The standard commentary about financial advisors is that, with the rise of robo-advisors, there will be fee compression as advisors cut their AUM fee schedules to keep up with the competition. Yet the reality is that industry benchmarking studies show the median advisory firm’s fees haven’t dropped, at all, in the past six years. In fact, advisory firms are more likely to be raising their fees than lowering them, both for some higher net worth clientele, and to ensure that all clients pay an economically viable minimum fee.
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss how to go about raising advisory fees in your firm, and specifically how to break the news of a fee increase to clients.
It may be surprising to hear that advisory fees have actually going up for many, but the reality is with the rising competition in price, there has also been increasing competition in services. In other words, it is true that as financial advisors, we have to do more than ever to justify our fees. Yet by bolstering everything from our service levels to our deliverables and our expertise, many are finding that they’re doing so much more, they can actually charge more than they have in the past. So, if you find yourself needing to have this conversation, what is the best way to have it?
First, recognize that there are better and worse times to have this conversation. Ideally you want to have this conversation when the market is up, because clients will feel better about handling a fee increase when the market, their incomes, and their net worths have already been trending higher. Next, be sure that you first reinforce your value. Sometimes clients genuinely need a reminder of all of the things we do for them, especially over time. And then, you can hit the key elements: start with a positive message, explain why you’re going to raise fees, state that you are going to increase fees in the future, and be confident and transparent in communicating your new fee.
In fact, if you want to successfully raise your fees, the last point about confidence cannot be overstated. Successful fee increases are usually more about the advisor’s confidence in their own value, than whether clients perceive the value. Because the reality is that if clients didn’t perceive the value, they wouldn’t likely have stuck around so long in the first place. But if you don’t believe in yourself and your value proposition enough to believe in the fee you are asking for, then clients won’t believe it either!