Skip to main content
Open this photo in gallery:

Understanding what an advisor is trying to accomplish and how much it’s going to cost is in everyone’s interest, an expert says.Nicolas Hansen/iStockPhoto / Getty Images

Sign up for the Globe Advisor weekly newsletter for professional financial advisors on our newsletter sign-up page. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know.

There’s a moment in every conversation with a prospective client that some advisors dread. You’ve established rapport, everyone is smiling, and then you have to bring up fees.

Alexandra Horwood, portfolio manager and investment advisor with Alexandra Horwood and Partners at Richardson Wealth Ltd. in Toronto, says that in her 13 years in the industry, she’s never heard an advisor speak about their costs in an appropriate manner – and the problem starts with the word “fees.”

“A ‘fee’ is punitive. A ‘cost’ connotes a completely different emotional [and] psychological reaction. … Everything in life that we do, or any value that we get, usually comes with a cost.” she explains. “I don’t think we should be using the ‘f-word’ – ever.”

Ms. Horwood thinks it’s critical to illustrate to clients what they get in exchange for what they pay, demonstrating the percentage value added by behavioural coaching, customized planning, tax planning, active rebalancing and any other services an advisor offers. Her team hands out a document that quantifies every service they provide to clients in different segments. The cost statement comes at the end and it’s something every team member has memorized.

“Regarding our costs, our objective is to be fair, transparent and exceed your expectations,” she says, reciting the document. “We provide exceptional service for a competitive cost of 1 per cent for clients who entrust $2-million or more to us. Our cost is 100 per cent tax-deductible in non-registered accounts and covers all aspects of the holistic wealth management services we provide to our valued clients.”

That statement isn’t for unsold prospects. People who ask about costs right off the bat get a different response: “We’ll definitely get to that as we have full transparency of costs, but let’s ensure that you understand all of the services and value we’ll be providing you first before we do.”

Chris Winrow, financial advisor with Thomson Financial Partners at Assante Capital Management Ltd. in North Bay, Ont., relishes the cost conversation, having it “early and often.”

Like Ms. Horwood, he presents costs in the context of his value proposition, and he changes the way he presents the information based on the audience. For auditory learners, he explains costs verbally. For visual learners, he draws a picture. For prospects, he plays a cartoon-style video and also attaches it to a follow-up e-mail.

“We don’t want to hide from it. … We embrace the fact we get paid for providing these services and sharing our expertise with our clients,” he says.

“Why wouldn’t you like to ensure the client has the best possible experience? And the only way they can [have] that is that they have to decide that [they’re] getting good value for the cost.”

Clients have to be able to make that assessment on an ongoing basis, he adds.

Mr. Winrow breaks costs down into three categories – the fee he charges for his advice, the cost of products including fund fees and stock trades, and extraneous costs such as taxes. For him, full disclosure of costs is critical to establish relationships founded on trust and to avoid unpleasant surprises for clients that become unpleasant interactions with their advisors.

Stay ahead of clients and regulators

Advisors have been telling April-Lynn Levitt, partner and business coach with The Personal Coach in Waterloo, Ont., that clients are bringing up the topic of fees more often lately, likely because they’re seeing the performance impacts of market volatility. She says it’s better to bring up costs before they do.

One of the first questions she asks advisors she coaches is, “Do you have a pricing policy?” Some advisors give discounts to certain clients but not others, or charge differently based on the products clients have, without clear rules in place. A fair pricing policy that’s in line with the costs of similar practices in the area provides consistency, transparency and integrity, and allows advisors to speak confidently about costs.

It’s then important to underpin that pricing policy with value – and value should be defined by clients rather than the advisor. Ms. Levitt says advisors should list the recent things they’ve done for clients, including behind-the-scenes tasks, and ask clients directly what they value most.

Some will answer with something tangible and measurable. For example, “You helped me retire sooner” or “My returns beat the market.” Others will emphasize something of emotional value such as, “I’m not stressed about this anymore” or “I’m feeling more organized.” Insight into what clients prize helps advisors provide context for fees in a way that resonates.

Ms. Levitt emphasizes, “You have to reinforce continually the price versus the value they’re getting. It can’t just be a one-off. It has to be an ongoing conversation.”

Jonathon Palfrey, managing principal and portfolio manager, private clients and foundations at Leith Wheeler Investment Counsel Ltd. in Vancouver, says it’s a good idea for advisors to stay a step ahead of industry regulations on fee disclosure.

His firm’s quarterly reporting and invoicing were transparent long before the second phase of client relationship model reforms required it.

“Nothing should be hidden. Have everything out in the open,” he says.

“Understanding what the advisor is trying to accomplish and how much it’s going to cost is in everyone’s interest.”

For more from Globe Advisor, visit our homepage.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe