Executive Summary
In the early days of financial planning when an advisor’s primary function was to provide access to capital markets, fees that clients paid were baked into the cost of the product they were buying. With the advent of planning as a service, however, fee transparency became an important feature for clients. Accordingly, charging an explicit fee for financial planning is a relatively new phenomenon, and as a result many financial planners struggle not only with when and how to communicate the fee itself and the value they provide, but with the fear that they will scare away prospective clients in the process.
In our 43rd episode of Kitces and Carl, Michael Kitces and client communication expert Carl Richards discuss the merits of two opposing philosophies around when to discuss fees with prospective clients and strategies to help clients understand the value of the services an advisor provides.
One approach, for some advisors, is to first create context around the services they provide before discussing fees, leaving it until the end of the second meeting after gaining (and demonstrating) a clear understanding of a prospective client’s situation and presenting a rough plan about how they will align the use of the client’s capital with what they state is important to them. By doing so, the advisor can give the prospective client the experience of what it will be like working together.
Another approach, meanwhile, is to state their fees directly on their website, so prospective clients can either filter themselves out of the process even before it begins (because, for some people, one of the main determinants of whether or not they will hire an advisor is if they can afford it in the first place) or at the very least come into a first meeting with a clear understanding of what they will be paying. Moreover, in an environment where advisors market on being transparent around their fees, waiting until the end of the second meeting to discuss fees is the opposite of clear and transparent.
Regardless of the approach, the important thing is for the advisor to be confident that they will deliver value for the fee that they charge. Because a fee will only ever be questionable in the absence of value. And explaining that value simply boils down to gaining an understanding of what a prospective client may be comparing the fee to (e.g., did they have a negative experience with a previous planner or think that they weren’t even paying a fee at all?) and figuring out where their “cost anchor” may be (e.g., do they view the fee as an expense that is anchored to their annual cashflow versus an investment that is allocated from their entire balance sheet?).
Ultimately, the key to discussing fees is first solving for when to discuss fees, and being able to do so confidently. After that, the value part of the equation hinges on understanding what clients might be comparing the process to and ensuring that they view financial planning as an investment in themselves and their future. Because when you can relate the fees to their lives, align it with their pricing scale, and address the problems that they’re trying to solve that brought them in the first place, the whole nature of the fee/value conversation becomes much more collaborative!
Authors:
***Editor’s Note: Can’t get enough of Kitces & Carl? Neither can we, which is why we’ve released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and Stitcher.
Show Notes
Kitces & Carl Podcast Transcript
Michael: Good morning, Carl.
Carl: Hello, Michael, fancy seeing you here.
Michael: I still am not used to the fact that… I want to say good morning because when we tend to record, it’s morning my time, but you are still in the UK, it is afternoon your time. So, good morning, good afternoon?
Carl: It’s just about afternoon. Tea time, actually. It’s 1:30, so.
Michael: Fantastic. So, for tea talk today, we talked in the last episode about the challenges of overcoming objections. Sort of our classic. Like I’m sitting across from a prospect. I’m trying to explain why they should work with us. Objections come up. We try to overcome objections. And I wanted to go a little bit further down this discussion road, but coming on maybe not from the objection side, but just this like ever-present challenge I think all of us are facing these ways of – just on the value side. How are you explaining the value of financial planning? If we go forward with, “Here’s my fee.” Whether I’m going to charge 1% or I’m going to charge hundreds of dollars an hour or thousands of dollars for this plan or thousands of dollars a year in an ongoing relationship.
I feel like it’s one thing to talk about overcoming objections in general. It’s another when just that fee comes out of your mouth and you’re looking at the prospect trying to see are they going to wince or do they kind of seem okay with the number I just said? And we’re like building up for that moment of trying to explain our value and just fire a value, and here’s why I’m worth that fee that I just quoted to you. How do you talk about the value of what we do? And I’m thinking, the value of what we do relative to this fee that we say it’s going to cost.
