How to talk fees

One thing many prospects want to know right away is how much you get paid, and how. Use the opportunity to explain your value.

Read: Understanding CRM II’s performance reporting requirements

The public’s conditioned to believe full-service firms are expensive. Billboards and TV ads constantly reinforce this message. When a prospect asks what you charge, and how, they’re almost always saying, “Give me a number.”

So give them what they want, along with your rationale. Explain why you deliver good value for the money you charge. And avoid vague answers. They can tell if you dance around the question and will conclude you’re very expensive.

Six Approaches

Your answer should keep them engaged. Here are some examples of how to get it right:

1. Direct Answer: “Let’s consider a $500,000 portfolio utilizing several money managers. We charge 1.75% annually or about $8,750 a year. This breaks down to about $24 a day or 1.75 cents on a dollar over the year.”

Outcome: You gave a straight answer. You took a large number and converted it into a more digestible daily number.

2. Tax Analogy: Quote a percentage in the example above. Now put it into perspective. “Provincial and federal tax rates in can be almost 15%. You’re spending almost 15% on practically everything you buy each day. We charge 1.75% for the service we provide.”

Outcome: You put your fees in perspective by comparing them with other charges they pay on a regular basis.

3. Paid Three Ways: “Traditionally we’ve been paid on transactions. You buy or sell a stock and you’re charged a commission. We are also paid on assets under management in certain fee-based accounts. We benefit when satisfied clients introduce their friends who later become clients.”

Outcome: You broadly answered (and would add some numbers) but you also introduced the concept of referrals early in the relationship.

4. Milk and Wine Analogy: “Certain products like milk have no sales tax added. You know the merchant makes money when he buys at wholesale, marks up the product and sells at retail. That’s how we make money on products like bonds. Other products like wine have sales tax added to the price. That’s how we make money on products like stocks, when we add a commission to the price.”

Outcome: You’ve explained transactional business in familiar terms. Add some numbers to make your answer more precise.

5. No-Number Answer: “We charge a retainer fee based on the complexity of the situation.” Not everyone can use this example. It applies to certain fee-only ongoing financial planning services. It also describes fee-based managed money relationships. The client is retaining the advisor and the money managers.

Outcome: You want to sound different because your practice is different. Your goal is to keep them interested and talking.

6. “Pay as you go”: “Although investing is a long-term process, our fee-based platforms are priced on a pay-as-you-go basis. If you use these managers for three years, four months and twelve days, and then move your money, you’re only paying for the amount of time your assets were under their management.”

Outcome: You’ve stated a valuable benefit. There are no up-front fees or deferred sales charges. You only pay for the service when you are using it.

Also read:

U.S. CFP Board angers members over fee-only definition

Most investors support embedded fee model