Practice Management
The conversation isn’t always easy, but getting it right can help you build stronger client relationships.
Dec 3, 2019 - 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 professionals, you may be avoiding one big topic: Fees.
Financial professionals 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. One recent survey found that only 56 percent of wealth management clients said they understand the fees that they pay. Perhaps not surprisingly, nearly half of respondents in the same survey were dissatisfied with the fees they paid and weren’t confident that they were being charged fairly.1
In fact, because fees are such a taboo subject, discussing them candidly is a way for you to differentiate yourself as a financial professional. 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. Fairness and clarity are more important than the actual amount. 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 and be reasonably confident that fees are fair. For clients that are unhappy with fees, the solution can be less about lowering fees and more about improving communication and clarity.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. Instead, be proactive and ensure they understand how the fees work, starting from your very first meeting with them.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, financial professionals should think through this discussion long before a client walks in the door. Ask yourself a critical question: Do you believe that you’re worth your fees? Most financial professionals would say yes, based on their experience and expertise. Use that to establish a set of key messages about the value you deliver—messages that can potentially be consistent 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. 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 a financial professional).
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.2 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, financial professionals 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 2019 Global Wealth Management Research Report, EY Wealth & Asset Management, 2019.
2 Brian Lampron, “5 Steps to Navigating the Fee Conversation with Clients,” Commonwealth Financial Network, Aug. 28, 2018.
3 Mark Bordelove, “How Advisers Can Have the Fee/Commission Conversation with Clients,” TheStreet, Sept. 9, 2019.
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