Carl: Yeah. Yeah. It’s a super big question. I think one thing that’s super important is to start with ‘when’.
Michael: Start with ‘when’.
When Is The Ideal Time To Discuss Fees With Prospective Clients? [03:16]
Carl: Yeah, like when do you talk about it? Because here’s the dilemma we have is there is no context for it yet. You don’t want to talk about your fee until you’ve created a context for that discussion because to say to somebody… And again, you can have it on your website. You can have it wherever. I have always found it a little challenging because of the industry. So you’ve got opaque pricing.
I still remember the crazy days when I worked at the big brokerage firm, and they would come in with their big $2 million municipal bond portfolio from another big brokerage firm without names. And I would say, “Well, do you know how you pay for this?” And I knew the answer. They were going to say, “I don’t. They don’t charge me anything.” Because, of course, you don’t. And I would say, “Oh, that’s interesting. I didn’t know that Morgan Stanley, Merrill Lynch, Goldman Sachs are nonprofits. Yeah, it’s amazing. Nonprofit. No problem.” Then we’d have to educate them about – we’d have to go into Bloomberg and actually show them markups and the whole thing.
And so, it’s pretty hard when that’s the context somebody may have. And I’m not saying they think they pay nothing, but they may be new to this idea of getting financial advice. They’ve never paid for it in the past. They may have been paying for it and paying for it in the form of commissions or asset-based fees. And you charge a retainer or maybe somebody else charges them a retainer and now you charge… There’s just very little context. So I think when is important. And to me, when, at least for me, historically, it always – I was going to say the best planners. That’s actually not true. I like watching people do it this way, where you have an initial first meeting. Because this ties to ‘how’ now. So let’s talk about ‘when’ and ‘how’ at the same time.
You have an initial first meeting, and I think you cut the number of times you have to feel like you have to talk about the value you provide in at least half, if you do a proper first meeting where you thoroughly diagnose. Because a fee is only a question in the absence of value. And if you’ve already painted a really clear picture around the desired future state of the client, you’ve gotten really clear about ‘why’, because the value of financial planning to me is aligning your use of capital with what you say is important to you. That’s the value. And when you say it that way, you can actually say to somebody, what’s that worth? Let me give you some examples of what it’s worth.
But nobody knows that. Nobody walks in and goes, “Hey, can you align my use of capital with what’s important to me? Can I sit on your couch and cry? Can you clarify my goals?” None of that happens. So you’ve got to give them that experience first. So, I think that happens in the first meeting. In the end of the first meeting you say, “Look, today I understood exactly where you are. We’ve guessed where you want to go.” We’ve covered this in past episodes. “In my next meeting, I’d like to present to you a rough plan about how to get there. Don’t worry. I’ll keep it to one page. And then, I want you to know as part of that meeting, we will talk about exactly how much it will cost. Like what my fee is and how you pay me.”
So you have to make no decisions until you know exactly what that is. So you’re not hiding from it. You’re just putting it in context. The next meeting, clarify the diagnosis. “Here’s what I heard from you about your desired future state. Did I get that right?” No one’s ever done that for them. I’m telling you no one has ever done that for them. I don’t care how many financial people they’ve worked with. No one has ever asked them questions and listened. If you do that right, the value becomes obvious. But we’re going to talk about the 50% of the cases where you still have to talk about it, but you’ll cut your number of times down in half if you do it at the right time and you provide deep context.
Michael: So, I am curious. So that means, in practice, are you a fan of just literally – we’re not even going to talk about the fees and what this costs until we get two meetings into this process? Before that, just not talking fees, not going to be up on my website, not going to put information out about it. Like, we’ll get to that later. We’ll get to it. But we’re not talking fees upfront. I just want to talk more about you and your situation and understand what’s going on.
