Unlocking Real Value Blog

Do Your Clients Understand Their Fees?

If you’re an advisor, you should quickly determine if your clients understand the fees that they are paying. Why do I say this? Because a recent survey by Cerulli & Associates indicated that 33% of investors do not understand how they pay for the investment advice that they receive. And those who did not understand how they were being charged were more than likely to be unhappy with their advisors – and given recent market volatility and uncertainty, why take the chance?

Almost 8,000 households were interviewed for this survey. Another interesting result of the survey was that 47% of those surveyed said that they preferred paying commissions, while only 27% indicated that they preferred paying a fee based on assets under management. Pretty interesting results considering the overall move in the industry toward fee-based compensation.

Now, we don’t know how good or accurate this survey is. But Cerulli has a good reputation and there was a large sampling size. The results really caught my attention because the survey highlights the issues of fees at a time when clients are apt to be a little testy when their next statements come and their account valuations are down.

While explaining fees is one of the first things that you should do in a new client presentation, now presents a great time to revisit the issue of fees with clients. They should appreciate your taking the time to ask. Even when you are confident that clients understand the fees that they are paying, its always good to periodically review how you get paid and how you add value.

Take the initiative – because you don’t want to get that phone call from a client that just got approached by another advisor and is now questioning you and the fees that you charge.

For a primer on fees, click here to read our White Paper entitled “The Truth About Fees.”

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