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The downward pressure on financial services fees is a major issue. The majority of my conversations with advisors over the past couple years turn to a discussion of the tension on fees being created by robo-advisors and other low-fee competitors. But fee compression is going to be great for your business. It is not something to fear and loathe, but will have a dramatically positive impact on your ability to succeed in the future.
Financial services firms have faced fee compression before. In 1975, regulations mandated that brokerage firms change from fixed to negotiated commissions, which ushered in the introduction of Charles Schwab and other discount brokers. Those in the industry may remember several publications pronouncing the “death of traditional stockbrokers.”
Traditional brokerage firms are still in business, and quite profitably at that.
Investment management firms faced their own “impending doom” with the creation and growth of index funds in the late 1970s. On top of that competitive force, mutual fund firms also had to contend with a growing wave of excessive-fee lawsuits beginning in the early 1980s and continuing into today. We have seen several periods during the past several decades when actively managed funds were said to be a relic of the past. Yet again, we have not seen a dramatic decline in the number of actively managed funds.
There is no reason to believe that fee compression faced by wealth advisors will put them out of business. Instead, advisors can learn from some of the most successful firms to have weathered those previous pricing pressures.
- Re-focus your efforts on your target audience – Can you describe your target client(s) in 30 seconds or less? That’s the most important 30-second “pitch” you need to master. If you can’t identify for someone – COI, new employee, or partner – who your ideal client is, you have a serious problem. If you can describe your target client(s), when is the last time you reviewed that definition? Are there other target client groups that have developed in your firm over the years? Should they be there? When your industry is evolving that is the optimal time to re-focus your efforts.
- Step back and assess what matters most to your clients – Many advisors I talk to do a fantastic job of staying in touch with their clients. Whether through regular newsletters and quarterly meetings, they are consistently in front of their clients and helping them understand how well they are progressing toward their goals. Where a good number of advisors struggle is in having more uncomfortable conversations with their clients – not the topics that clients don’t like talking about, but the issues that make you squirm. How do your clients feel about fees? Do they see and perceive the real value you provide them?
- Refine your service offering and discard what is no longer relevant – Another area where most advisors do well is regularly adding new, or enhanced, services for their clients. However, many firms continue to offer services that offer little value or benefit to their clients. These services, especially ones that have been delivered for many years, cost money. Are they still necessary? Do most of your clients find them valuable? Don’t guess on the answers to these questions and don’t let your ego get in the way. Now is the time to find out what services to dump and which deserve greater emphasis.
Read the full article here by Drew Taylor, Advisor Perspectives