Carl: Yeah. Let’s talk about that a little bit. So I think if you state your fees super… Let’s just say you charge a $10,000-a-year retainer. And you don’t do anything different than that. If you have that super clear on your website, I think there are two ways to approach it. One, you don’t have it on your website and you just simply say – like you don’t need to say anything. Of course, people are going to expect to pay for it when they come into the meeting, so we’ll talk about what to say. But the other way is you have it stated really clearly with nothing else around it. And it’s literally just a statement of confidence. And the way I read that, if I’m your target market, I think I have to just go… The chance you’re taking is that you lose people.
This is very, very important. I’m a huge fan of doing things that repel people who you wouldn’t want as a client, but we’re talking about something different here. This could be you losing people who you would love as clients who would be great clients, but they just don’t have any context because – industry –because of what we have done to them.
So, I’m a fan. Like I always see it and I’m like, “Ooh. Yeah, that’s confident.” I like it. But let’s go to how you talk about it. I think if you decide not to say anything and you’re going to wait until when, I think it’s fine when somebody goes, “Well, how do I pay you?” You just go, “Listen, believe me, we’re going to talk specifically about that, but before we do, we’ve just got to make sure it’s even a good fit. I’m not sure that what we do is going to be valuable for you. And you’re not sure if you’ll like me.” So the first two meetings are just a mutual exploration to see if we even want to work together.
The Pros And Cons Of Disclosing Your Fees On Your Website [09:49]
Michael: So I have to admit, this is an area where we have distinctly different styles and approaches. Of course, it’s what makes these discussions fun. I am very much of the opposite style approach. Not that I don’t want to dig into what’s really going on? What problems are on the table? What are you really trying to solve? Can I relate the fee or what we charge to what’s going on in your life? Ultimately, we always have to make that connection. But I’m a huge fan of getting the fee out there on your website in the first place. Really, for a few reasons.
One, as you said, there is a filtering mechanism. And it’s one thing to say, “Hey, I want to have these conversations with you to make sure that we’re a good fit.” Well, for some people, one of the determinants of fit is, “I can’t afford you.” So, let’s save time for everyone and not go through a one or two-meeting process to eventually get to, “Yeah, I just flat out can’t afford what you charge.” And I don’t want to have to spend one or two meetings of time to get to a point where it’s not even a value discussion. Or is your fee worth it? They just flat out feel they can’t afford it. And I’m not overcoming that because it’s maybe what it is at that point.
So, on the one hand, I feel like putting that fee out there upfront, just get some of that out of the way. Like, yes, at some point I’m going to lose someone who might have become a client if only I had had the opportunity to have a multi-hour conversation with them and try to convince them of this, but…
Carl: Hey, easy tiger, like nobody said multi-hour conversation and read War and Peace together. Easy.
Michael: If they’re coming in for multiple meetings. We’ve got to set this up. You’ve got to drive across town to come in for the meeting. This is not a small stakes commitment to do, particularly at least a two-meeting close with the prospect only to get to a meeting and find out they just flat out weren’t going to be able to afford the fee. And that, that was the part of the fit that was a bad fit. So, on the one hand, like I really am a fan of just the screening mechanism because, our prospecting time, our meeting with prospects time is still valuable time that if you meet with too many people who aren’t qualified to work with you you’re going to drag down the value of the business.
The indirect effect that happens as well that just strikes me, in our modern world, I find, well… First of all, a lot of advisors now, we like to market on things like, “You can trust us. We’re transparent. We have clearly stated fees.” The number of firms I’ve seen that literally say on their website: clear, transparent fees… and there’s no fee. Like, “We have clear, transparent fees. Call us to find out what it is.” That’s not how clear, transparent works. You’re fundamentally breaking your brand promise out of the gate. Or “We help all of our clients save time; call us to find out how much it costs.” You’re not saving me time. You’re making me call you to find out what it costs, which means if I want to evaluate five advisors to figure out which two I’m going to go meet with, I’ve got to do five phone calls just to find out what they cost. You know what? I’m going to pick the sixth one who just put the fee on the website and respects my time.
