How To Defend Advisor Fees

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How To Defend Advisor Fees

April 7, 2015

by Beverly Flaxington

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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,

Our firm is falling into the classic 80/20 rule: our smaller, low-fee clients are taking up too much of our time. As my finance person points out regularly, these clients bring us 20% of our overall revenue, so I am hard pressed to say we get rid of them. That said, it is frustrating when they criticize what we do for the fee they pay. They get the same level of attention as our larger clients, yet they don’t seem to appreciate us. I wish there were a way to show them our value. We’ve thought about providing a grid that shows what the costs should be and the reduction they are getting. We’ve also toyed with the idea of showing them what their portfolio would have been if they had never worked with us; that is, taking their original allocations and doing simulations based on market activity to date. There must be a way to illustrate the value more effectively. Have other advisors done this? If so, could you share their approach?

Jeffrey B.


Dear Jeffrey,

This 20% revenue group are already not contributing enough to justify your time. Now, you are spending even more time thinking about them and how you can defend your fees. I propose looking at the problem in a different way. I think running simulations or providing schematics won’t help make your case, and the ROI in spending the time won’t be worth it. I’m not a proponent of “defending fees.” It always puts the person defending in a lower position, trying to justify something that more often than not needn’t be justified.

Instead, turn the situation around. First, consider making tiers of clients as many advisors do: the Gold, Silver, Bronze approach. Identify what, specifically, you do for clients and then create a menu. Certain things you do are basic (Bronze) and every client gets them. Other services are the next level and only Silver clients get them. Lastly, there is the highest level of services for your Gold clients. Some firms prefer to do Platinum, Gold and Silver, so that no client is ever “Bronze.” If you could list your services in a menu it would help to show the levels you offer at different AUM or fee points. For illustrative purposes, let’s say a client is paying $3,500.00 a year, They wouldn’t be entitled to as many yearly meetings as someone paying $10,000 a year. Having a tier or a description of services aligned with fees is one way to show what clients get for their money.

Second, consider doing a resell campaign every time you meet with clients. Even when you are updating their portfolios or talking about changes to their life plans, you can remind them about the services you provide and why it was a good choice to work with your firm. The more often they are reminded of your value and service, the less fixated they will be on your price. Of course you do this subtly, not in a self-aggrandizing way. Work it into conversations naturally. Remind them of a problem you solved or an approach you have that is particularly valuable

The last thing you might do is raise your fees. Instead of defending the current fees, go negative on the clients. Let them know you have realized that you need to charge more for your services, but you will “Grandfather” their accounts or give them a year grace period. In my experience, the smaller clients who demand more attention are never paying enough for the time they require. Examine your current structure and see if this applies to you.

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