Don’t be a pushover

October 25, 2012 | Last updated on October 25, 2012
3 min read

A great advisor is empathetic, but there’s such a thing as too much compassion.

And the tendency to feel sorry for clients is so prevalent that software firm PriceMetrix came up with the nickname “sympathy pricers” to describe this subset of professionals.

The term identifies advisors who feel awful when clients’ investments shrink and make it up to them by cutting fees and deeply discounting trades. The most pliable of the bunch even trade at no cost.

Read: Don’t be too quick to discount

Are you one of them? If yes, then you have some thinking to do. Because while your conscience is assuaged, your cost structures haven’t changed. In fact, you’re probably working longer hours, spending more time on the phone and making more trades, not fewer. And now, thanks to your empathy, for less money.

You tell yourself this will pay off in the long run. It won’t. In fact, the contrary is true. You’re setting up an expectation that’s hard to shake and you won’t be able to convince clients to pay you more once markets have recovered. Worse, you’re taking ownership of something you can’t control—the markets—and teaching clients to expect deeper discounts during every dip.

Read: Are your fees transparent?

Data bear this out. PriceMetrix discovered sympathy pricers don’t reset their pricing as quickly when markets trend upward, and their return on assets remains lower when compared to advisors who price consistently.

So, first off, consider your pricing structure. Clients are more likely to complain about transactional fees in a bad market. With a percentage-fee-based practice, you’re able to say, “If your portfolio goes down, we share in the pain.”

Second, explain that what you do costs money. One advisor I spoke with gives clients a choice between fee-based and transaction based, and uses a theme-park analogy to show how he gets paid: “You can pay per ride, or you can get an all-day pass, but either way, I’ve got to keep the park open.”

Even if you don’t know those costs exactly—many advisors don’t—give clients an idea of the type of behind-the-scenes work you do. Tell them what it takes to keep the lights on: rent, administrative staff, trading and settlement services, and specialty software, for starters.

Read: Easing the transition to fee-based

All that will help you to justify your value. You’re the calm in the storm. You save clients from themselves. You’re trained, experienced, and have the back-office support to handle clients’ market needs.

Next time the topic of price comes up, keep the client focused on the value side of the equation. Tell him you’ll rerun his retirement projections in light of new market conditions, or look at some tax-saving opportunities.

Instead of feeling sorry for clients, educate them. Otherwise, they’ll choose the lowest-cost advisor, because that’s all they can measure. Or worse—they’ll start looking for financial plans on eHow.

From time to time, the markets deliver a beating. Don’t sucker-punch your peers by forcing them to compete on price.