Navigating fee conversations with clients

As financial advisors, negotiating fees with clients requires a combination of finesse, transparency, and a genuine understanding of clients' concerns.  

Vikas Jethwani, an eight-year MDRT member from Mumbai, India, believes this key learning guides any relationship and plays an important role in guiding fee conversations. Shweta Mmunot, a two-year MDRT member from Rajasthan, India, agrees and shares the importance of setting clear expectations and building trust as essential skills in this endeavor.  

 

Establishing clear communication channels 

Both advisors highlight the importance of establishing clear communication. Jethwani says, "Advisors should proactively communicate their fee structure, ensure the clients understand various components and can quantify the value they receive. A well-informed client will more likely appreciate the services and associated fees. One can do this with a comprehensive fee schedule and detailed explanation."

 

Getting the value proposition right 

Jethwani believes offering services that add value helps in negotiations. "It gives the opportunity to justify the fees structure by tailoring the financial advisory services to address specific client requirements. In my practice, I had a client who was hesitant about the advisory fees. I tailored a comprehensive financial plan that not only included investment strategies but also tax optimization and estate planning services. 

Once the client understood the additional value these services brought, it was easier to negotiate a fee structure that worked for both sides. This approach not only secured the client's trust but also demonstrated the tangible benefits of a personalized financial advisory service." 

In a conversation about fees, advisors should highlight how their services are designed to meet the client's financial objectives, risk tolerance, and long-term aspirations. This approach reinforces the idea that the fees are a long-term investment in a customized and strategic financial plan that works for the customer and the advisor."   

In addition, he asks clients about their key objectives and investment habits and draws out a risk profile with a goal-setting session as part of the client experiences. He explains, “This ensures we are on the same page. A sharp, focused report always helps.  

During volatile markets, I rebalance portfolios to achieve reasonable gains. We work with clients' accountants to ensure they utilize the correct tax matrix. I address fees towards the end. By then, a well-structured conversation about the tangible benefits we offer minimizes most concerns."  

Similarly, Mmunot approaches client concerns with empathy, listening actively, and acknowledging them.  

She offers an example, "A client baulked at the cost of a proposed policy and I listened carefully to their concerns, explained how the policy provided superior protection and offered a flexible payment plan. It helped the client feel heard and valued, leading to a successful sale." 

 

Be flexible 

It also helps to offer a range of fee options or structures to accommodate different client preferences and financial situations. Some clients prefer a flat fee, while others find a percentage of assets under management (AUM) more suitable. Jethwani reckons, "It's a buyer's market and we must tweak our fee structures accordingly and be receptive. If my services match the value of the fees, I would serve the client.  

For instance, in a rather tough negotiation, I asked the client to consider me a quasi-chief financial officer (CFO) to manage investment services. "I told him, If you were to hire me full-time, it would be unaffordable. As a shared resource, I can offer my expertise at this price. Quality talent comes at a cost; you don't get cheap talent because it's either cheap or talented, and talent demands a fair price." That helped us crack the deal, shares Jethwani.  

Moreover, financial advisors should also conduct regular fee review meetings to revisit the fee structure, assess the effectiveness of the advisory services, and address any concerns. 

Jethwani says," I share a monthly goal sheet with a clear set of objectives, key points discussed, the monthly plan with broad market outlook, benchmark vs returns and so on. I have never encountered a situation where the client asks for a revert. If the client does, it indicates we need to realign our dashboard for the services offered." 

 

Getting regulatory issues fixed  

To ensure compliance, financial advisors must be well-versed in the regulatory environment governing fee disclosures. Regulations vary by region and can change frequently, so staying updated is crucial.  

Mmunot says, "An advisor faces a penalty for not disclosing all fees upfront to a client. We must be thoroughly informed about and compliant with local regulations. Consulting with legal counsel can help avoid such pitfalls and ensure all disclosures meet regulatory standards." 

Navigating fee conversations requires proactive communication, transparency, and a client-centric approach. Good advice can help achieve this by building stronger client relationships and fostering trust. 

 

Contact: MDRTeditorial@teamlewis.com