signals regulatory shift with implications for financial advisors
Wave of SEC appointments signals regulatory shift with implications for financial advisors

Reshuffle provides strong indication of where the regulator's priorities now lie.

US insurers want to take a larger slice of the retirement market through the RIA channel
US insurers want to take a larger slice of the retirement market through the RIA channel

Goldman Sachs Asset Management report reveals sharpened focus on annuities.

Why DA Davidson's wealth vice chairman still follows his dad's investment advice
Why DA Davidson's wealth vice chairman still follows his dad's investment advice

Ahead of Father's Day, InvestmentNews speaks with Andrew Crowell.

401(k) participants seek advice, but few turn to financial advisors
401(k) participants seek advice, but few turn to financial advisors

Cerulli research finds nearly two-thirds of active retirement plan participants are unadvised, opening a potential engagement opportunity.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today’s choppy market waters, says Myles Lambert, Brighthouse Financial.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave