Ironically, discussing money'fees to be exact'can be one of the toughest parts of an advisor's job. If you identify with this statement, you're not alone. James Grubman, Ph.D., spends his days working with wealthy families and businesses and the advisors who serve them. (He also teaches Psychology in Financial Planning at the McCallum Graduate School of Business at Bentley College in Massachusetts.) In his 10 years of experience doing this'and 30 years as a practicing psychologist'he has come across a lot of advisors who fail in the fee-discussion process with their prospects.
'It really is a blind spot for many advisors,' he says. 'They have their own anxieties about talking about fees. Sometimes they are embarrassed because they think their fees are too low or too high. ' Some advisors are anxious about discussing fees because they've been set by someone else, and they don't entirely agree with those fees. So, in essence, they become the messenger for fees they did not create.'
Grubman collaborated on a report that was issued by State Street Global Advisors in conjunction with Knowledge@Wharton (from the Wharton School of Business) called Bridging the Trust Divide: The Financial Advisor-Client Relationship. In it, his ideas, along with the results of the focus groups and survey the researchers undertook, coalesced into four key takeaways for advisors that lead to transparency in fee discussions:
1. Don't avoid talking about fees. Face your fears and do it; otherwise, the fee discussion will linger in the background as unfinished business, says Grubman. While you may be anxious that the fee discussion will not go well'that the client will be angry or will want to negotiate the fees'this fear is largely unfounded, says Grubman. Instead, in most instances, it will turn out much better than you think.
2. Talk about fees simply and clearly. This may be a tough point to put into practice. Advisors tend to retreat into detailed technical talk when they are anxious or embarrassed; clients are looking for a straight answer. As the study states, 'clients do not want shades of gray. They want it pretty black and white.' Shades of gray lead to clients having a feeling of confusion and mistrust, says Grubman. Just give clients the 'headline;' you don't have to tell them the whole story at that point. It can be as simple as saying something like, 'Basically, it's 1 percent of whatever you have in your account per year, under most conditions.' he says. 'And never use the words 'basis points.' Nobody knows what a basis point is.'
3. Put it in writing. If it's down on paper, a client can find the information at a later date. That's important because his memory of the points you brought up during your meeting will not always serve him well later on. 'Clients need to easily and quickly put their finger on what the fee is,' Grubman states. Having the fee in writing gives clients a document they can refer to at a later date.
4. Provide context for your fees. Let you clients know where your fees stand in relation to the competition's fee and those of the industry. This may sound difficult, but Grubman says that advisors don't have to 'overthink' it. The bottom line is that your client may have no idea if your fees are 'good, bad or indifferent,' he says. It helps to use charts and graphs to illustrate your point. The more affluent the client or prospect is, the more important this step is likely to be.
These four points boil down to one thing: transparency. If you build a clear and concise process around the discussion of fees, your clients and prospects will feel more loyal to you and experience the relationship as much stronger, says Grubman. And that 'trumps performance every time.'
For more information or to download the report, go to the Knowledge@Wharton website.