The Test Most Advisors Fail: “How Do You Justify Your Fees?”

Advisors Feesrawpixel / Pixabay

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

Before I give a talk to advisors, I ask the sponsor to send out a survey to participants asking a number of questions. The key one is: What’s the most difficult question you get asked by prospects?

Get The Timeless Reading eBook in PDF

Get the entire 10-part series on Timeless Reading in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Check out our H2 hedge fund letters here.

The responses center on how to justify fees and value. The problem is that very few advisors know the right way to answer these most commonly asked questions.

What isn’t asked

After reviewing thousands of responses, what isn’t mentioned is as significant as what is.

No advisor has reported being challenged by technical questions about investing or relating to their expertise or experience.

As a group, you’re well trained and highly qualified. I’m not surprised you don’t have difficulty fielding questions in these areas.

Three categories

The questions you find challenging fall into three categories: Fees, explaining your value and differentiation.

The fees question is straightforward. It’s typically expressed as: How can you justify your fees? The subtext is that robo-advisors, Schwab, Vanguard and others charge lower fees. The prospect wants to know why he or she should pay you more (sometimes significantly more).

Explaining your value is really a variant of the fee issue. Presumably a prospect who was persuaded by your value proposition wouldn’t have concerns about your fees. This question is often asked like this: Can you explain how you add value?

The differentiation question is often an effort by the prospect to justify changing advisors. The question is posed as follows: How do you differentiate yourself from my present advisor or from another competitor the prospect is interviewing?

Those questions are a trap for the unwary.

Flawed assumptions

Many advisors blindly respond to these questions by justifying their fees, extolling the value they provide and blithely differentiating themselves.

This approach is premised on a flawed assumption that the same responses are applicable to all prospects.

Think about that. How can you justify charging the same fees to a widow who may be clueless about investing and financial planning as you charge to a do-it-yourself investor who only needs your investment advice and is comparing your fees to those charged by Vanguard for index funds?

The same logic applies to justifying your value. The value you add differs depending on the needs of the prospect.

Trying to differentiate yourself from a competitor you may know little about is an exercise in futility.


For exclusive info on hedge funds and the latest news from value investing world at only a few dollars a month check out ValueWalk Premium right here.

Multiple people interested? Check out our new corporate plan right here (We are currently offering a major discount)

About the Author

Advisor Perspectives
The Advisory Profession’s Best Web Sites by Bob Veres His firm has created more than 2,000 websites for financial advisors. Bart Wisniowski, founder and CEO of Advisor Websites, has the best seat in the house to watch the rapidly evolving state-of-the-art in website design and feature sets in this age of social media, video blogs and smartphones. In a recent interview, Wisniowski not only talked about the latest developments and trends that he’s seeing; he also identified some of the advisory profession’s most interesting and creative websites.

Be the first to comment on "The Test Most Advisors Fail: “How Do You Justify Your Fees?”"

Leave a comment

Your email address will not be published.