Your clients don’t mind paying you to manage their investments, and most of them say you’re worth what you earn.
So finds our 2013 Advisor Group Salary Survey, in which 83% of clients agree with the statement: “Whatever my primary financial advisor is paid is worth his or her service to me.”
We queried advisors about how, and how much, they’re paid and asked investors what they know about advisor compensation practices.
Most of the news is good, but it may surprise you to learn that two in five clients say they don’t recall discussing how you’re paid. Perhaps part of the reason is that the conversation is, often, utterly forgettable.
That’s no dig at you. Advisors are generally required to follow a script on matters like compensation—compliance wields a heavy hand at the draft stage.
As such, your explanation may be riddled with hereins, hereafters and wherefores. All words that ensure the client will tune out.
So what techniques could you use to make the conversation memorable?
Start by creating some emphasis when you broach the subject. Say, “What we have to talk about next is boring, but it’s important because you need to understand how I’m paid.”
Joking about the dull nature of the topic breaks the ice and raises the chances the listener retains some of what you say—or at least recalls you raised the topic.
Then, if you sell managed money product, break down the management expense ratio, your initial sales commission and trailers. If you charge a fee for a plan, cost it out. If you build portfolios using instruments that incur trading costs, lay those out and explain that the research you use to make stock selections costs you money.
Most clients get the concept of overhead, and can follow along on a simple spreadsheet.
Also jot down the day and time compensation’s discussed. If it’s a reiteration, note that too. Then, if clients ask, you can remind them when the chat took place and even reference the context in which it was discussed. You can say, “We talked about it right after you finished telling me about your trip to Italy.” If you recall other details like what they wore, throw them in.
Showing how intently you pay attention is important, especially in today’s environment where regulators want to ensure you put the client first. It’s also a natural enhancement of your existing KYC processes.
You don’t want to give even the hint of an impression that you’re not being transparent about compensation. So create an experience to provide that transparency, and throw in mnemonics to ensure clients remember the discussion took place.
Philip Porado is the Executive Editor of Advisor Group.