If You Don't Know Your Own Value – Who Will?

By: Andy Klausner, Principal, AK Advisory Partners

It never ceases to amaze me that so many advisors are so willing to discount their fees – no questions asked – as a regular course of business. PriceMetrix conducted a study of advisors across North America, and the findings are based on data which includes the books of 15,000 advisors, 2.3 million investors, one million fee-based accounts and more than $850 billion in assets. A few of the findings of the study include:

  • Discounted management fees are taking an average of $20,000 a year out of the pockets of financial advisors.
  • The top 25% of advisors charge an average fee of 2.01% while those in the bottom quartile charge an average fee of 0.81%.

I find this last statistic very interesting indeed. To those who say that competition has increased and therefore fees must come down, I would counter with the question, do you want to be in the top 25% of advisors or the bottom quartile? Yes – competition has increased. But that does not necessarily mean that price is the only way to compete.

Successful advisors typically have the fee discussion with clients up-front, at the beginning of the conversation, as they describe their value-added proposition and unique perspective on the business. If the conversation is successful, discussions about discounts are quelled even before they begin. On the other hand, if the client brings up fees it’s probably too late.

The study also validates that point that once you have begun to discount, it’s very hard to end the precedent. According to PriceMetrix, only 5% of advisors increased their prices on existing fee-based account by more than 10 basis points in the years studied (2007-2010).

Few surgeons or attorneys to lower their fees – why should you? If you are confident in your ability to add value to your clients, then the fee discussion should be easy. In fact, turn the question around and ask the client “Would you want to do business with someone that has so little confidence in their ability to add value that they automatically offer a discount? If I help you define and reach your goals, the fee charged would be more than justified, wouldn’t it?”

Take control of the fee issue – and don’t discount you own worth! After all, if you don’t know your own value, you certainly can’t expect someone else to know it.