Dropping the ‘F Bomb’

From

Settle down now – this is a paper on the other ‘F Bomb’, the one that now is a must for every financial adviser. That four letter word is of course ‘Fees’ and this latest paper is designed to help you discuss your fees with clients.

For very many advisers the prospect of speaking about fees with a new or existing client is something they would rather avoid if it were possible.  This is particularly so for advisers who have been paid by a third party for many years and not directly by the client. While ultimately in such situations the client was the payer – either through a deduction from their capital at the point of investment or via a higher Management Expense Ration (MER) to fund a trail commission – it wasn’t as confronting as having to ask the client to pay directly.

In a similar vein to how the GST onset saw many ‘shoe box’ businesses fold because of the perceived complexity of Business Activity Statements and the like, I suspect with the advent of FOFA and the abolition of commissions save for existing investments, many advisers are thinking it’s all too hard to ask the client to pay directly.

However, it really is possible to learn how to discuss fees with clients in such a way that it becomes a very natural part of a client meeting.  It is largely in the mindset that needs to be adopted and the words and tone of discussion used when speaking about fees with clients.

Setting the Scene
Having a successful fees discussion with clients is not just about the verbal conversation.  There is a lot that you can do to ‘set the scene’ for clients so that they automatically expect fees to be the way you do business. It’s about non-verbal messaging – from business logos, signage; from stationery to websites and brochures to your reception area to the way in which you written word is formed in all your correspondence with clients.

Getting such messaging right helps to prepare a potential client that, as professional advice firm, you will charge professional fees.  The key point is that setting the scene makes it so much easier for you when the conversation needs to focus on how the client is going to pay for your services.

The ‘F Bomb’
While Financial Services Guides (FSG) must detail how an adviser is paid, at some point in a new client meeting you have to drop the ‘Fees Bomb’.  For many it remains a stumbling block when they begin to utter the word ‘fees’ however the key point here is that there is no set point in every new client meeting where fees must be discussed.

Real life is never as prescriptive as that and so it’s important for advisers to sense when it is most appropriate to speak about fees during the meeting.  That said, it must happen and you will look far more professional if you do so near the beginning and it certainly not be tacked on to the end of the discussion.

Some suggested wording:

Adviser: “… and so the process usually takes around three weeks from today before we meet again to discuss your written recommendations which will be in a document known as a Statement of Advice.  That said I need to walk you through our fees for each step of the advice process and portfolio management.  You might have noticed that our fees are recorded in the Financial Services Guide but I just want to go over them with you now so you can raise any questions you might have.”

The next client you meet with will be different and the way in which the meeting unfolds will be different to the last.

Client: “Before we go any further can you tell me how much this is going to cost me?”

Adviser: “Yes certainly. For today we do not charge as per the information in our Financial Services Guide.  If you would like us to prepare a Statement of Advice for you, our fee is a minimum $X. This fee is in recognition of our time costs in analysing your situation and your objectives and then developing a strategy to take you forward. We will present our advice to you in writing in the Statement of Advice at the next meeting.”

Client: “But what other charges will I have if I become a client?”

Adviser: “Well – if our advice includes investment recommendations – we will invite you to engage us under our portfolio management services. At this point I can’t say what that will cost however we levy our fees as follows…This means that on a $100,000 portfolio it would cost $X per year for us to manage it.”

Of course, if you operate on hourly fees or flat fees your example fee will need to be relevant.

At first, telling new and existing clients can be daunting for some however, like many things in life, the more often you do it the easier and more natural it becomes. Interestingly, the more often you do it the more relaxed your delivery will be and the more a ‘it’s the way we do business’ air of confidence will permeate every such discussion.

Remember – you will not be the first person your client deals with who charges them a fee and you won’t be the last.  If you are providing professional advice you have every right to charge a fee for services rendered.

Do you charge a fee for the first appointment?

Anecdotally at least, I sense that more advisers are charging for the initial meeting with a client. There will be various reasons for this however they could include:

  • Wanting to place a value on the time that is otherwise given away with free first appointments in the hope that a potential client goes on to seek formal advice and perhaps engage the firm or
  • Wanting to reduce the propensity for free appointments attracting ‘advice shoppers’ – people who ‘shop around’ for advice with little or no intention of engaging any financial planning firm

In the arena of fee charging, for some advisers, this will be a bridge too far just yet however, for those who are thinking about heading down this path, there are some key steps to have in place before charging for initial appointments.

Firstly, of course, there is the question of how much you will charge and that’s purely a matter for you and your colleagues. However, there is a delicate balance to be achieved here – you might want the fee to achieve, for example, some measure of cost recovery for your time, however equally you would not want to set the fee at such a level that it deterred most potential new clients from making a first appointment.

Secondly, you need to think about how the person wanting to make a first appointment is going to be told that there is a fee to be paid for it.  Naturally, it needs to be in your Financial Services Guide but it could be that the first opportunity for them to find out about the fee is when they telephone to make the appointment.

The question for you here is who will tell them?

  • Your receptionist?
  • Your assistant?
  • Or you?

Regardless of who it is, that person needs to have a, for want of a better word, ‘banter’ which politely, professionally, notifies the caller of the fee. So, consider this type of dialogue:

You: “Thank you for calling Mrs Smith, we have an appointment available on Xth of September at 10am if that would suit you?”

You: “Oh that’s good – it works well then. Mrs Smith I just need to let you know that we do charge a fee for the appointment and it is at $X including/excluding GST.”

Client: “Oh I see – do I pay that on the day or do you send me an account?”

You: “You’re welcome to pay it on the day or we can send you an account, whichever you prefer.”

Or

Client: “I see – gee I wasn’t expecting there to be a fee. What’s that for?”

You: “Well the fee covers the time we will spend with you at that appointment which is typically going to be at least an hour – sometimes an hour and a half or so.”

Client: “OK – so will you advise me what I need to do at that appointment?”

You: “We will be able to have a general discussion about your situation however we are not able to give you specific advice at that meeting.  The reason for this is we need time to develop a very detailed understanding of your current situation and what you are trying to achieve. In addition, it’s likely we will need some additional information about your situation before can decide on the most appropriate way forward for you.”

Client: “So what are the costs for getting the actual advice, then?”

And on the discussion would go.

This is the next fee challenge for financial advisers/planners – reaching a point of being sufficiently, professionally, confident to charge for the time which could otherwise be devoted to people who are already clients and who are already paying fees. Charging for a first appointment might not be for every adviser however, that new client who you didn’t charge for the first appointment will likely handover several hundred dollars for their next consultation with their medical specialist.

Note: The accreditation for this CPD article is no longer current. Please visit our CPD section for current CPD quizzes

 

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