Why Advisors Should Be Transparent About Fees & Minimums

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Executive Summary

The conventional wisdom amongst financial advisors is that the best place to talk about advisory fees and minimums is face-to-face with prospective clients, who are told “Come in for an introductory meeting and ‘we’ll talk’ about the cost to work together.” Doing so allows the financial advisor the opportunity to explain the nature of what he/she does, and the value of their services, to provide better context regarding their costs. And, if necessary, allows the advisor to make an on-the-spot decision about whether to grant a prospective client an exception when it comes to their fees or minimums. Except as it turns out, that also may be the biggest drawback to waiting until the first prospect meeting to discuss advisory fees and minimums, and can actually put us in situations where we make ‘business’ decisions we ultimately regret!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we look at why it is important to put your advisory firm fees and minimums on your website up front, including why it makes you more referable, helps screen out non-qualified prospects, and can protect us from ourselves when it comes to making fee and minimum concessions just to get (bad-fit) clients!

The first issue with not publishing your advisory fees and minimums, though, is simply what it communicates to the client. After all, the RIA that doesn’t publish their fee schedule online is effectively saying: “We believe in fiduciary transparency. That’s why we won’t tell up front what we charge.” And the reality is that, when it comes to RIAs in particular, our fees are already publicly available through the SEC’s Investment Adviser Public Disclosure website anyway! Which makes advisory firms seems as though they have something they’re trying to hide by making already-required-to-be-public fee schedules and minimums difficult for prospects to find. And to make matters even worse, not putting your fees and minimums on your website makes it hard for other people to refer to you, as there’s nothing more embarrassing for a referrer than sending someone to you, only to have you reject them. As a result, referrers are tempted not to refer, because it’s safe to not refer to you than it is to refer and risk creating an awkward social situation if their referral doesn’t meet your minimums or can’t afford your fees!

Another important consideration is how listing your fees and minimums allows your website to screen out non-qualified prospects. And this is valuable for advisors, because one of the most wasteful things you can do, from a business development perspective, is to spend a lot of time meeting with prospects who aren’t actually qualified to do business with you. When prospective clients can see what you cost and what your minimums are, if it’s not a good fit for them, they’ll just move on. Perhaps every now and then you’ll miss out on a prospect you might have converted and convinced you were valuable enough and worth paying for if you met in person. But you’ll also save a lot of wasted meetings with people who were, realistically, never going to do business with you.

Perhaps most important, though, is the simple fact that as a helping profession, most financial planners want to help people. Which means it can be especially hard to tell someone “no” to their face in a meeting, leading to the temptation to discount fees, reduce minimums, or make other on-the-spot concessions. And even for otherwise qualified clients, it’s difficult in the moment to stand firm on your advisory fees if a prospective client questions them the first time they hear about the fee. But when advisory fees and minimums are disclosed on your website, prospects know the details up front – and if it’s not a good fit, they likely won’t contact you in the first place. Which reduces the risk that you put yourself in the awkward position where you make bad business concessions to a prospect simply because it felt too awkward to reject them (even if it would have been a good business decision to do so!).

Because in the end, actually putting fees on your website is not that hard. Just write “Our fee schedule is <blank>. The minimum to work with us is <ZZZ> of assets.” If you are concerned about the possibility that you might take a client with only $300,000 who was in their 40s, then go ahead and just write something like “Our minimums are $500,000 of investable assets. However, our services are also available to active accumulators under the age of 45 with only a $300,000 minimum.” In other words, if you have rules about how you decide which clients to take, or not, simply disclose it, and let prospective clients choose!

The bottom line, though, is simply to recognize that putting your advisory fees and minimums on your website is good business. Both because it helps to fulfill your brand promise of being a real fiduciary. And because it makes it easier to refer to you. But most of all, because it helps to screen out non-qualified prospects, so you don’t meet with them when you shouldn’t. Which at best wastes your time. And it worst puts you in a position where you can’t help yourself and allow your fees and minimums to be haggled down. Which is not good for your business in the long run!

(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when the broadcast is starting, at/around 1PM EST every Tuesday! You can also submit your question in advance through our Contact page!)

#OfficeHours with @MichaelKitces Video Transcript

Welcome, everyone! Welcome to Office Hours with Michael Kitces.

For today’s Office Hours, I want to talk about a topic that is near and dear to my heart, which is putting advisory fees and minimums on your website. Because when I look broadly across the advisory industry, I still find it is very rare for most advisors to actually put minimums and fee schedules on their websites. Most of us seem to prefer the approach of, “Hey, just come on in and meet with us and we’ll talk about fees and costs and minimums.”

