Beverly Flaxington is a practice management consultant. She answers questions from advisors facing human resource issues. To submit yours, email us here.
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Dear Bev,
I attended a session you did at a conference a while ago on how to talk about fees with clients. Some of the things you shared about how people view costs and how advisors undervalue themselves resonated with me. But the topic that made a difference was having confidence – in myself as an advisor, in the value I provide and in the way I can shift a client’s life experiences.
I changed the way I talk to prospects about what we do and how we do it. It’s been a winning strategy. I no longer negotiate fees; I stick to my fee schedule and charge what I believe I am worth.
The problem is with existing clients. I have had many cases where fear led me to reduce a fee quite substantially in the past. When I was worried about losing a prospect, I would offer a price break to get the person in the door. I have several legacy clients who are not large (I target clients in the $250k-$1.5 million range) and they are killing my practice. The fees are almost laughable when you look at what they pay me each year and the amount of work I put into their accounts. Some days I wish I could fire everyone under $250k and some who are bigger but pay me next to nothing. But that isn’t realistic. I know their stories, their family situations and in many cases we have developed friendships.
Why is it so hard to gain the confidence with my existing clients that I have with prospects and raise their fees? Is there any hope to shift my legacy book so my overall practice becomes more profitable?
E.R.
Dear E.R.,
Your situation is not at all unusual, if that makes you feel any better. I have lost count of the number of advisors and practices I worked with where the legacy clients have created a situation resulting in multiple fee schedules and money-losing accounts everywhere!
It’s natural and normal when you are starting out. You might take a client that isn’t paying you market prices (fees), and it is also normal for non-professional salespeople to find themselves waffling fees early on in their career or when they are launching their practice/firm. It’s the problem that comes when you finally figure out what you really are worth. You start asking for it and getting it and you juxtapose this with the clients you already have. It becomes obvious that there’s an incredible delta between your fees and offering.
But fear not, there are some steps you can take to rectify the situation a bit. You might still wind up with some lingering clients who aren’t paying the fee they should be. But you can minimize the delta.
- Identify those clients who are the money-losers. Not all small clients paying small fees are losing you money. Start by engaging in a segmentation strategy whereby you organize your clients by AUM/fees paid, and then look at the services you are offering to each of the segments. If you can drill into each client, this is the best approach. I have a client firm that just finished a tedious process of identifying every single client, their associated AUM and fee, whether there were family members attached and what the relationship was to the advisor and the firm. I’m not suggesting this is an easy process, but it is an important process to get an idea of specifically where things stand.
- Once you have segmented your clients, get clear on what they should be paying and the delta for each of the accounts. You may want to set a floor price. For example, no client pays less than $2,500 per year, instead of a percentage of AUM. One of our advisor clients ended up doing this so they didn’t have to technically “fire” small clients. They assumed most of the small clients would leave because in some cases this amount was 5%-6% of total assets. But surprisingly about 75% of the small clients stayed and paid the fee. You will also be able to see the impact on each client and determine, based on the relationship, whether it is worth putting a fee increase through or whether you should find an alternative. Depending on what you are doing for a client, they could be better off with a no- or low-cost investment platform (your note to me indicated you also offer financial planning, so I assume you are doing more than just investing).
- Take every opportunity with your existing clients to re-tell and re-sell them on the work you do. One problem with people who get to know you well is they start to see less of “the expert” and more of “my friend, my financial advisor.” This can have an impact on the value they attach to you and what you do. Often we wouldn’t pay “a friend” or someone we know well at the same rate we would pay someone we have read about or appears to be extremely knowledgeable. Familiarity is not a positive when it comes to pricing. Remind clients in every interaction about the journey they have taken with you, the problems you have solved for them and how much help you will be as their life continues to unfold. Don’t do this in an overt way, but subtly. For example, say you were reflecting on the relationship and thought about the time you did something that worked and what a great place they are in as a result. Frame it as how much these experiences make you happy and make you want to continue giving them the highest level of client service.
- If you do implement the fee increase, never tell clients it is because your costs have gone up or you need to invest in technology. They don’t care. They care about what they are getting for their fees. Have a good story about the value you add and how without you their lives would be much more difficult to manage from a financial perspective. I often think about the old Mastercard commercials about how there are things in life that are priceless. What’s it worth to get someone on the right track financially, to engage their family, to take pressure off their shoulders worrying about their finances and to help them navigate life’s difficulties and meet their goals? The answer: priceless.
Dear Bev,
This might be a bit too personal, but it’s a real situation for me. As a financial advisor, I confront the worst decisions people make with their finances, the sad family stories of loss and difficulty and the unplanned and unexpected conditions that lead people who thought they made the right decisions to find they aren’t as well off as they hoped to be.
We had a client last week with $26 million. Running projections, if they keep spending at the same rate they will be out of money in five to seven years. The stories and life situations are starting to impact me personally. I find myself worrying a lot about my own financial future. I have a personal net worth of over $12 million and am making $2.3 million a year with no sign of slowing down. I hope and expect to work for seven to 10 more years depending on my health. I find myself checking my own accounts every day and running projections over and over. I never technically run out of money in my projections, but then I think “what if?” and I go into every possible negative scenario.
My family fled a country that was at war. While we were very well off before the war, we left with nothing but the clothes on our backs and had to start over when I was seven years old. I have had nightmares about money and loss for most of my life as a result.
Do advisors talk to you about personal things like this? It’s embarrassing for me, but it’s also a real-world situation I am trying to navigate.
K.A.
Dear K.A.,
Yes, of course – I have heard every story imaginable from my advisor clients. They often feel comfortable sharing personal concerns. Many times, I find myself in role of therapist along with being a coach and consultant! But in your case, I am not going to dispense advice outside of suggesting you may want to find an advisor you could trust who is non-affiliated with your firm and share your plans and portfolio and get an outside opinion. If someone who does not know you well were to look at what you have done, you could gain comfort in your decisions.
If you are not talking to a therapist, I suggest you do so. We all know that beliefs about money run very deep emotionally. You are probably evoking past, frightening experiences from your subconscious and attaching them to your life today and what could or might happen to you in the future. This will be a good thing down the road because you will have dealt with it before you retire and go into a distribution phase, which could be extremely scary for you. Process this with a professional and find ways to become more objective about your situation.
The good news is that you are admitting this despite the outward success you have had and the net worth you have developed. Be kind to yourself and get some support and help before it starts impacting your ability to be an excellent advisor.
Beverly Flaxington co-founded The Collaborative, a consulting firm devoted to business building for the financial services industry, in 1995. The firm also founded and manages the Advisors Sales Academy. The firm has won the Wealthbriefing WealthTech award for Best Training Solution for 2022 and 2023. Beverly is currently an adjunct professor at Suffolk University teaching undergraduate and graduate students Entrepreneurship and Leading Teams. She is a Certified Professional Behavioral Analyst (CPBA) and Certified Professional Values Analyst (CPVA).
She has spent over 25 years in the investment industry and has been featured in Selling Power Magazine and quoted in hundreds of media outlets, including The Wall Street Journal, MSNBC.com, Investment News and Solutions Magazine for the FPA. She speaks frequently at investment industry conferences and is a speaker for the CFA Institute.
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Beverly Flaxington is a practice management consultant. She answers questions from advisors facing human resource issues. To submit yours, email us here. 