Am I the Only One Who Thinks Fee Compression is Hogwash?

So they tell themselves they couldn’t make the same fees they used to because the robos are charging less. And then they tell their wives or husbands and their friends at the golf club. And then you see the retreat, the fear, the whining, and everyone feels bad so they keep saying it. Then it becomes a widespread “pity party,” and everyone else starts saying it. The media finds out and starts publishing articles because they know you’ll click and they’ll get enough traffic to charge high prices to their advertisers. Then the accounting software companies get some blogger to write about how by using their software you can earn more money, something about a magic invoice or something like that.

It becomes this whole thing about how the sky is falling, the sky is falling!

The robos aren’t really your competition

This argument that the roboadvisors are going to put pressure on fees is claptrap. As I wrote in a previous article, most roboadvisors:

1. Aren’t going to be around for long;
2. Don’t have a sustainable business; and
3. Have failed to prove themselves as capable of attracting significantly high-net-worth clients.

Three strikes and you’re out!

But seriously, if you are sitting there thinking that a roboadvisor is going to take your clients away, then you are the victim of a different illness than fee compression. What you are suffering from is lack of branding. If your brand were strong enough to set you apart from other advisors, then you wouldn’t be competing with roboadvisors, the vehicle of those who don’t have enough money to require the services of a live investment advisor.

What about Vanguard or index funds? Come on, now. There are always lower cost options in any market. You could go onto Fiverr and get a freelancer to revise your LinkedIn page for $5. That’s about a 99% discount off of what I charge. But you don’t hear me crying about how I can’t send my kids to college because of that.

And why?

Knowledge of the ability to leverage the force of demand is called “selling.” Yes, I said it: selling!

Does that Star-Spangled Banner yet wave?

Correct me if I’m wrong here, but it is the advisor, not the regulators or the law, who controls the price that is paid for his or her services.

I mean, did I miss something and accidentally misunderstand that we’re under a Communist regime or something?

No.

We in the United States live in a democracy and the Star Spangled Banner still waves! The forces of capitalism, supply and demand dictate the price paid for a particular good or service. Basic economics, folks.

I’ve got news for you, advisors: Fees are not declining industry-wide!

• UBS is still getting their price!
• Morgan Stanley is still getting full price!
• Merrill Lynch is still charging people and arm and a leg for things!
• Goldman Sachs isn’t applying a 30% discount!

These organizations aren't crying about fee compression because they know how to fight to make the forces of demand work in their favor. They know how to get in front of the uber-wealthy people who aren’t going to try to bargain down on fees. You can say all you want about how they’re not fiduciaries, but they are highly trained salespeople with a rigor and a quota and that’s why they’re outselling you.

Advisors, raise your fees instead of lowering them by devoting more time and energy to justifying that fee with your actions. Don’t lay down and accept this. Stand up and fight to prove your value in the marketplace!

Try harder, do more, and then charge more

How in heaven’s name will I manage to raise my fees in a market where it is believed that fees are dropping? Is that a typo, you may be asking.

Let me ask you this:

How much time in the last three months have you invested on educating yourself about taking action to improve your ability to sell (podcasts, rebuttal training, Youtube videos)?

versus

How much time in the last three months have you spent whining to your friends and family about fee compression and reading these propaganda-ish articles about it?

I bet #2 is higher!

How dare I ask that! Now here’s another one:

Have you ever asked clients why they hired you and have stayed with you through the tough times, and if they ever considered firing you, why they considered firing you?

versus

Do you make assumptions about how you are perceived and what your value is without confirming with the most obvious source of that information, the people who have bought the service?

Ready to trash me on APViewpoint yet? I know I’m asking some tough ones. Here’s one more:

How much control do you have over what the rest of the industry (robos, etc.) does?

versus

How much control do you have over your ability to do wonderful things for your prospects and clients that increase the perceived value of your service and hence the price?

The answer is 0% for question #1 and 100% for question #2.

I’m calling you to action today as you read this and asking you to do more and learn how to make it clear that you do, and your fees will only go higher.

Example:

You’re in a prospect meeting.

You: Gene, so what do you think of all we’ve discussed today? Does this seem like something you want to move forward with?

Prospect: Your fees are 1%. I can get lower with a roboadvisor.

You: Gene, that is absolutely true. There are many low-cost options out there.

But let me tell you a little story-poo (use humor here in a tense moment).

Over the last month I have reviewed the records for each of my clients with over $1,000,000 of net worth, just like you. I looked at not just the last year, but the last three years. The average annual savings I was able to create was $3,000. Now, what percentage of your annual fee to me would $3,000 be?

Prospect: Well, $3,000 out of $10,000 would be 30%.

You: Exactly. Now isn’t it clear what the value of my services are? You can’t get the $3,000 without investing the $10,000.

And assuming that all the value you’re getting from that roboadvisor comes from the market, how much assurance do you have that they’ll make you 30% this year?

Prospect: No way to guarantee that.

You: Right. And neither can I, by the way, but you see my point. Now what do you say we get started with your plan and do that tax analysis as our first exercise working together? Here’s the ACAT forms, let’s go!

(slight exaggeration at the end).

Fight hard to justify your value. Get a compelling marketing message. Very few advisors have much to say on social media other than “Happy Friday!” If you think you’ve tried and failed, try harder, get more creative, take three-times more action than you did before, and present it to that same prospect one more time!

Sara’s upshot

Advisor fee decline is all hype. When price is not perceived to be congruent with value, fee compression occurs. This will be a pressure that you will succumb to at many points in your life as an advisor until you learn to fight back with overwhelming value that helps the buyer rule out lower cost option. It’s going to take time, effort and the willingness to give more than ever before. Can you do this? Hit me on APViewpoint and let me know.

Sara Grillo, CFA, is a top financial writer with a focus on marketing and branding for investment management, financial planning, and RIA firms. Prior to launching her own firm, she was a financial advisor and worked at Lehman Brothers. Sara graduated from Harvard with a degree in English literature and has an MBA from NYU Stern in Quantitative Finance.

Read more articles by Sara Grillo