Fee Compression Isn’t the Problem; It’s Fee Messaging, Says Expert
Many advisors fear that fees drive client decisions to hire and fire advisors, but that’s just not true, insists Patrick Schussman, head of advisory distribution at Aristotle Capital Management.
“You, your background and your life experience … [are] a big part of the fee justification,” Schussman said at the Schwab Impact 2018 conference in Washington, D.C. in October.
The top reasons clients fire advisors are the client’s relationship with other advisors – a friend or relative, for example – or the client is unhappy with their interaction with the advisor or the service they receive.
Schussman says the interaction and the service factors are “controllable” and within the advisor’s power to fix.
When it comes to fees, advisors “tend to suffer more in their messaging” of what their clients are getting in exchange for the fees they pay, according to Schussman.
“We need to reframe our thinking,” Schussman says.
He suggests advisors focus on what he terms the 4Cs: confidence, clarity, conviction and a compelling reason when talking to their clients about their fees.
When Schussman asked the hundreds of advisors in attendance who among them have a prepared point-by-point script when talking to clients about fees, less than a handful raised their hands. And that absence of a prepared script is mistake number one when it comes to delivering the fee message, he says.
“You don’t want to wing it,” Schussman says, referring to the explanation for the fees and answers to questions clients may have.
Without scripted company fee messaging, “we’re leaving it to chance,” he says.
Meanwhile, some of the largest financial advisory firms that provide their clients with new and value-added services – such as tax planning, alternative investments and private banking solutions – are not feeling the pressure to reduce fees, according to an online poll of attendees at the Elite Advisor Summit held by BNY Mellon’s Pershing Advisor Solutions in April.
Pershing says advisors who demonstrate value beyond asset management and basic investment counseling are able to justify their fees.
Steve Bogner, a New York-based advisor at Treasury Partners, says providing specialist value-add retirement services trumps the pressure to lower fees.
Bogner tells FA-IQ that almost every area of financial services is under fee compression – and the retirement plan space is no different.
He notes that retirement plan advisors have been able to avoid cutting their fees by demonstrating they deliver better value for the money.