Justifying Fees On Active Management

June 28, 2016

by Beverly Flaxington

Beverly Flaxington is a practice management consultant. She answers questions from advisors facing human resource issues. To submit yours, email us here.

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Dear Bev,

How do we deal with the active versus passive discussion right now? How can advisors justify the fees for active management?

Joe D.

Dear Joe,

Given the vagaries of the markets over the last few years, it’s reasonable for clients to ask why they are paying a fee for performance that isn’t that strong. I am hearing this question over and over again – in different forms: How to justify fees, how to explain active management and how to provide more robust value in the form of financial planning.

The answer starts with your story. If you are a firm who has previously focused on selling performance or the value of active management, it could be more difficult than if you have focused on overall wealth and financial planning. It might be time to review the story you are telling and how you are telling it. Take a look at your website, marketing materials and how you prepare for client meetings. Listen to how you and your team present your story and talk about the value you bring to clients.

Next review how you are working with clients. Are you providing the best client experience possible? Do you have a clearly defined, robust approach to work with them? Do clients see you as a resource and seek you out for your knowledge and support? Be sure there are no holes or gaps in your client experience.

Be proactive in the manner in which you address this issue. If you wait for a client to bring it up (hoping they won’t….) you are automatically on the defensive. Put together an illustrative communication both in written format and for when you are meeting with clients. Be somewhat conversational about it but be direct that your firm is getting this question a lot. Acknowledge it is a legitimate question to ask in this market and then go on to explain why clients are receiving so much value from your work.

Most importantly, don’t become defensive about it. Clients probably are paying a healthy fee for your work. It’s not that you are not worth it, but in times where returns are very low, or even negative, paying for someone to manage money may not seem logical to them. We know cycles and downturns will happen, but clients may not. Remember that next to health and family the thing closest to most people’s hearts and minds is their money. Honor their concern, but be prepared not to accept it, but rather to educate them about it.

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Active Management

Active Management