And I know deep down why most of us do this. It’s that fear that the prospect might not actually be comfortable with the fees and might say no and we won’t have an opportunity on the spot to explain or justify our costs or even if necessary, maybe make a little concession in fees to get the client, to get the business. Or it might be there’s some prospect who doesn’t exactly meet the minimums but maybe is still a promising long-term prospect. You know, maybe your firm is a $500,000 minimum and you meet with a prospect who only has $200,000 to manage, but they’re 37 years old, they’ve just made partner at a law firm, they’re going to be saving 6 figures a year for the next decade.

And that’s a very good long-term client for most of us as advisors, better frankly than maybe someone who’s over half a million dollar minimum but is an 82-year-old couple who’s going to spend the money down and pass away soon. So sometimes the minimum law doesn’t really actually effectively frame who’s a good long-term client, and so we want to meet and understand the situation so we can make a judgment call on the spot about whether it’d be a good idea to waive minimums or not. I get it. But here’s the problem with that approach.

The Problems With Not Including Your Advisory Fees And Minimums On Your Website [Time – 1:58]

First and foremost, hiding your advisory fees and minimums from your website is a terrible way to start off a fiduciary advice relationship. Just think about it for a moment. What does it communicate to a prospective client when you say, “You know, we believe in acting in our clients’ interests first and fiduciary transparency, that’s why we won’t tell you upfront what we charge.” And of course, the reality is what we charge, at least especially at the RIA side of the industry, is public information. It’s in our Form ADV Part 2 brochure, which is available to anybody on the SEC’s Investment Advisor Public Disclosure website anyways. It’s a public document, which to me just makes it more embarrassing that so many of us hide pricing information and minimums.

You know, what does it say to clients when you communicate, “We’re so confident in our value to you the client that we hide all our fees and minimums on the website, don’t tell you upfront where to find this information on the SEC’s website, and instead make you meet with us so that we can sell you on our services before we ever tell you what it will cost?” It’s not a very client-centric thing to do. It doesn’t feel good to clients.

Think about this from your end. Have you ever been interested in a business or service but you decided not to reach out to them and contact them because you didn’t know what it would cost and you were afraid that if you reached out to them, they just stick a salesperson on you who wouldn’t stop calling you and emailing you? How many times do your prospects do the same thing? Go to your website, check you out, see no pricing information, decide not to contact you because it’s not worth the risk of finding out that you are one of those aggressive sales types who once they turn over their name and phone number or email address just keeps hounding them. That’s the fear that prospects go through when we make it hard to find out what we charge.

Now, even worse, not putting fees and minimums on your website makes it harder for other people to refer to you. Because think about it for a moment from the perspective of the person who might refer business to you. There’s nothing more embarrassing for a referrer than sending someone to you only to have you reject them, right? Think about that for a moment. You know, my best friend comes to me and asks for a recommendation to an advisor and I recommend you. My best friend goes to you, meets with you, and you reject him because he doesn’t have enough assets to meet your minimums. Now my best friend feels bad and rejected, comes back, blames me because I sent him to you not knowing he couldn’t meet your minimums in the first place.

And I couldn’t prevent the situation because I don’t know your minimums or fees either because it’s not on your website and I couldn’t see. I can’t even just send my friend to your website and say, “Hey, check this information out, see if this advisor is for you,” which is a nice way of letting my friend self-identify whether your minimums will work or not in the privacy of his own home without getting rejected to his face. Because when you don’t put that information on your website, there’s no way to know. So what ends up happening, referrers don’t refer because it’s safer to not refer than it is to refer to you and risk creating an awkward situation when my friend or family member gets referred to you and then gets rejected from you.

I know a few of you are probably saying, “Yeah, but Michael, you could call me first and explain the situation and I might make an exception to your friend.” For which I say, “Don’t do me any favors.” I’m not trying to force my best friend or my family members, whoever I’m trying to refer on you. I’m trying to find a good fit for them. And if you’re not a good fit, that’s fine, I’ll refer them to someone else who would value them more as a client. But you know what happens when you waste my time making me call you just to find out if I can make a referral to you that qualifies in the first place? I take the time I would have spent calling you and I just look up at other website at another advisor and I refer to them instead because it’s faster and easier.

Simply put, if you want more referrals, don’t make it so hard for people to refer to you. Reduce the uncertainty by being transparent about what your fees and minimums are because you’re going to use that to make a decision anyway.

And indirectly, this actually highlights what I think is one of the most pernicious problems with not posting fees and minimums on your website, which is our tendency to meet with and then take on clients who weren’t really qualified to do business with us in the first place.

Why It’s Better To Let Your Website Screen Out Non-Qualified Prospects [Time – 6:06]

This is all about qualified prospects. So for those of you who aren’t familiar with the sales lingo, a qualified prospect is someone who is actually qualified to do business with you. That means they have the income and assets and financing wherewithal to pay you, and they have some need or problem that you could solve. So simply put, they have a reason to value what you do and an ability to pay for it.