Now, not everybody is in a time-savings mentality. We certainly have a lot of clients where that is not the driving value proposition. But I do find a lot of the time – we even talk about value propositions, like clear transparency, “We’ll save you time; we’re your partner working in this.” And not putting your fee on your website is actually breaking the brand promise at the moment that you’re putting the brand promise forward.
And so, just even being cognizant of that misalignment as well. Most of us don’t realize because we don’t measure how many people come to our website and then never hit the ‘contact you’ button to schedule a meeting. Turn on your Google Analytics, look at that, and if you see 1, 2, 3, 500 people, 1,000 people every month coming to your website, and you’re not getting any leads, recognize this might actually be part of why we’re dropping the ball out of the gate. And not that we can’t have more conversations with people about what the value is and what we provide and why that fee is so worthwhile. But look, if putting that number on a website is going to freak you out that much, the odds are overwhelming this was never going to happen in the first place.
Carl: Yeah, it’s totally reasonable. Totally fair enough. I agree. I think there are a couple of things that I just would want to clarify. I think that, hopefully, we’re not marketing using our website by saying we’re clear, transparent, even if we are putting our fees up there. Because everybody else is. Like, you may as well put a compass and a sailboat and a couple walking on the beach holding hands, just like everybody else, right? So…
Michael: Well, actually being clear and transparent and putting your fees on your website would probably be a differentiator because a lot of advisors…
Carl: No, that’s true. You could lean into that ‘clear and transparent’. Look, here are our fees. So I don’t have a problem with that. Like I said, like when I see it, I think it’s cool – people just being like, “We charge this much.”
Now, one thing about the fit that I just want to be clear that – if I had a first meeting with a client where they couldn’t afford my services, I would tell them it wasn’t a good fit before they could tell me. Now, you’re just simply saying, well, we could have cut out that first meeting. And I agree with that. That’s true. And there is some sort of magnetism, there’s some pull that happens when you are confidently stating, and our fee for this is $25,000 a year. Like, I’m like, what? What do they do? That must be amazing. I’m now…
Michael: But actually, that reaction right there, I think is such an interesting and important point of the difference between what we do when we think about putting a fee number on our website. Like, Oh my God, what if they think this is too high? What if they freak out about the fee? What if they don’t want to call and reach out? But at least for some non-trivial subset of people, you get the opposite reaction. The one you’re talking about, they’re like, wow, their fees that high? This must be freaking amazing. I’ve got to find out more about what’s going on. Like, who the heck writes a fee like that just out there on their website? You will open a curiosity loop with some people who are wondering what do you do that’s that good?
Carl: Sure. And I think those are all valid reasons. When I look at a lot of the literature around pricing, and Blair Enns would be the one I would point to. If you do read Blair’s book, it’s $178 book on pricing, which is so great. There’s so much that’s good about the idea of charging $178 for a book on pricing. But it’s very rare. You don’t see hardly anybody in the creative world – you don’t see most lawyers, you don’t see an accountant, but you certainly don’t see a creative… Some of these creative firms are starting to put like, “Here’s our $10,000 package. Here’s our $5,000 package.” But mostly, there’s some context.
Now, if there’s no context for what… Like, I charge is $10,000 independent of that, then I think you have to put some context around that. Like, here’s sort of what we do. And then we quickly get back to, I think that’s asking your website to do too much work, to be honest. I think the number one goal of a website should be to get the chance to communicate again. Like, can we have permission to communicate again?
So, I don’t think that all goes on on the website. I think the ideal website for me is, I’ve stated a clear statement of a problem that you have. “If you have this problem, you’re going to be interested in working with me,” is the goal. And I’m stating it in your words because nobody cares about our solutions or our price. They care about their problems. When they see their problem, and the goal of that couple of sentences would be the head nod. Like, “Oh yeah, yeah, yeah.” If I’m your target market, I recognize that that language because you heard it come out of my mouth.
