The market has seen some rough days lately post- election. And while many of the major indices are still in positive territory for 2012, you may face client concern about poor market performance and your perceived value.
Compressed equity returns can affect your ability to charge fair value for your advice. The work you do for clients in a tough market is more important than ever – but their tolerance for your fee may be pinched. If your client accounts are pacing the market and earning 5-6% — your 1% fee represents 20% of the client’s profits for the year.
Affluent retirees might question paying you $10,000 a year that they’d much rather be spending on themselves.
How do you cope?
1. Monitor time spent on each account. Clients likely don’t realize the amount of time you spend servicing and monitoring their account and gathering research on money managers and economic indicators. When you keep a detailed record of the time spent on each account, you can justify your fee more effectively. Some advisors offer clients the option of paying an hourly rate of more than $200 per hour – the typical fee charged by attorneys and other professionals. Others offer retainer fees for specific services.
2. Offer a comparison. You can show clients that fees save them money over traditional mutual fund costs when you consider expense ratios and front-end loads. Your fee functions as a wrap because you review your clients’ tax situation, and offer performance and gain/loss reporting.
3. Remind clients about all you do. Clients don’t just pay you a fee for market performance. You’re not just a portfolio manager. Here are a few benefits you can remind them about:
- Risk management. In a down market, your job is still to manage client risk and optimize their long-term strategic portfolio planning. This service becomes even more important when the market goes down as client confidence is low.
- Portfolio flexibility. In declining markets, slight modifications to a portfolio can help your clients manage risk. A fee arrangement allows you to fine-tune their holdings without worrying about costs.
- Constant advice. Paying a fee does not assure a positive return, any more than paying for a doctor’s services guarantees the treatment will be successful. Clients pay for the process and the constant attention you give them.
- Excellent service. Clients rely on your service team to be there to answer their questions and handle their requests promptly. Remind clients about the excellent service you strive to provide, that you have the best in the business handling their day-to-day financial needs. Point out that they can reach a member of your team at any time, and the level of personal service distinguishes your practice.
- Tax management. You play an important role in minimizing your clients’ tax bill. Making portfolio adjustments for tax purposes is more easily done under a fee arrangement because you don’t have to worry about transaction costs. Sometimes the tax savings can pay for a year’s worth of fees. A client can also write off your advisory fee, while mutual fund expenses are not deductible.
4. Defend the advice model. Ultimately, your clients have a choice between competent professional advice and doing it on their own. You will need to remind them upfront and over time that you are not the cheapest option for them. You’re not a discount broker. You charge them what they would expect to pay a highly-skilled professional. But remind them also that you help them simplify their lives. You handle all the details that they don’t have time to handle. You make sure they are on track for their long-term goals. You give them peace of mind – even in a choppy market.
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