Eighty percent of something is better than 100 percent of nothing. The logic applies to giving away smaller accounts to a junior advisor in the office with the understanding the fee spitting arrangement will go away after a few years and they will own the account. You have generated some income where there was none. This logic applies to negotiating fees with clients too.
When I was an advisor, I wasn’t a fan of discounting fees. Even with family members, I felt if I was giving the same service as I gave to my best clients, I deserved to be paid. However, I also realized sometimes you needed to be flexible and discount to win business in competitive situations. I’ve heard of stories from the time of the Great Recession where some advisors, seeing clients suffering heavily when the stock market declined, offered to cut their fees until the crisis was over and the market started rising again. You determine if the situation warrants discounting.
Six Thoughts Regarding Fee Negotiation
You might not be happy getting less revenue while you are expected to do the same amount of work, but there are ways to go about it that both satisfy the client and work in your favor.
1. Put a time limit on the discount. Some advisors agree to a discount, which is then cast in stone forever. Discounting within the rest of your own financial life doesn’t work that way. If you open up a new credit card or do a balance transfer, that great rate is an introductory rate, which disappears on a specific date. The rate changes to the standard rate.
Advisors: You agree to a discounted rate for six months or a year with the understanding you will revisit pricing at that time. This gives you an opportunity to show what you can do.
2. Don’t discount but give something extra. It’s often been done in the cosmetics industry. The familiar term is “free gift with purchase.” In negotiating with a car dealer, they might not come down on price as far as you like, but they include an additional accessory or option at no charge.
Advisors: You aren’t giving away free toasters, but the initial financial plan might have a price attached to it. If they become a client and open an account of a certain size, the cost of the plan might be applied as a discount towards the first year’s fees. Hopefully that’s within the rules.
3. You can discount some products, but not others. Here’s an obvious point. Some products have fees built into the structure. You can’t pull them out. You absolutely can’t hand the client cash as a rebate on fees! That would be illegal! Since they are buying several products, there might be flexibility on some, not others.
Advisors: You explain insurance products have fees built in. Managed money is different. You can discount (some) on the managed money products, but not on the others.
4. Unbundling. A New York advisor developed a great approach. He would explain his process in detail and what it cost. When the prospect would push back on pricing, he would gesture to the different stages of his process and ask: “What would you like to take off the table?” Usually, people want everything.
Advisors: The strategy above explains itself.