By interviewing hundreds of other versions of me, I then nod. And I simply say I want to learn more. How do I learn more? Well, here’s this white paper. Here’s my weekly newsletter. Here’s my whatever. And then over time, I get a chance to demonstrate to you that I have a relevant sphere-specific knowledge that is going to be massively valuable so that when we have our first meeting, I painted some context on when I dropped my $25,000 yearly fee on you because I only work with entrepreneurs who had a successful exit of more than 10 million you say, “Oh my gosh, are you kidding me, when do I sign up?” There’s some context for that. That’s the line of thinking behind it. That’s how I would view it.
Now, if you’re in a meeting, you get to that point, and if I’m an entrepreneur with an exit over $10 million – “I’ve been reading your newsletter for two or three months. I read your white paper. It was amazing. I scheduled the first meeting. I still don’t know how much you charge.” We go through the first meeting. You’re amazing. At the end of the first meeting I’m like, “Yeah, yeah, I know. I don’t want to come in for a second meeting. This is going to be crazy though. Just give me an idea.” “It’s $25,000.” Yeah. Stated confidently. What happens then is this is an interesting discussion.
How To Confidently Discuss Fees With Prospective Clients [20:20]
Michael: So what happens then? Well, that was where we started. So I do want to come back to it – we put this fee out, we put this number forward. There may or may not be a slightly awkward pause in the conversation, and we have to justify the fee. And actually, first of all, it’s even worth reflecting. The number one problem I actually see with a lot of advisors in their fees and in talking about their fees is just that moment. Someone asked what it is. You say a number. Particularly if it’s a dollar amount. It’s one thing if it’s a percentage fee because no one is doing the math that quickly. When it’s a dollar, like “We charge $2,500 for a plan.” $5,000, $10,000, $500 a month. And everyone’s quickly calculating $6,000 a year.
Then you say a number. “A plan with us will cost $5,000.” And there’s a pause because the person on the other end is taking in that information. Their brain is now churning on what does $5,000 mean? And most of us have this instinctive gut response to fill the void. It’s quiet for a moment. Quiet is awkward, possibly threatening. They’re getting ready to say no. So I’ve got to like fill the void and follow up my $5,000 quote with a rationalization as to why I’m worth it. And that sometimes people were just taking in the information and processing it. So I feel like the first thing worth pointing out and saying is – it’s just, when you quote your fee, then shut up for a moment and just let them respond.
Carl: I think that’s 99% of the problem. I think these words that even you and I use when we talk about it – but we’re using it because we’ve heard so many other people use it and at one point it was a genuine concern. It’s a concern for me now. My speaking fee. So I know the feeling. Like when somebody asks me what my speaking fee is. It’s taken me seven years to get comfortable now to just go, “It’s this.”
So I know the feeling, but the words we use: justify, rationalize, convince. I think 99% of the problem is in our head. We need to just stop with that. So it’s all a mindset. You better be convinced you’re worth that fee. And I literally kept a file that was sort of place I would look when I was feeling like I wasn’t worth my fee. Stories of the impact of aligning somebody’s use of capital with what they said was important to them. A client comes back and says, “We never would have been able to afford that house.” I think is one of the stories you… Like, “We wouldn’t have been able to stay in our house if it weren’t for you.” I think that’s the story you shared once ago. Stories and stories. I just have a list. I’d pull it out. It’s called the stoke file.
And so you’ve got to be confident in that. And then you just say it when you’re asked. There’s no dancing around it. So if somebody asked me at the end of the first meeting, what’s the fee? I don’t say, “We’re not going to talk about that until next time.” I just say, “Well, our tip…” Now, if you knew, and again, I’m just going to go to the annual retainer because it’s just so simple. There are all these other things around the AUM. But our minimum fee for a client is $10,000 or our fee is $10,000 a year for the work we do. And then you’re right. You have to be quiet.
