The Test Most Advisors Fail: “How do you justify your fees?”
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Before I give a talk to advisors, I ask the sponsor to send out a survey to participants asking a number of questions. The key one is: What’s the most difficult question you get asked by prospects?
The responses center on how to justify fees and value. The problem is that very few advisors know the right way to answer these most commonly asked questions.
What isn’t asked
After reviewing thousands of responses, what isn’t mentioned is as significant as what is.
No advisor has reported being challenged by technical questions about investing or relating to their expertise or experience.
As a group, you’re well trained and highly qualified. I’m not surprised you don’t have difficulty fielding questions in these areas.
The questions you find challenging fall into three categories: Fees, explaining your value and differentiation.
The fees question is straightforward. It’s typically expressed as: How can you justify your fees? The subtext is that robo-advisors, Schwab, Vanguard and others charge lower fees. The prospect wants to know why he or she should pay you more (sometimes significantly more).
Explaining your value is really a variant of the fee issue. Presumably a prospect who was persuaded by your value proposition wouldn’t have concerns about your fees. This question is often asked like this: Can you explain how you add value?