To get clients to understand and appreciate the value of professional financial advice, they must grasp two key metrics: what they are paying and what services are being provided for these fees. While this equation sounds simple enough, the evidence suggests most clients are not adequately equipped to make this assessment.
In fact,
our “Financial Advisors' Value Proposition and Compensation” study shows confusion remains widespread when it comes to fees, as only 53% of financial advisers believe their clients completely understand their fees and just 33% of clients report they completely understand their adviser's fees.
This confusion is problematic for advisers because it negatively impacts the perceived value of financial advice. Investors seek transparency and predictability, which leads to understanding and
trust — two key prerequisites for creating lasting client relationships and meaningful referrals.
Fortunately, effectively communicating your value proposition doesn't have to be difficult. These five simple strategies can help guide the conversation:
(Related read: How clients really want advisers to earn their fees)
1. Be upfront, clear and consistent
It is crucial for advisers to clearly articulate their overall value proposition and link that proposition back to their services before fees enter the conversation. Proactively taking the lead establishes transparency and helps advisers thoughtfully manage the conversation. Conversely, waiting for clients to ask about fees unfairly puts the onus on them to be assertive.
Timing and consistency matter. A fees and services discussion should happen at the beginning of — and throughout — any client relationship. It is just as important to foster an ongoing dialogue, not only to improve comprehension, but to authentically establish trust.
2. Ensure comprehension
Keep it simple. Articulate your investment management services and advisory fees in layman's terms to ensure clients understand what you are charging them and what they are receiving in return.
Ask questions following the discussion and listen for key points in their answers to confirm comprehension. Demonstrate transparency by supplementing the information discussed with written materials or online resources that can be reviewed after the meeting.
(Related: Regulators propose a new fee disclosure model for brokers)
3. Assess your clients' financial literacy
Clients have varying levels of investment knowledge, and recognizing this up front can help you tailor your messaging. Taking time to assess how financially literate your clients are will allow you to fill in knowledge gaps and ensure effective communication with respect to both fees and value.
A high level of comprehension is beneficial to both the adviser and investor. When a client comprehends the specifics of their financial plan well enough to communicate them, the plan becomes their plan — and they begin to engage more and think with a longer-range perspective.
4. Demonstrate your value by protecting theirs
When faced with uncertainty, many investors exhibit behavior that appears to be at odds with their stated objectives. Help keep clients engaged and focused on rational decision making to maintain alignment with their financial goals and protect long-term security.
Paying for financial advice is a client's investment in their future financial well-being. Success should be measured on sustainable returns, defined in terms of value to the client.
5. Critique the relationship
It is essential to check in regularly with your clients to find out what is working and what is not — and why they feel this way. This not only sends a message to clients that you are responsive to their needs, but can also give you valuable information on how well you are delivering on plan objectives and provide insight on what macro trends are on your clients' minds.
Encourage clients to respond to the request for feedback with a gentle reminder that an informed, engaged client is more likely to achieve their financial goals than an investor who is not actively engaged with their adviser.
Putting it all together
Price is an issue in the absence of value. Addressing both sides of the value equation is critical. Clients are thinking about services and fees, but often do not see the link between them — and a client's understanding of what they are getting for their money is directly correlated to their perception of value.
By talking comprehensively about the sum of what you can and do deliver with your services, a client will see your value to its fullest extent. With the competitive landscape evolving, remember that is it the adviser value proposition that is the differentiator. And those that have the skill and ability to provide more authentic advice will flourish.
Brie Williams is a vice president and the head of practice management at State Street Global Advisors.
