A Reasonable Wage

I believe everyone should be paid in accordance to the value they bring to others. There should be a relation between what you do and what you earn. Sounds logical. And the ratio can be $1 in pay for 1, 10, 100 or 1,000 in value. But it can never be less than 1:1. Would you pay $1 for 50 cents? Didn’t think so.

But some financial advisors seem to think clients will. They do add value, but their expectation of what they get paid is completely out of relation to that value. Though they would never say it, their answer to the question, “How much do you expect clients to pay you for your services?” is, in effect, “As much as they possibly can”.

Here’s an example: advisor has two clients they manage investments for. Both get annual reviews, newsletters, regular portfolio rebalancing, timely response to their questions and a birthday card. Same value provided.

The difference is one client has $100,000 in invested assets, and the other has $1,000,000. Many advisors will accept the same percentage as a trailer or management fee – let’s say it’s 0.3%. That means one client is paying $300 per year, and the other pays $3,000. Either the first is getting 10 times the value, or the second is paying too much.

As an advisor, you should find ways to address this issue. Add value to your top clients. Charge them less. Or both.

Or someone else will.

Nothing for nothing

A popular way to add value to a purchase is to give something for free. Beer companies add t-shirts in cases. Grocery stores give a gift card if you spend enough.

It is a very successful way to influence purchase decisions, but there is a risk. Whatever you give away becomes devalued – you can’t sell it ever again at a premium. As a financial advisor, you need to be very careful what you give away for free without a thought.

Advisors who provide financial planning as a free service, and tell the client that the insurance companies or fund companies or whatever pay them is an example. Doing this makes it almost impossible for them to transition to a ‘fee for service’ model, where they now expect clients to see the value of paying for that which was once given away for free.

That’s not to say that you can’t offer it without charge. I know there are many advisors who are new to the business, or ones who are just getting comfortable with the idea of charging for their services. Just make sure everyone knows there is value to your services. Figure out a fair value, and tell people, “I charge $x for a comprehensive financial plan, which I am willing to offer to you without charge if you are willing to commit to placing whatever products will be required by the plan with me.” This will this establish value for your services. It will gain commitment from the client, so you do not end up ultimately doing all of that financial planning work for free.