The whole area of fees sends a chill down the spine of lots of financial advisers. How much do you charge? Will clients pay? Will they pay every year? These are some of the questions I’m asked all the time.
Yes we’ve seen moves towards fees in other markets, with a lot of focus on the changes in the UK in particular. But that doesn’t mean that we’re moving to a fee only environment in Ireland. In any event, I think the question of commission v fee is the wrong question… To my mind, it’s all about what you’re being paid for, rather than how you are paid.
Maybe let’s start with some of the reasons that clients won’t pay annual fees, whether this is paid by an annual fee, a monthly retainer or as a trail commission.
They can’t afford them
There’s no doubt, there are many clients out there who just are not in the position to write you an additional cheque every year. Their income may be low, their outgoings may be high and these clients are seeking the minimum number of financial products to meet lender requirements and to provide basic levels of protection for their families. These clients are not going to pay fees.
They don’t see why they should
This is a more interesting group… These people can afford fees, have multiple financial advice and product needs but don’t see why they should pay for it each year. Whose fault is this? Well it’s theirs if they think that they can get your services for nothing. But maybe it’s your fault if they just don’t place enough value on what you do? You need to consider;
- How much value are you providing beyond setting up products?
- How robust and valuable is your planning and advice model?
- How well do you communicate this to clients?
- How well do you link this value proposition with your charging basis?
Get these right and you’ve a better chance of convincing this group to pay your fee each year.
They know another adviser who won’t charge a fee
There is always another adviser who will undercut you on price, indeed there are execution-only options out there for clients. However this is where the focus is solely on the product implementation. If you can demonstrate to the client that the fee is for the excellent and valuable advice that you give and that this will positively impact their outcomes, they are more likely to decide based on value gained rather than the price paid.
This group is a tricky one for advisers who hate to see a client go elsewhere. But if you’re not being paid a fair price for the value that you bring, it sometimes makes sense to walk away…
So what are the main activities that you need to undertake in order to give yourself the best chance of convincing your clients that the annual fee is worth paying?
Develop a compelling advice proposition that clients value
I know that there is a huge amount of talk at the moment about the need for a clear value proposition… But it really is a basic requirement if you hope to convince people to base their purchase decision on value rather than price.
Your value proposition needs to demonstrate to clients and potential clients, what you do, where you add value, why this is important to them and the positive impact that you will have on helping them achieve their financial objectives and better outcomes. Think this through from the client’s perspective – if they can’t connect with the value for them, you’re going to find it more difficult to justify your fee.
Make sure clients value your advice, not the product purchase
Move the conversation away from choosing the right product and then implementing it. At the end of the day, the clients don’t place much store on this. Advisers who are today receiving large portions of their income from fees focus more on helping the client really understand their life and financial objectives and then develop a plan for the clients to help them achieve these objectives. The products merely become vehicles to help them get there.
Deliver a great service and review process
If you’re going to look to charge your clients each year, you’re going to need an ongoing service that clients believe is second to none and worth the price paid. This will mean being available, adding value throughout the year and communicating regularly with clients.
Central to this is developing a really powerful review meeting. This is not just about communicating updated values (even though you do this too), but it is about really demonstrating to the client how they are progressing towards their financial objectives, and why continuing on this journey with you offers them the best opportunity of achieving their desired outcomes. So broaden this meeting out, bring in all of your undoubted experience and expertise and package it, so that your clients will seek out these value meetings with you, year after year! And it makes it easier for you to justify your fee.
What experiences have you of charging fees? What are the main hurdles that you encounter? Please feel free to leave your comments below