Don’t be in a rush to discount your fees
If an advisor greatly discounts or gives away his services, clients will discount that advice as well.
If you’re a great advisor, why would you charge less than your competitors? Aren’t you worth at least the market rate for financial advice, if not more?
I’ve seen hundreds of fee billings from advisors across the country and I’m baffled by the ridiculously low fees that some charge their clients. I’ll see one firm that charges an average of 110 basis points, and later that same day I’ll see another firm that charges an average of 65. These are for the same-size clients and comparable levels of service.
The reality is that if you do a fantastic job, you should be well compensated. And by extension, if you’re an outstanding advisor, you should get above-average compensation for the services you provide.
Some advisors believe that a clever way to land a client is by offering some sort of discount. And while, yes, you’ve got to learn to read the room, I believe the opposite can also be true. After all, wouldn’t one expect that a top advisor would charge a higher rate?
Attorneys and doctors do.
Here’s a first-hand example of how client perceptions can be shaped by the fees we charge. Twenty years ago, a prospective client came in to see me because he had heard from a friend that I was an expert in retirement transition. As we met, he told me he already had an advisor who managed his money and only wanted my advice on his retirement questions.
I asked this prospective client about his current advisor. He told me what a great guy he was, and that the advisor would drive to his house or his office for meetings, and only charged him $250 per quarter.
Seeing that I had nothing to lose, I set myself apart by telling the prospective client that I charged $500 per hour, that my in-demand scheduling meant that I had no time to drive to his home or office, and that all my meetings were held in my place of business. Lastly, I stated that any money that we managed would be billed at 100 basis points.
This person fired his advisor, transferred his accounts to me, and his fees went from $1,000 per year to over $20,000 per year.
Why did this client choose to incur such a dramatically higher fee? Because the client perceived greater value from me than he did his then-current advisor.
Perceptions matter. If a client perceives his advisor as the best, he will trust and follow that advisor, even when it’s painful or frightening to do so. If an advisor greatly discounts or gives away his services, clients will discount that advice as well and may make poor financial decisions that could derail their future.
I’m certainly not advocating overcharging anyone, ever. But I am in favor of receiving compensation that is commensurate with the worth I provide. And the longer I’ve been in this profession, the more certain I am that great advisors add tremendous value to the lives of the people they serve.
Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA with more than $19 billion in AUM.
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