Downward pressure on fees is one of the biggest challenges facing financial advisors today. Increased competition, the race to zero on trading costs, and the emergence of digital (or “robo”) advice platforms have converged to fl ood the market with inexpensive options, and prompted many advisors to consider whether they need to defend, justify, or even reduce their fees.
The current market volatility, where short-term returns may be negative, has also put a spotlight on the expenses associated with professional investment guidance. These developments have resulted in a need to clarify what constitutes value for clients and how much they should pay for advisory support. Overcoming this challenge requires understanding the value you bring to client relationships and communicating this value effectively. Now more than ever, it’s critical that independent fi nancial advisors demonstrate the value they bring to client relationships. Many clients today want to know exactly what they’re getting in exchange for the advisory fees they pay.
Communicating value to your clients
How much are the average fees advisors are charging? According to AdvisoryHQ, the average annual advisory fee charged by fee-based fi nancial advisors is 1.02% of assets under management for accounts with $1 million or less in assets. The average fee is slightly higher for accounts with $100,000 or less in assets (1.12%) and marginally lower for accounts with up to $5 million in assets (.84%).
The question is: Do clients really understand the value of all the services provided by their fi nancial advisor for the fees they are paying? It’s up to advisors to clearly communicate this value in a way that clients can understand.
Unfortunately, most independent fi nancial advisors tend to promote the same generic attributes when it comes to communicating their value to clients. In a poll conducted by InvestmentNews, more than three-quarters of fi nancial advisors said that their main value proposition is “their ability to understand client needs and objectives.”
There’s nothing inspiring, unique, or noteworthy about this bland value proposition. And if three-quarters of advisors are all saying the same thing, there’s not much differentiation being communicated to prospects to help them understand the value of one advisory alternative over another. Many clients today want more specifi cs when it comes to understanding what kind of value they’re receiving in exchange for their advisory fees.