How do you move existing clients onto a trail or fee basis?

Well here’s my tuppence worth on an issue that many advisers are grappling with today!

How do you convince an existing client to agree to you starting to receive trail commission (or a fee) for pension or investments business written some years ago? How will you answer the pushback that you’ve already been paid?

I’m working on the premise that the overall charge is going to increase. Of course if you can receive a trail within the existing price structure (with the product provider taking a lower annual management charge), this conversation will be a lot easier!

When does trail commission / a fee make sense?

These remuneration bases make a huge amount of sense when real, ongoing value is provided by you. To my mind it’s as simple as that! I would argue that if the product provider is providing all of the value – why should you be paid a fee or trail commission? But if you are providing expertise and ongoing value to your clients, year in and year out, these are the only bases that make sense. I’ve worked with a number of advisers over the last year that have each said that clients don’t understand when a fee is not charged! When clients receive value, they expect to pay for it…

So you first of all need to add real value to your clients. You then need to ensure that you demonstrate this value in a way that clients clearly recognise the value that they are getting. And then you need to remind them of the value that you are adding, again and again.

Trail commission or fee?

If you’re clear enough about what you do and the value that you are adding, whether it’s a fee or trail is somewhat irrelevant, these simply become a method of payment. So really it shouldn’t matter?

But of course that’s not the real world. I know many advisers prefer trail as it is a bit more “below the radar” and you don’t have to ask for a cheque each year for your fee. Of course that is easier and is perfectly fine, where you are adding that ongoing value.

Adding value, being really clear about your proposition and communicating what you bring to the table in an engaging fashion also future proofs your business. We only have to look across the water at the UK, where we see the days of trail commission (without demonstrable value added by the adviser) coming to an end. This will prove very challenging for advice businesses over there that have been simply collecting trail without providing and demonstrating any real value. How will they justify a fee to their clients in the future? On the other hand, it poses no threat to those advice businesses that are clearly demonstrating value to clients and having transparent conversations about how much and how they are being paid. Trail commission and fees are simply methods of collection to these firms…

What about existing clients though?

So that’s all well and good, you demonstrate the value that you will provide in order to justify trail commission to new clients. But how do you move existing clients onto a trail basis? How do you answer the client who challenges you that you’ve already been paid?

First of all, you need to provide clients with more than they have received from you to date, or at a minimum make them aware of all that you do for them. You need to set out clearly all of the services that you will provide to your clients that you hadn’t discussed at the outset – services such as;

  • ongoing portfolio analysis and restructuring
  • rebalancing
  • future cashflow planning
  • access to your network of specialists (tax advisers, solicitors etc.)
  • your market insights
  • the money you are making / saving them every year

At the start of your relationship, you identified the right product for your client and set up their policy, and were paid commission to do so. Now you are going to add real value to these clients through the range of advice-based services that you offer – and for this you must be paid, either via a trail commission (or a fee).

You need to demonstrate your proposition that will add ongoing value year after year, for the lifetime of your relationship. You need to communicate this very clearly in an engaging way, and use case studies and testimonials to demonstrate the results that you achieve for your clients.

Doing these, you’re giving yourself every chance to gain the agreement of your client to pay you each year. Because the value they get will significantly exceed the 25bps or 50bps that they will pay.

How do you convince your existing clients of the value that you add and to pay for this by a trail commission or fee?