How to frame fees

By Stuart Foxman | July 18, 2013 | Last updated on July 18, 2013
3 min read

When clients obsess about fees, it’s usually because they don’t understand them. Walk them through how you’re paid and why it’s worth it.

Be transparent

Whether fees are embedded into product commissions or charged directly, clients want to know their bottom lines. Review how they work.

“When we talk about returns, we talk about money in their pockets after fees are paid,” says Hannah Giesbrecht, CFA, portfolio manager at Giesbrecht Snyder Group, MGI Securities Inc. in Winnipeg.

The various fees and costs clients incur affect returns. Help them run the numbers using a mutual fund fee calculator, and explain whether fees have risen or fallen over the last few years. Then, help clients assess whether the service is worth the cost.

Read: Do your clients know your value?

Clarify your value

Clients might equate fees merely with transaction execution. Be clear about what you’re offering and the time and effort it takes.

Rhonda Sherwood, a wealth advisor at Scotia-McLeod in Vancouver, talks about the time she invests. “I’m not just an order taker,” she says. “I let clients know all I do to stay abreast of markets, the economy, financial planning issues and the investments they are in.”

MethodExplain how you’re paid and what benefits clients gain from your advice.

This includes reading and following specific analysts and news sites daily, going to workshops, taking courses and of course, regularly assessing their plan and investments to ensure it’s right for them. Sherwood is currently working with a client to help that person set up a philanthropic foundation. To do this, she has to interact with several professionals, including lawyers and accountants, and get information on estate planning. “Either the time invested is obvious or sometimes I outright state it.”

Show, don’t just tell

Much of the value you’re offering occurs behind the scenes. So you must visibly reinforce your expertise.

Face-to-face reviews and education events are a chance for clients to see your insights come alive. Sherwood writes a weekly blog based on client questions.

Read: Worry about value, not fees

Meanwhile, Kim Inglis, an advisor and portfolio manager with Canaccord Wealth Management in Vancouver regularly emails clients articles she writes. Such outreach adds credibility, she says. That direct experience with your wisdom can show clients you earn what they pay.

Promote your objectivity

Questions about fees abate when clients see through experience that you have their interests at heart. For the past two years, Sherwood has had many clients heavily weighted in bonds, even though they pay her less.

Read: Prepare to be squeezed

“I’ll tell them that I’m concerned about the markets now, and until I feel more confident I want you in something more stable that provides a consistent return,” she says. “They’ll see that moving to bonds is in their best interests, with less risk—and as an added bonus the fee is quite low.”

3 points to remember this year

You and your clients have a few things to worry about in 2013. University of Chicago Professor Eugene Fama says investors should remember three key points when tweaking their portfolios. They are:

  • It’s difficult to choose active managers and they rarely beat the market.
  • The 2008 financial meltdown was triggered primarily by politics, not financial failure.
  • Inflation is imminent.

*Editor’s note: This article has been updated to remove commentary from an advisor who later faced serious disciplinary action.

Stuart Foxman