You probably get asked: “How much do you charge” a lot of times. There are many ways to answer the question. You have your own. Let’s look at a few more.
The Lawyer Joke
Let’s start off with a joke. A guy visits a lawyer and asks: “How much do you charge?’ The lawyer answers “$400 for three questions.” The guy says: “$400. That’s a lot!” The lawyer replies: “Yes it is. You have one question left.”
The Paradox That’s Difficult To Explain
Many people think of investing as a transaction, not a process. Unlike buying a can of soda directly, you are going through an intermediary who does the transaction on your behalf, handing you the soda. Since the end result is the same, they want the cheapest intermediary. They would really prefer to remove the intermediary and deal direct.
You’ve probably heard “The Doctor Story.” The guy goes to a doctor with a problem. The doctor asks a few questions, checks the patient’s vital signs and gives his diagnosis. It’s all over in about 15 minutes. The patient looks at the bill and complains because it’s a lot of money for 15 minutes of time. The doctor explains she went through eight years of college plus several years of residency and years working in her specialized field to learn enough to diagnose the patient’s problem in 15 minutes. The message is you are paying for the expertise, not the time of the examination.
The message you want to get across is investing is a multiple step process. The actual transaction to acquire the securities is only one step in the ongoing process.
It’s a difficult message to get across.
Five Answers for ‘How Much Do You Charge?’
Sophisticated investors understand advisors don’t work for free. They need to buy into the concept of a multiple step investment process. You explain the process, but they want to know the costs involved.
1. Cost of fee based accounts. You explain it’s a percentage based on the amount of assets involved. You give an example: $500,000 at 1% is $5,000 a year or about $13.00+ a day.
Logic: It’s a direct answer to a direct question.
2. Pay as you go. The above approach can sound expensive because the fees are ongoing. You explain clients pay for the period of time they are using the program. Although investing is meant to be approached with a long-term mindset, you pay as you go.
Logic: It’s different from products with upfront or surrender charges.
3. Wine Vs. milk. Not everyone wants managed money or fee-based accounts. Some people only want a transaction. When you buy milk, you pay the posted price at the register. No sales tax. You know the supermarket is making money because they buy at wholesale, sell at retail. They make money from the spread. That’s how firms make money selling municipal bonds and fixed income that doesn’t trade on an exchange. When you buy wine, the clerk charges sales tax. That’s similar to commissions on stock trades.
Logic: It puts the transactional business model in easy to understand terms.
4. Paid three ways. This approach is likely older than you are. You explain you are paid three ways: The first is on assets under management, the second is commissions or fees from transactions and the third is when a satisfied client sent a friend in the advisor’s direction.
Logic: It positions referrals early in the relationship.
5. Justifying built in fees. Many products have fees built into the pricing. Years ago, there was a bank in the U.K. that used this wording in their advertising. (I think it was the Bank of Scotland, but they have banks with similar names in the U.K.)
“What we won’t do is charge you for advice you choose not to take.” This was followed by “Because the cost of our advice is included in our products. So if you don’t buy, you don’t pay. (In our book, this is a realistic long-term way to do business.)
Logic: It justifies front-end fees, surrender charges and other internal fees. Unfortunately, it’s opaque because you need to dig further to learn the size of those fees.
There are different ways of answering the question; often it involves establishing the logic or rationale. You want to be open and honest, giving a straightforward answer.
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.