By contrast, a non-qualified prospect is someone who would not qualify to work with you. Maybe they don’t value what you do. Maybe they don’t even understand what you do and won’t value it once you explain it to them. Maybe they need the help in an area that’s not your area of expertise. Maybe they just can’t afford you or meet your minimums. And the reason why this distinction matters is one of the most wasteful things that we can do from a business development perspective is to spend lots of time meeting with prospects who are not actually qualified to do business with us.

I know early on when you don’t have very many prospects, there’s a tendency you want to meet with anybody who can possibly do business with you just to have a chance to work with anyone and get any new revenue, but as the advisory business grows, you have to be efficient with your time, including your business development time, which means not spending hours in meetings with people who can’t possibly do business with you anyways.

And that’s why it’s so important to put your fees and minimums on your website. You use it as a screening tool so that they could see for themselves what you cost and what your minimums are. And if it’s not a good fit for them so be it, they’ll move on and you save an hour on the meeting.

Every now and then I get it. Maybe you’ll miss out on a prospect you might have converted and convinced that you were valuable enough and worth paying for if you’d met them in person, but you’re also going to save 10 wasted meetings with people who are realistically never going to do business with you and would never have met with you or wasted your time in the first place if you’d just told them what your cost or what your minimums were, to begin with.

And if you want, you could take all the free time from the 10 non-qualified prospects to go and find 1 more useful qualified prospect to replace them instead. Put your business development time to productive use. I know it feels good to be meeting with lots of prospects, it feels like a lot of activity, but if you’re meeting with prospects who are not qualified, it is not good activity, it is not good use of your time. And you’re kidding yourself if you’re thinking that kind of activity is really helping to grow your business.

Being Transparent About Fees And Minimums Protects You From Haggling With Yourself [Time – 8:18]

All of this being said, perhaps the most important reason why I think it’s so crucial to put fees and minimums on your website, is that it protects us from ourselves, because most of us are financial planners because we like to help people. I analyze their situation, do a plan, give them some recommendations, get them on a better track. You know, there was a day when the majority of financial advisors were really just salespeople, they were in it for the hunter and sales mentality, but I find more and more financial planners today, like, we do this because we want to help our people. And the problem is when you’ve got a helper in a service mentality, you tend to be really bad at turning away non-qualified prospects.

Does this sound familiar to any of you? You are meeting with a prospect who doesn’t quite meet your minimums but they seem like a really nice person. You really want to help them and they can’t afford your minimums or your services so you say, “I’ll tell you what.” And then you make a concession. You take on a client below your minimums who won’t be profitable for you. Or you present your services and then you tell the prospect what it’ll cost and they have some sticker shock surprise. And they say, “Wow, I didn’t realize it was going to cost that much,” right? Maybe they’ve never had a financial planner where they actually had to pay for advice before because they always paid indirectly via commissions and now they’re stunned to see what advice actually cost.

And what do we do when you hear something come from a prospect like, “Wow, I didn’t realize it was going to cost that much to work with you?” You’re immediately doing the math in your head trying to figure out how much could you lower your fee and still make this work to save the prospect and get the business? In fact, you know, the client may not have even actually asked for a discount yet, they’re just like reacting to the price, but you’re already fearing it’s coming and you’re already getting ready to make a concession. That’s the problem.

Stephanie Bogan did a wonderful guest post on the blog a couple of weeks ago about these kinds of mindset challenges we have. That when we hit these issues with prospects and we fear we might lose the business or get rejected, we go into this fight or flight mode. Our brains kick in, we’re emotionally driven to do whatever we can to fix and save the situation. And the problem when we go down that road is it means we start doing business with people who don’t value our services and pay us what we’re worth or can’t even afford to pay us what we need to be paid to run our businesses profitably. Because we don’t want to lose the prospect even though we probably should have been working with them in the first place because we’re just sitting across from them, they don’t want to be rejected and we don’t like to reject them.

And this is really why it’s so important to put fees and minimums on your website, because your website isn’t going to put you on an emotional guilt trip to make a concession to a prospect. The prospect will look at the website, make a decision about whether to work with you or not and either contact you because they value you at your full fee and minimum or they’ll move on. And either way, no one asked you to make a concession. You’ve removed yourself from the situation where you tend to make bad business decisions.

It’s the same thing we do with our clients, right? What do we tell clients who keep watching the financial news and then freaking out about the headlines and making bad investment decisions? Stop watching the financial news. So what do you do if your heart goes out to every prospect you meet and you keep making concessions on your fees and minimums because it feels too awkward to reject them? Stop meeting with them. Use your website as a filter that they’re qualified to do business with you before they meet with you, because they’ve already seen your fees and minimums, and then you won’t put yourself in a situation to make a bad business decision.

