No one likes to get injections. The doctor says: “You will feel a little pinch.” No one likes to pay fees either. Since financial advisors, agents and planners do not work for free, fees need to be discussed. When I was in production I would explain: “Here is how we make our money…” Let us look at different ways to explain different fees.

1. No one pays nothing. Many people buy no-load investments. Certain firms are known for wafer thin margins when it comes to fees. It can seem like a tough sell when someone says: “I pay nothing now. Why should I pay you?” When investors buy “no-load” products, i.e. mutual funds, the investment company is not working for free. No load means one less person is getting paid (the advisor). Everyone else is getting paid.
Strategy: You have tools on your desktop to analyze almost any mutual fund to determine the annual fees for trading and administration built into the product. You have the same information on the products you are recommending. Subtract one from the other to determine the difference. This difference is the extra amount the client will be paying. What are they getting for that extra amount? You make your case.

2. Commissions are like sales tax. When you buy and sell stock, commissions are charged on traditional transactions. If a firm says it is not charging commissions, someone needs to determine how they are making their money. Assume there is a charge to buy and a charge to sell.
Strategy: When you walk into a wine store and buy a bottle, you pay the posted price, plus a bit extra. That extra bit is the sales tax. You might spend $100, but the total is $107.00. The commission you pay on buying or selling stock is similar to buying an item in the store and paying sales tax on top of the purchase price.

3. Buying bonds is like buying milk. Some financial products do not have a commission added at the moment of purchase. Municipal bonds are a good example. These are not listed products, meaning they do not trade on an exchange. Firms maintain an inventory. The firm buys at wholesale and sells from their inventory at retail.
Strategy: Buying municipal bonds is similar to buying milk at the supermarket. You carry the container to the cashier. The price is marked on the container. That is the exact price you pay. The supermarket buys the milk wholesale, marks it up and sells at retail. I would explain to clients: “If you wanted to sell this bond tomorrow and the market price did not change overnight, here is the (different) price the firm would be likely to pay.” That is the wholesale price, so to speak.

4. Talk dollars, not percentages. Fee-based accounts and managed money gradually assumed popularity as firms moved away from pricing by the transaction and embraced wrap fees. Pricing is transparent, but is often expressed in percentages. It is easier to understand dollars.
Strategy: Let us assume the client has $100,000 under management and the annual fee is 1% or $1,000. A thousand dollars is a large sounding number! If there are 365 days in a year, that is about $2.74 per day. You have seen insurance ads on TV breaking the cost of coverage down to dollars per day.

5. Fees as a percentage of everything. In the previous example, we looked at $1,000 as a 1% fee on $100,000. A client might single that out and feel it is excessive. Is that the only account they have with you? What other assets do they have?
Strategy: You advise your client on all the assets they have with your firm. This might include certificates of deposit, where the fees are built in and the CD is held to maturity. It might include long-term bonds held in an account not on a fee based platform. You are advising on all these assets, but fees are only charged on some of the accounts. What is the fee percentage across all the accounts where you provide advice? If you provide advice on assets held away (like their assets in their company retirement plan), that can be another factor.

6. The more you buy, the cheaper it gets. Managed money, fee-based accounts and mutual funds are often priced on a sliding scale with breakpoints. At some firms, your rate of interest earned might increase or your fee percentage decrease if you use more than one or two firm product areas. Put another way, you may get a break if you have your mortgage with the same bank managing your money.
Strategy: You talk about breakpoints. If they add money and cross a threshold, fees go down.

7. Managed money is pay as you go. Buyer’s remorse is a problem everyone wants to avoid. This can happen at auctions. When you buy certain investment products, you pay an upfront fee (commissions) or face a declining surrender charge. This means there are significant costs to getting out. Managed money and fee-based accounts are not priced that way.
Strategy: Although investing in general, and in this example, managed money, should be viewed as a long-term investment, you are only paying fees for the period of time you are using the program. If you decide to leave the program after four years, three months, two weeks and one day, that moment is when the fees stop being charged.

8. What would you like to take away? This approach moves into the area of negotiation. A New York advisor explained how he does business. This involves his process, relating the features along the way as benefits to the client. He explains pricing. If the client objects or wants lower pricing, he is receptive. He returns to the step-by-step process and list of features, then asks, “Which would you like to take off the table?”
Strategy: The above approach is self-explanatory. Most people would like the entire package. He is justifying his pricing.

9. Your fees are high. Compared to what? People often say: “Your fees are high” or “That restaurant’s prices are expensive” or “That station charges high prices for gas.” Compared to what? In the case of restaurants, your prospect has a favorite place where prices are cheaper. The driver knows which station sells cheaper gas. In both examples, it’s an apples-to-apples comparison. When discussing fees, what is the prospect using as the alternative, the basis for comparison?
Strategy: Dig a little. Learn what the client considers comparable for money management and the pricing. How does your offering compare to theirs? Are they close? If the offerings are comparable and advice is included in the package, they may have a point. You can proceed from there. Some negotiation may be involved.

Fees need to be addressed. These are only a few approaches to discussing fees. You might have another strategy that works well for you. You deliver value and deserve to be paid.

Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book Captivating the Wealthy Investor is available on Amazon.