Practice Management

Explain what they get for the money they pay

By Lakhan Dwarka |

Editor's note: This article was originally published on April 19, 2016.

With the requirement for full disclosure of fees under the second phase of the client relationship model (CRM2), you might be required to justify what you do for clients to earn your fees.

"The discussion will certainly come up when clients see a breakdown of all the fees charged to their accounts, " says Prem Malik, financial advisor with Queensbury Securities Inc. in Toronto.  This breakdown, which is required by CRM2 reporting, would include a summary of administration and transaction fees and commissions paid to you or your firm.

"By helping clients understand what you do and how you get paid," Malik says, "you build their confidence and trust and enable them to see the value of the services you provide."

Typically, when clients' portfolios are performing well, they do not pay much attention to the fees they pay. But when markets are not performing well, clients may raise questions about your fees, especially when they can look at an actual number on their statement.

For example, Malik says, if a client's portfolio indicates a loss or even a marginal gain, he or she could ask why your fees have remained the same.

Here are some considerations for justifying your fees:

> Explain your fee structure
First, discuss how your fees are calculated. Explain whether your fees are based on a percentage of client assets, transaction-based commissions, services such as financial planning, or a combination of methods.

Heather Holjevac, senior wealth advisor with TriDelta Financial in Oakville, Ont., suggests that if you're offering a tiered fee structure based the on size of client assets, you should make sure clients are aware of the cut-off points for each fee level. Also, if your total fee is an aggregation of various components — such as advice, service, or access to other professionals — provide them with a breakdown of the relevant components.

> Highlight the services you provide
Malik recommends that you describe the valuable services you provide, from the discovery process right through to constructing clients' portfolios.

Holjevac, for example, prepares financial plans as a separate fee-based service, but does not charge a fee if the person receiving that service becomes a client. Once he or she becomes a client, Holjevac oversees all portfolio decisions, basing them on the client's objectives, such as tax efficiency or generating an income stream. She might also provide clients with mortgage and insurance products, or refer them to and work with other professionals to execute their financial plan.

"Putting together the right portfolio for clients requires substantial research, including meetings with fund managers and analysts," Malik says. He holds periodic client reviews and rebalances portfolios, and is always available to answer clients' questions.

"All of these activities require time, which I'm sure clients will appreciate," Malik says.

> Provide context
To ensure that your fees are competitive, you can benchmark your fees against industry standards. This way, you can show clients where you fit within the range of fees charged by other advisors.

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