But I want to go deeper because I want to pretend like after… Let me just tell you one quick, super fascinating story to me. I heard this story once of a photographer, a dirtbag. And that’s a term of endearment in the climbing community. So like Patagonia climbing community dirtbags. A term of endearment. A dirtbag climbing photographer lived out of his van, took some pictures. One of them got online. Somebody like Red Bull. I can’t remember who it was. Said, “Hey, we’d like you to go on this trip we’re taking to Africa. It’s like three weeks. We’d like you to come as a photographer. Will you come to meet with us?” He comes to the building, glass window, big conference room. He’s sitting at the big conference table with six people. They describe the trip. And he’s thinking, “Man, as long as I don’t have to pay to go on this trip, I’m super excited.” Right. And they get down to like, “Okay, what would be your fee for this?” And they said something like, “How would you feel about $500?”
And he was thinking, “All expenses paid plus $500.” And he was trying to process that in his brain. And it took him long enough that they said, “As a day rate.” And he was like, “Yeah. Yeah. I think that’ll be okay, $500 a day.” And I can’t remember the exact numbers, but the point was, so often, we don’t even know what they’re thinking. What comes through our head is to justify. And again…
Michael: We assume it’s going to be bad. Just sometimes they’re like, Wow. Because the last advisor I talked to was 20 grand and then didn’t even seem that good. So like, you’re great and you only cost 10? I’m going to sign up now. I was just trying to figure out in my head if it would be okay if I signed your paperwork now and then called my wife when I got out of the meeting.
Carl: Yeah. Or what did we hear from Adam? Didn’t Adam have somebody say, “That’s like a crappy car payment”?
Michael: Yeah.
Carl: Yeah. It was like $450, $500 a month. He’s like, “That’s like a crappy car payment.” Those were their words. I’m not saying $500 a month is a crappy car payment to be clear, but those were their words. And he was like, “Yeah, exactly. It’s like a crappy car payment.”
So, I think, solve that problem first. So solve upstream. Solve ‘when’. So, if you’re going to do it on your website, do it confidently. I think there’s some context building. Solve ‘when’. Solve ‘where’. Enter the discussion when it comes up confidently. And then if we want to, we can talk about it. Okay, so it still comes up.
Michael: Yeah. Well, I think one of the other things worth reflecting on this. And even as I think about it and how I built some of my businesses, one of the other reasons why I like getting the fee up front on the website is if you don’t use that as a filtering mechanism and you meet with too many prospects for whom that fee is not a good fit, you will train yourself that when you say the fee the person is going to object to it because you’re spending too much time with people, for whom they are not qualified prospects. And it really is a bad fit. And if you put yourself through enough situations where people aren’t prepared for your fee, then eventually, you’re always going to be defensive about it. If you put the fee up there, upfront and plaster it out there so the only people you meet with at least are grounded to what neighborhood you’re going to be charging in. So they’re not going to have sticker shock when you quote it.
Yes. You still have to explain your value and why you’re worth it, but they’re not going to sticker-shock and shoot back at you right away because you filter that out at the website level. You don’t put yourself in a position where you feel like you’re constantly fighting to defend your fee to the point that you assume it’s going to be negative, even when it’s actually not going to be negative, and potentially talk through the sale, or talk up your throw-ins from $500 to $500 a day when they would have been fine with the first offer.
Carl: Yeah. I love that. I don’t think there’s anything wrong. It’s interesting to think about this in the perspective of speaking fees. Like, it’s the same thing. Are they stated somewhere? Are you totally confident when you get asked? I’ve played all sorts of mental gymnastics when I get asked about that. I was like, “Well, tell me about the audience and tell me about this.” And then, finally, we just have a template reply that says, it’s this much for in-person, it this much for virtual, and if there’s more than one engagement, we can certainly talk about packages. And totally confident about it. And I think that’s valuable. Yeah. Super good.
So, should we spend just a minute about, well, what happens when somebody goes, what do you do for that?
Michael: Yeah. Let’s finish there, we’ve built this up so much. So we finally get to that moment. I’ve said the fee…
Carl: Confidently, I did all that right.