I’ve done this for years at my own practice. In fact, for all of my businesses, you’ll always find our cost information out there very transparently. And I do it because I love to help people. And I know that if I meet with all these folks and they don’t know what I cost and I told them on the spot and they say, “Well, what if we did this,” I may capitulate and make a concession. So when I put all the information on the website that says, “Here’s what we do and here’s what we cost, and we’re very confident this is a valuable service,” if someone doesn’t think that’s worthwhile, they just move on, and I don’t have conversations where I put myself in a position to take business that’s not actually a good fit.

How To Publish Your Fees And Minimums On Your Website [Time – 12:24]

Sometimes when I talk about this issue with other advisors I always get the question, “Okay, but how do you put this information on your website? What are you supposed to say?” And honestly, it’s not that hard. Just write it out. “Our fee schedule is this.” Put your tiers in. “The minimum to work with us is $500,000 of assets.” It is what it is, don’t be embarrassed about it. Be proud of your value. If your concern is, “Well, yeah, but I might have taken on that client that was $300,000, who was only 40-something and saving actively.” Fine, then write on your website, “Our minimum is $500,000 of investable assets, however, our services are also available to active accumulators under the age of 45 with only a $300,000 minimum.” And you know what’ll happen? People who are under 45 and $300,000 that think your services are appealing, they will call you.

In fact, what you’ll probably find is someone will at $270,000 of assets and say, “I don’t quite qualify for you, but I’d like to work with you, is that okay? Can I come up to your minimums?” And you could say yes. You’ll be amazed to find how often people will contact you below the minimums you publish if they really value what you do because they want to work with you. And if they want to work with you, that may be a good fit and a good long-term client.

So if there are good business reasons to have exceptions for your fees and minimums, that’s fine. It’s a good decision, but don’t be bashful about it. Just say it on your website. “Here’s how we work and who we work with.” Because at the end if you don’t say it on your website, you will have to say it eventually. You’re just going to have to say it to their face and reject them then, which probably won’t feel better.

Or worse, you won’t reject them to their face and then you’ll take on clients who weren’t a good fit, who won’t be profitable for the firm, who won’t value what you do and end up leaving anyway, and take up one of those valuable limited spots that you have to serve clients, that could have been used to work with someone who was profitable to work with, who really did value what you do and would have stuck with you in the long term. If only you hadn’t put yourself in the position to be unable to turn away non-qualified prospects so you kept meeting with because you didn’t publish fees and minimums on your website, and your heart kept going out to them. And if you’re really concerned that prospects won’t understand your fees and your value then explain that on your website too.

We recently had Anna Sergunina on the podcast who talked about how she explains the value of her advisory fees on her website with listings of, “If this is your situation here’s exactly what you do. What we do for you.” You know, we’ve also published in the past the average all-in cost of a financial advisor in the industry, so if you want to emphasize you’re a reasonable cost then show it. “Our advisory fee 1%. Wouldn’t you sleep well paying 1% for good advice to protect the other 99% of your net worth?” Or, “Our minimum is $500,000 and the average client pays 1.3% of total all-in investment cost, including our advisory fees and underlying ETFs when they work with us. According to Inside Information advisory fee benchmarking survey, the median all-in cost for a $500,000 client is 1.65%. So at 1.3%, we’re nearly 20% below the average cost to serve a client like you because we’re so effective at working with people just like you.”

Simply put, if you want to be certain your prospects will understand and appreciate the value of your fees and what you do, then explain it to them on your website to make sure they’re qualified before they meet with you so you don’t put yourself in a position where you’ll inevitably allow them to haggle you down when you shouldn’t.

But the bottom line is just to recognize that putting your advisory fees and minimums on your website is good business, because it helps you fulfill that brand promise of being a real fiduciary and actually being transparent, and it makes people more easily refer to you. And most of all, because it screens out non-qualified prospects so that you don’t deal with them when you shouldn’t, which at best waste your time and at worst puts you in a position where you can’t help yourself and you compromise your own fees and minimums and haggle them down because you weren’t comfortable rejecting someone, which is not good for your own advisory business in the long run.

I hope that’s helpful as some food for thought. This is Office Hours with Michael Kitces. We’re normally 1 p.m. East Coast times on Tuesdays. Obviously a little bit later than usual this week, but thanks for joining us, everyone, and have a great day.

So what do you think? Is not listing your fees on your website a terrible way to start off a fiduciary relationship? Does posting your fees keep you from haggling with yourself? How do you publish fees on your website? Please share your thoughts in the comments below!

 





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