Most of the securities business seems to be priced based on assets under management. You can make a good case, explaining how everyone benefits. Online trading and robo-advisors are getting warmed up in the opposite corner. It would appear clients can get everything for nothing. What now?
Let's Not Talk About Value
Let's assume you can make the case for how you add value. Your client says, "That's nice. I respect that. I still think you are charging me too much." Where can you take this conversation?
Strategy One — The Big Picture
Their issue focuses on basis points or percentage. They are considering no-load funds or robo-advisors. You are higher, they are lower.
The client's assets likely fit into three categories:
- Assets under management that are being billed at an annual percentage rate;
- Assets held at the firm bought via transactions. (Think CDs, muni and corporate bonds)
- Assets held away in places like their 401(k) at work, employee stock purchase plan and deferred compensation plan.
Do you advise on all three categories? Probably yes. Would they want you advising on all three categories? Probably yes.
Approach: Total all the assets you are discussing when you present a periodic portfolio review. Next, calculate the overall fees they are paying. This includes fee-based accounts, but also the transaction costs (if any) on fixed income, not held in a fee-based account. The percentage charged is likely far lower.
Strategy Two — Unbundle
Ideally, advisors would like all of a client's assets to be held in fee-based accounts. The rationale is simple. If I'm, advising on everything, I should be paid on everything. It's tough to rationalize a fee-based fixed income account when interest rates are so low.
Your client might also own some large positions they will "never" sell. They might have a large position in their company's stock. As a senior officer of the firm, selling shares would send a negative message to other shareholders when that transaction is reported. They might own a blue chip stock with a cost basis measured in pennies.
Approach: If possible, buy CDs along with muni and corporate bonds in a transactional account. It's highly likely they are intending to hold them to maturity anyway. Keep the concentrated and low-cost positions in a similar account. If changes are required, it's a conventional stock purchase or sale.
You have now separated the actively managed assets from the passively managed assets. You are advising on everything, but most of the activity takes place in the fee-based accounts. Clients should feel you aren't taking advantage of them.
Strategy Three — Discounting
