Five Ways to Talk About Fees With Your Clients
The conversation isn’t always easy, but getting it right can help you build stronger client relationships.
When you’re getting ready for a client meeting—say an annual review of their financial plan—you probably take specific steps to get ready. Maybe you pull up their current plan and asset allocation or check the notes from your previous meetings. But if you’re like many financial advisors, you may be avoiding one big topic: fees.
Financial advisors often don’t like to talk about fees out of fear that their clients will look for someone cheaper. And many clients don’t like to ask about fees either, because they think doing so will expose their lack of knowledge. In fact, because fees are such a taboo subject, discussing them candidly is a way for you to differentiate yourself as an advisor. By confronting the topic head-on—through a forthright, structured conversation about what you offer and what it costs—you can show your clients that you understand their perspective. As a result, you’ll be able to create transparency and build trust.
When you talk about fees with clients, there are five priorities to focus on:
1. The actual amount matters less than you think.
In financial advice (as in most services), people don't necessarily want the cheapest option; they just want to understand the relationship between cost and value. One recent survey found that "low fees and/or commissions" was not among the biggest issues for investors. The number one priority? An advisor that is "upfront with me and represents situations truthfully" (cited by 97 percent of respondents). Similarly, when investors leave a firm, the cause is more likely to be communication and trust, rather than fees.1
2. You need to be proactive and raise the topic BEFORE clients ask.
Your clients are definitely wondering about fees—especially new clients—and if you wait for them to ask, it sends an implicit signal that you've got something to hide. That confuses clients and makes them less willing to trust you.2
Put yourself in their position and think about how you would react if you hired someone—say, an architect to redesign your kitchen—and that person didn't talk about costs until you asked. Would you feel you were treated fairly?
3. The discussion should be specific about what you offer and what it costs.
Rather than trying to improvise, advisors should think through this discussion long before a client walks in the door. You should establish a set of key messages—potentially across your entire firm—and role-play in internal workshops to make sure you can communicate with clarity regardless of how clients respond.2
Also, the details matter. Rather than discussing abstract topics like your "value proposition," talk about specifics, starting with the services that clients get and then shifting to the fees.3
The highlighted services can be oriented around the firm's specialty (such as entrepreneurs or women-owned businesses), or it can be tailored to the needs of individual clients (retirement planning, college savings, insurance, or access to alternative investments or other types of investments that are only available through an advisor).
4. Dial the complexity level up or down based on the client's level of financial literacy.
The conversation doesn't need to be verbatim for all clients. Some investors want to understand a lot of technical details, while others just want to know you're looking out for them. Regardless of how much detail you go into, make sure they leave the discussion with a clear understanding. Ask follow-up questions, and ask them to explain the fee structure back to you. Taking the time to make sure they understand your compensation can help build your credibility. And give them the information in writing.3
5. Repeat as necessary.
The discussion about fees should not be a one-time event, or limited to when fees change. Instead, advisors should make it a regular, recurring conversation.
In the end, fees are an issue of fairness. Take the topic seriously, consider your clients' perspectives, and plan. It takes a little time, and it isn't always easy, but if you get the fee discussion right, you can win over your clients and build trust. And what's more valuable than that?
1 "The Price of Financial Advice: Communicating Fee Value Proposition with Clarity," State Street Global Advisors, 2015.
2 Greg Gohr, "5 Steps to Successfully Talk About Fees With Clients," Thinkadvisor, June 8, 2016.
3 "Discussing Fees with Clients: Emphasizing Services Instead of Stressing Value," State Street Global Advisors, 2011.