Where Value Meets Costs

by | Apr 12, 2018 | Blog

If there’s one conversation financial advisors need to master, it’s the ability to communicate their value as it relates to cost.

Many seasoned investors are no longer looking to their financial advisor to help them beat the markets, but instead, implement investment strategies to achieve their long-term goals. New market players such as robo-advisors can do this for a lower cost, which could likely come up during a prospecting conversation. Regulators are also questioning what reasonable compensation is for investment advice.

Given all of this and more, it’s imperative for financial advisors to be able to confidently communicate the depth of their value and how it relates to their fee structures. Luckily, there are many resources available to help advisors. Here is where to start.

Start with Your Investment Philosophy, Strategy and Process

There are thousands of investment products available to investors. While clients want investments that perform well, they do not necessarily understand how an investment philosophy and strategy serve as the foundation for building and monitoring investment portfolios. Communicating this to clients demonstrates your value and opens the door for you to disclose and discuss the associated costs.

When developing a value proposition, you’ll want to include the following:

  • Investment philosophy statement
  • Benefits of your investment philosophy

Strategies and cost for:

  • Asset location
  • Rebalancing
  • Tax-efficient investment
  • Investor education
  • Behavioral coaching
  • Income withdrawal
  • Third party resources and technology used for implementation
  • Income withdrawal

Vanguard Research published a useful resource to help you define your investment management value in 2016. Putting a value on your value: Quantifying Vanguard Advisor’s Alpha® can be accessed here

Move Beyond Investment Management

A financial advisor’s true value extends well beyond investment management. How can you quantify being a trusted family friend who willingly sorts through hundreds of paper documents to help get their client organized, takes a late night call to offer council regarding a private family matter and financial emergency, helps develop a plan to take care of an aging parent, and so much more? If you aren’t communicating your services beyond investment management, your actual value is not being maximized and is possibly being taken for granted.

In developing a value/cost marketing piece, you’ll want to explore adding and expanding on these services as well:

  • Financial Planning
  • Retirement Planning
  • Estate Planning
  • College Cost Planning
  • Goal Analysis
  • Financial Organization
  • Financial Education
  • Added Technology and Resources

These services can all be wrapped up in a management fee ranging between 1%- 2% or you can charge separate fees for these services alone.  The average net fee charged by advisors is 1.5%. Remember, you don’t have to provide all the above services with only internal resources. Third-party providers, such as Financial Advocates can help you deliver expanded services while representing your firm to your clients.

Deliver a Tangible Proposition

After your first meeting with a prospect, you should be able to confidently communicate your value and the costs associated with your services using a printed, tangible value proposition statement. Being ready to hand off an overview provides clients with concrete deliverables they can expect when working with you and helps to build trust with transparency into your fee structure. Many of the larger financial institutions have online resources to help you create these presentations.

Ensure It’s Simple Enough to Repeat

How do you measure the effectiveness of your value proposition? Your clients can repeat it. If your value proposition is too complicated, your clients won’t remember it and won’t be able to proclaim your value to others.

Tools are only useful if you know how to utilize them. If you feel overwhelmed with the task of defining or redefining your value as it relates to cost, you are not alone. In a poll taken by Fidelity last year, 81% of firm leaders surveyed agreed that they need to re-evaluate how they deliver value in the future.

This is why hundreds of advisors have seen the value of collaborating with the Business Development Team at Financial Advocates.

Through their decades of collective industry experience as well as access to the leading tools and resources, our Business Development team has helped our advisors evaluate and define their value. We can help you facilitate this as well. Let’s talk.