Financial advisors are under pressure to reduce their management fees like never before. In a world where technology has made it easier than ever for consumers to access information and financial products, clients are more informed and demanding than ever and many established firms are feeling the pinch. In response, some advisors have started to reduce their management fees in an effort to stay competitive. But is this really the best course of action?
The Problem with Lowering Fees
There are a few problems that can arise when you start lowering your management fees. First of all, it sets a dangerous precedent with your clients. Once you’ve lowered your fees once, they’ll expect you to do it again in the future. This can lead to a race to the bottom, where everyone is trying to offer rock-bottom prices just to stay in business while competing for scraps.
Second, lowering your fees can also lead to lower quality service. When you’re charging less for your services, you’ll likely have to cut corners somewhere else. It’s not intentional, but with lower fees you’ll have to bring in more clients to split the difference. This is because your costs (e.g., office expenses, employee salaries, etc.) will remain the same, but your revenue will decrease. This could mean hiring less experienced staff, using lower quality investment products, or skimping on marketing and advertising. Ultimately, this could do more harm than good for your business in the long run.
Finally, lowering your fees sends a message to both your current and prospective clients that you’re not confident in the value you’re providing. If you don’t believe in what you’re offering, why should anyone else? Ultimately, this could damage your reputation and make it even harder to attract new clients.
How to Avoid Reducing your Management Fees
So, how can financial advisors avoid reducing their management fees? The answer lies in value creation. In order to justify their fees, financial advisors need to be able to demonstrate the value they are creating for their clients. This value can come in many forms, such as peace of mind, time savings, digital enablement or improved financial outcomes.
A great place to start is by focusing on the client experience. In today’s hyper-competitive environment, simply providing good advice is not enough. Clients expect more than that; they want an exceptional experience that meets their needs and exceeds their expectations. They want to be informed and have access to portfolio insights 24/7. They want to pull out their phone and know exactly where they stand. Financial advisors who can deliver this kind of experience will be able to differentiate themselves from the competition and charge premium prices for their services.
This is where platforms like Fynancial really stand out in delivering an unparalleled client experience while enabling firms to create value and differentiate themselves. Fynancial gives advisors the ability to be in their clients’ pockets via their firm’s own mobile app that serves as a centralized hub for all of your communication, scheduling, content, documents, relevant links and resources. It’s a great way to stand out and add value to clients.
Communicate the Value you Provide
Finally, financial advisors need to be proactive in communicating the value they are creating for their clients. Too often, financial advisors assume that their clients understand the value they are getting, but this is often not the case. By proactively communicating the value they are creating, financial advisors can ensure that their clients are always aware of the benefits they are receiving.
By definition, value is the relationship between what a client receives and what they pay for it. In order to create value, you must first understand what your clients want and need, and then deliver it to them in a way that meets their expectations. The better you understand your clients’ values, goals, and concerns, the better able you will be to provide them with customized solutions that meet their needs.
Instead of focusing on numbers and jargon , focus on the outcomes your clients care about . For example , rather than talking about saving $500 per month , talk about how working with you will help them travel more , spend more time with family , or retire on their own terms . This will resonate much more deeply with clients and help them see the value in what you do.
Conclusion
Reducing your management fee is not the only way to compete in today’s marketplace. By focusing on value creation and client experience, financial advisors can differentiate themselves from the competition and charge premium prices for their services. By being proactive in communicating the value they are creating for their clients, financial advisors can ensure that their clients are always aware of the benefits they are receiving.
Remember, when it comes to financial advice, cheaper isn’t always better. In fact, reducing your management fees will likely do more harm than good for both your business and your clients. So next time you’re feeling pressure to lower your prices, think twice before giving in. Your clients—and your bottom line—will thank you for it later.