This week we’re looking at the fun part of the ongoing review service, The Icing On The Cake (also known as, telling the client what you have done for them lately).
If you are managing £500,000 for a client and charging them 1% pa, that is a fee of £5,000. It would be great if you said the fee out loud every time you did a review with the client. Something like, “As you know Mr/Mrs Client we charge you £5,000 per year for managing your financial affairs…”.
Some of you may be getting a knot in your stomach or a slight feeling of nausea just at the mention of doing this. Others might be thinking, “why rock the boat?”
Most advisers I know have never said their fee out loud to the client for fear of scaring the living daylights out of them…and I can see where they are coming from.
In the old world, where trail commission was built in and still a little obscure, you may have been able to get away with not telling the client exactly how much you charge (in pounds and pence). In the new world it simply won’t work. Therefore, as an exercise, I’d like you to start saying your fee out loud, to the client. It’s better to prepare in advance (with you taking the initiative), rather than waiting for the client to raise it with you out of the blue, because, believe me, that is never fun.
Although you may assume your biggest and most sophisticated clients have already converted your percentage-based fee into pounds, you’d be surprised by how many are still shocked when you say the figure to them out loud. I mean genuinely gob-smacked. Their jaw sort of hits the floor and although they don’t say it, you can see in their faces that they’re thinking: “I had no idea I paid you that much money each year.”
I don’t know if they’ve forgotten what you told them earlier in the relationship, or if they just prefer to block it out. Not that it matters either way, the result is the same.
Despite the shocking effect, I strongly believe you should say the number out loud and have the conversation each and every year. By doing so, you will talk about your fee during a normal year, when things are good, rather than having the client raise it in the midst of a financial crisis when markets are down 50% (which is the only time they ever take a look at what they pay you). By getting in first, you will eliminate these painful discussions at the most stressful of times, both for you and your clients.
Think back to the last financial crisis. Was it full of inevitable reductions in recurring income, panicky client telephone calls and emergency client meetings? With so much pressure already on you and your business, the last thing you need to be thinking about is reducing your fees to appease your clients, or fear losing them.
So how do you have the fee conversation?
Well, put yourself in your clients’ shoes for a minute. Let’s say you were paying an adviser £5,000 per year for services. How much value would that adviser need to deliver to you, in cash, for you to feel like they were fantastic?
How would you feel if they could demonstrate clearly that their advice had put £5,000 back in your pocket? So the fee your adviser charged was £5,000, but they had saved you, for example, £5,000 in tax.
In my experience, as an adviser in Australia for 14 years, whenever I could show that I had provided tangible value in cash of at least the clients’ annual fee, they were over the moon. Not just happy, but ecstatic.
It all goes back to The Icing On The Cake analogy.
Remember, the core stuff you do as an adviser (holding annual review meetings, showing that everything is going to be alright, advising clients what to do if changes need to be made) provides your clients with support, comfort and peace of mind. These are high value deliverables (the cake).
When I demonstrated that I had also paid them back in cash with some smart strategy work, my clients would say, “I feel like I get you for free.”
What if your adviser added £10,000 of demonstrable value in cash? Or £50,000, or £300,000? Obviously you would be even more satisfied, and confident that you were in the right place. However, what if you were paying £5,000 in fees and your adviser only added £1,500 of demonstrable value in cash? How would you feel then?
Based on the feedback I received, clients were still very, very happy. Any money back in their pocket felt like a win because they already valued the most important parts of what you deliver. They value the support, comfort and peace of mind you provide.
The problems arise when you add value (and, if you are doing it right, you probably add more value than you realise), yet don’t communicate it to the client.
Most of the time this doesn’t present as a major issue, but the minute there is any significant market downturn, or your client experiences financial pressures (in life or in business), you can find yourself in a tight spot trying to justify your fee. More importantly, even if you do pull out all the value you’ve added to your client over the life of your relationship, doing so in a crisis situation is like fighting back after being floored in a prize fight; it’s hard work and you could still be knocked out at any time.
Start capturing the value you are adding to your existing clients (in cash), and communicate this at each annual review meeting, right after you tell them what they pay you each year (in cash). Trust me, not only is this great fun, but it makes your business bullet-proof and much more valuable.
I’d love to know your thoughts on this newsletter, or any questions it raises for you. Let me know by leaving a comment below.
My next webinar Creating Differentiation For You & Your Business is on Tuesday 17th December 2013 at 12pm and you can register now. Once you’ve got the pieces of the jigsaw in place, the key is creating a point of difference in the mind of your clients. Sadly, most clients don’t understand or care about the range of titles we’ve created for ourselves in an attempt to stand out: Independent Financial Adviser, Financial Planner, Wealth Manager, Life Planner…they just don’t get it! Changing your title is not differentiation. True differentiation comes from owning a space in the market, doing different things to your competitors or more often doing the same things, but in a different way. This webinar covers how to differentiate and market your business more effectively.
You can listen to my last webinar Converting Existing Clients To Your New Approach here.
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