Show and tell: How to communicate value in wealth advisory



Leading with discounts to stand out in a crowded marketplace is short-term thinking. For long-term success, offer—and highlight—exceptional value.

By Dave Coffaro and Chris Nichols

Wealth management is a competitive business. Client expectations are rising and the competitive landscape is evolving. Advisers often feel pressure to discount their fees to differentiate themselves and win more business. As appealing an idea as it is, research shows that advisers who lower their fees often do not attract the growth in business they expect.

The business they do attract from lowering fees may not be the business they want. There are always low-priced options in the market, so clients acquired by reduced fees may not stick around for long. (And if they do, they may be unprofitable in the long run.)

It’s not surprising that some advisors feel compelled to lead their sales efforts with fee discounts. Retailers have been engaged in price battles for decades, which likely influences the collective subconscious views of salespeople. With undifferentiated commodity products, the most heavily discounted price may be the primary determinant of purchaser decisions.

Value-based services are a different paradigm. Discounts can wrongly encourage the client to look at price as the main, or most important element of their decision-making process. Before accepting the perception that being cheaper helps wealth advisers compete, let’s address some myths about pricing and discounting that can lead advisors down a dead-end road.

Common discounting myths

Myth 1: Nobody pays full fee. Industry data from QuantiFacts show that more than half of the relationships below $50 million in assets under management are not discounted at all. In fact, the percentage of full-fee wealth management relationships is significantly higher for the $1-5 million size segment than the $25-50 million segment, where there tends to be more size-based negotiations.

Myth 2: The market has become more sensitive to price. In fact, fees have been steadily increasing for years, across all relationship sizes, according to QuantiFacts data. This myth is based on a frequently misinterpreted reference to an overall decrease in basis points charged for assets under management at the institution and industry levels. Deeper analysis shows that overall market values have grown significantly since the Great Recession, and as a result, average account sizes have seen extraordinary growth over time. Most wealth managers offer fee breakpoints based on assets under management: the larger the account size, the lower the basis point rate charged. Controlling for larger account sizes debunks this myth.

Myth 3: Institutions with higher list prices discount more. In reality, discounting is not correlated to standard or list price. For example, in the $1-3 million relationship segment of a recent industry study, the bank with the second highest published fee schedule demonstrated the lowest level of fee discounting (95 percent realization, or 5 percent net discount). Evidence suggests the degree of discounting a firm demonstrates is a consequence of leadership practices, advisor coaching and fee oversight, combined with effecting measurement and reporting tools.

Wealth management is hard. It should not be cheap.

Advisers who clearly articulate the value they deliver to their client tend to move beyond pricing as a point of negotiation. As a consequence, they foster mutually beneficial long-term relationships. What contributes to creating value in a wealth management relationship?

Engagement approach. Wealth management products are relatively undifferentiated. As a result, clients expect advisers to deliver value beyond features and benefits of the products they use. The engagement approach is how an adviser delivers. It includes how advisors present themselves, the discovery process, whether the firm operates a team-based approach or not, the client experience, access to the firm’s best thinking and individualized advice.

The team. Wealth clients generally prefer a team-based approach to working exclusively with a single representative of the firm. The most effective approach to teaming is one that capitalizes on the firm’s strengths and aligns with client expectations. For example, a bank that specializes in serving family businesses may deploy a wealth team structure that includes a fiduciary adviser, portfolio manager and wealth planner who specializes in business succession planning.

The client experience. What do clients get when they choose you and your firm? What will they experience in the discovery process? What will onboarding be like? What will be covered in relationship reviews and day-to-day interactions? Answers to these questions define the client experience. A clearly defined, consistently delivered client experience leads to higher levels of client engagement, satisfaction and referrals. Sporadic client delivery tends to produce inconsistent outcomes in client relationships.

The firm’s best thinking. Most firms offer clients their insights on markets, capital market assumptions, the economy and how external conditions and events impact individual portfolios. Thought leadership translates to value when advisers individualize the themes from these insights to specific client situations.

Individualized advice. Clients expect advisers to understand where they are in their financial lives and lead the relationship with individualized advice that meets their specific needs. This advice describes what the adviser and firm deliver to differentiate their offering, the availability of information and advice where and when clients need it, the availability of technology tools to access information and connect with the firm, and proactive outreach from advisers with ideas, insights and recommendations.

Describing the value you and your firm deliver, then executing consistently—from initial discovery through relationship onboarding to ongoing day-to-day engagement—is the benefit of working with you.

Focusing on price or discounting conveys a lack of confidence in your own value. Clearly articulating your services and differentiation highlights it.

Dave Coffaro is principal of the Strategic Advisory Consulting Group. His recent book is Leading from Zero: Seven Essential Elements to Earning Relevance. Chris Nichols is president of QuantiFacts, a software and services company specializing in fees for wealth management. QuantiFacts’ clients include 5 of the top 10 wealth management banks.