Why it’s time to talk to your clients about fees

Smart practice

Monday 22 July 2019

Even the most loyal clients could have a question mark at the back of their about whether your fees are justified. The most important thing you can do is have a frank discussion up front about the elephant in there room - it could also protect your growth pipeline.

Since 2013, Macquarie has conducted in-depth analysis of thousands of clients across its Virtual Adviser Network (VAN) – a group of growth-focused advice firms – to reveal what drives client satisfaction, retention and referrals. In 2018, the robust Propensity Project survey, which has now gathered the experiences of 10,000 end clients, shone new light on how people are feeling about their financial advisers in today’s climate.

The survey measures 26 attributes of the client’s advice experience, but in the 2018 Propensity Project a new attribute was added. It asked people how strongly they believed: “My adviser puts my interests above their own.”

According to the Head of the Macquarie Virtual Adviser Network, Sherise Mercer, the results were startling.

“We do this study every year. And, for the last four years, the findings have been pretty constant,” says Mercer.

10,000 end clients, 2015-2018

Top drivers of satisfactionTop drivers of retentionTop drivers of likelihood to refer
  1. Make me feel valued
  2. Be proactive
  3. Give me the right level of information
  1. Make me feel valued
  2. Manage my portfolio for the best risk and return
  3. Give me the right level of information
  1. Make me feel valued
  2. Be proactive
  3. Give me confidence

“But, when we put in that new attribute things changed. Today, the No.1 driver of referrals – by a wide margin – is: ‘I feel my adviser puts my interests above their own’. In other words, the clients who are continuing to refer their advisers to family and friends are those who are firmly convinced their advisers are putting them first.”

2018 “My adviser…”

  1. Makes me feel valued
  2. Is proactive
  3. Puts my interests above their own
  1. Connects me to others as needed
  2. Helps improve my financial knowledge
  3. Makes me feel valued
  1. Puts my interests above their own
  2. Makes me feel valued
  3. Is proactive

Mercer is fascinated by the difference between the drivers of retention and referral. “What the Propensity findings tell us is that you can have a client who continues to be satisfied with their advice experience and no intention of taking their business elsewhere – who will now think twice about referring their adviser to people they care about.”

“And that’s a problem. In 2018, 39% of the clients in our survey said they heard about their adviser via a recommendation from friends or family. In other words, if people stop referring you, it could put two-fifths of your growth pipeline at risk.”

What does it take to convince a client their interests come first?

Mercer says that, when the team drilled down into the Propensity research into what it takes to convince a client that their interests come first, two of the top four drivers were about fees:

  • Fees and payments are fair
  • The fee structure is clear and transparent

“Clearly, recent headlines about best interest duty, grandfathered commissions, hidden fees and conflicted advice have taken their toll. To ensure their best clients keep advocating for them, advisers need to address these issues – head on. It’s critical that clients truly understand your fee structure, are convinced that nothing is hidden, there’s no agenda – and that fees and payments are fair and deliver value.”

She emphasises that this is a conversation advisers need to have with every client – even long-term, perennial supporters. Because the data doesn’t change with tenure.

“Even your best clients may have unanswered questions about the issues raised in the media. But they’re unlikely to raise them with you – especially if they have a good relationship with you.”

“It’s not that they don’t believe or trust you. It’s just they don’t have any proof. That’s why you need to proactively initiate the conversation.”

How to have the conversation

Mercer offers the following advice:

  • Timing: “Don’t wait for a client to ask. Proactively raise the issue of fees in your next meeting.”
  • Audience: “Have the conversation with every client – even advocates. The clients you instinctively feel don’t need to hear this are exactly the people you should be talking to. The irony is, loyal clients don’t want to hurt your feelings, so they don’t ask. But, while they have any lingering doubts, they will not advocate on your behalf. Unless your clients are 100% sure you put their interests above your own, they won’t feel comfortable referring you to friends and family.”
  • Fees: “Clearly set out what you charge, how it’s calculated and the value it delivers.”
  • Grandfathered commissions: “If you don’t have any commissions, state that up front. If you do, explain what it is and reasons behind it.”

“The client should walk out absolutely clear that they understand your fee system, why it’s fair and the great value they get from it. That’s the story they’re going to tell at the BBQ or dinner party when they recommend you.”

Act now to secure advocacy and growth

Mercer believes the industry is at a trust tipping point. “Over the past few years, things have been ticking along and trust levels with advisers have remained stable. But in the current environment, where trust has declined, it’s essential that advisers address the niggling, unanswered questions that are stopping otherwise loyal and satisfied clients from referring them.”

“Those who tackle the fee conversation will give clients a chance to air any concerns, address them proactively and strengthen the relationship. Even for clients with no concerns, the fee conversation has little downside. You’ll just reinforce existing trust and remind the client they’ve been meaning to introduce you to their niece or their brother.”

“Bottom line: every client meeting this year should include a conversation about fees.”

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Macquarie Propensity Project Report, 2018, 2,617 respondents.

Macquarie Propensity Project Report, 2015-2018, 10,000 + respondents.