Today, anyone in the business of offering advice is challenged by clients who are looking hard at the value received for the fees those clients are asked to pay. That’s also true of accounting and law firms dealing with large corporations, which are increasingly drawing comparisons between traditional providers and new alternatives in places such as India, where fees can be as low as $75 an hour. And given the proliferation of low-cost options that are increasingly available online, questions about value are also arising among individuals who scour the internet for advice on travel, real estate — and their investments.

Many existing and prospective clients wonder whether they’re getting their money’s worth for the fees they pay. They may not say it out loud, but the question is often there, casting a cloud of doubt in their minds about the financial advisor they work with.

That creates an opportunity for you to be proactive in raising the subject when talking to your existing or prospective clients.

I was recently reminded of the concern about value for money during an interview on the Business News Network. The original purpose of the interview was to discuss advisor designations; but during the interview, which was live, I was asked whether advisors are worth the fees they charge.

I responded with Warren Buffett’s oft-quoted line: “It only takes two things to succeed as an investor: first, having a reasonable plan; and, second, sticking to it.” It’s the “sticking to it” part that investors struggle with, and I pointed out the critical role that an advisor can play when it comes to this aspect of financial planning.

I also referred to research that shows that the average retail investor underperforms the investments they own by buying and selling at exactly the wrong time, pointing out that the right advisor will almost always avoid this mistake and thus add sufficient value to justify his or her fees.

I delivered that answer on the fly, without thought beforehand. But the real issue is how you would respond to that question. While most people aren’t as forthright as the BNN hosts who asked me this question, it’s an issue that many clients have lurking in their minds, thinking: “What exactly am I getting for the commissions and fees I pay, and would I be better off saving this money and investing on my own?”

As you can see, it’s a good idea to develop your own summary of the value you provide to your clients, so that you are prepared when they ask these types of questions. And your response needs to be as specific and concrete as possible. General value statements such as “My clients sleep better at night knowing their finances are in order” are too vague to be persuasive.

Here are some examples of value statements:

> “I work closely with clients to develop a plan that will get them to their long-term goals with the least possible stress along the way — and then help them stick to that plan, which is actually the hardest part.”

Then, you could insert the Buffett quote here.

> “Research shows that most investors significantly underperform the investments they own, because they buy and sell at exactly the wrong time. I serve as an emotional anchor for clients; I keep the highs from being too high and the lows from being too low. As a result, I help clients avoid the mistakes that cost them money.”

> “I use the same approach to investing as do sophisticated pension plans and high-net worth investors. I build broadly diversified portfolios for clients using money managers with a consistent track record of outperformance over time. By rebalancing portfolios on a regular basis and sticking to our discipline, my clients have achieved performance greater than that of the market as a whole — with less volatility along the way.”@page_break@> “I take a contrarian approach to investing, underweighting investments that have done well and, as a result, are popular and overpriced; instead, I focus on investments that are undervalued.

“For example, Canada underperformed dramatically in the 1990s, and at the beginning of 2000, many investors were pulling all their money out and investing internationally just as Canada began a decade of superior returns. I’ve overweighted Canada in my client portfolios for the past 10 years, and those clients have done well as a result.

“Today, Canada looks expensive, and I’m talking to my clients about reducing our exposure here and looking at cheaper markets, such as Europe and the U.S.”

> “I focus on the entire financial picture for my clients, not just their investments. I put particular emphasis on helping clients minimize their tax burden. For example, I help clients use strategies such as spousal loans and pension-splitting to reduce taxes. And I structure investments for clients over age 65 to minimize or eliminate clawbacks on seniors’ benefits.”

> Or, if you specialize in working with a particular group, say so. Then add: “As a result, I bring a good understanding of your special needs.”

Then, cite an example showing how your specialized knowledge helps the client, such as: “I specialize in working with retirees who spend a good part of each winter down south. As a result, I bring a good understanding of your special needs. For example, I help clients manage the impact of the fluctuating U.S. dollar, address accounting and tax issues of owning property in the U.S. and help clients who are away for an extended period of time to keep abreast of their investments. And, each autumn, I also host a session on securing your home while you’re away.”



> Developing Your Value Statement

Above are some general examples of helpful value statements. Now, think about how you would answer the question on what you do in order to justify the fees that you charge.

If an answer doesn’t roll comfortably off your tongue, you need to spend the time to develop a clear value statement that fits your approach. You should then practice saying it until you can deliver it confidently and without hesitation.

Arguably, providing clear value and then effectively articulating that value is what will — more than anything else — define your success as an advisor.

Once you have a tight, persuasive value statement, add a question to initiate this topic proactively in meetings with existing and prospective clients. When talking to existing clients, for example, you could say: “Some clients wonder about the value that I provide for the fees they pay. Is this something you’d like to talk about?”

In some cases, advisors are concerned about creating issues in clients’ minds where none exists. But as long as you have a good answer to the “value for fees” question, it can’t hurt to raise this matter. You might be surprised by the number of your clients who are wondering about this issue but don’t know how to bring it up.

With prospective clients, the initiating question would be a bit different, along the lines of: “Some potential clients I talk to wonder about the value received for the fees they pay. Is this something you’re concerned about?”

By being proactive with that question, you will open the door to a conversation about exactly what you do for the fees that you charge.

At the same time, you can create a positive and frank dialogue about the value you provide with both existing and prospective clients who would otherwise be uncomfortable with such a fundamental question. IE



Dan Richards is CEO of Clientinsights (www.clientinsights.ca) in Toronto. To read other columns by Richards, visit
www.investmentexecutive.com.