Michael: …confidently. I stop talking for a moment and resist the temptation in the quiet that almost always comes and let them respond. And they don’t respond. “Oh well, that’s like a crappy car payment. I’m fine.” They ask some question that is essentially the… Like, “Okay, that’s a lot of money. Just tell me more about what exactly you’re going to do for that fee.” Right? We get to that moment of, okay, we do need to justify a little. Like, why is that fee worth it?
Carl: Yeah. And let’s just get rid of that word. Let’s use, “We’ve got to explain.”
Michael: Okay. So no more justifying.
Carl: Yeah. We’ve got to help them understand. Something like that. Just so we can get that whole mental model out. But I think the easiest place to go, and I’m making some assumptions about that we’ve already done a first meeting. This is the place to go. It’s like, well, wait, you told me you have this. You’ve got your things that are really important to you. And here’s your use of capital. And they’re not aligned right now. You’ve told me all these places you want to go, and it’s easy for me at that point to go, what would it be worth to you if we could get a plan that allowed you to focus on spending time with your family, mainly outside, serve in the community, hit goal number one, goal number two, goal number three, and not have to stress about it anymore? Have your life back in the end.
So, that’s assuming you have that context. If you don’t have that context, then a couple of things I used to find myself saying are like, yeah, I get it. One thing I would ask immediately if somebody said, “What do you do for that?” I would say, “Oh, are you saying that’s high or low?” “Oh, geez. It’s just way more than I thought.” Okay. And now, you may know…
Asking Questions To Better Understand How Clients Perceive Your Fees And Reframing Fees As An Investment [31:07]
Michael: That’s actually an interesting point. Just asking – if they raised some question – like did you think that’s high or low? Because some might actually say it’s low. And even if they don’t, I’m kind of feeling that the mental game. What do you mean? Some people think it’s low? Actually, I was thinking it’s high. But if you’re not sure, does that mean some people think it’s low? You start changing the tone of the conversation.
Carl: No, I think it’s confidence just to say, “Is that more or less than you expected?”
And the reason I think that’s important is you’re getting context now. They just may have no context for this. They may say, well, in the past, I’ve never paid for this. Because you may have a transparency problem. That may all you have. We’ve talked about this, how annoying it is that the person next door in the next office working for the other firm, the client is actually paying twice what you charge. The client just doesn’t know it. So you may just have a transparency problem. And trying to get at that is important because we could say it’s crazy… And I used to say this when I was at the big brokers firm. I used to say like it’s great.
Like, first of all, Michael, I would get excited. Like, “I’m glad you asked about the fee because first of all, I wish I could tell you all the ways I’m going to help you. We’re going to avoid costly mistakes. We’re going to do these things. But there are so many things that I’m going to be doing for you that I don’t even know what they are yet. I don’t know what I don’t know yet. We haven’t had the time to understand it, but I can tell you every single client, without exception, we could go through the entire list of clients. And every three years, at least once every three years, something happens that covers the entire three years’ worth of fees. One event. Let alone the ongoing behavior, let alone the tax, let alone that this. One event. It may be that they wanted to sell. It may be that they are selling a business and I make a tax suggestion. I could literally go through it, but without exception, every single client.”
So I have no problem looking you in the eyes and saying, “I don’t know what it will be for you, Michael, but I know it will happen.” And we’re going to get more context as we get to know each other better.
So you’re trying to ferret it out at first. Is this a transparency issue? Because if it’s the ‘Goldman Sachs is a nonprofit’ problem, then you get a chance to educate a little bit.
Michael: Well, the other piece I find fascinating with this, and one of the questions I now occasionally pull out, for the folks that do say, usually, there’s that objection, something to the effect of like, that seems really expensive. It seems like a lot of money. That is one of the objections we’ll hear sometimes that I’ve taken to just asking, compared to what?
Carl: Yeah, yeah. That’s great.
Michael: Our planning costs $5,000, and you said it seems a little pricey to you. I’m just wondering, compared to what? What are you comparing the $5,000 to, or our planning process to? Because I find usually one of two things happens. Either they’re comparing the process. Like, well, the last advisor I worked with only charged $1,000 for a plan and yours is $5,000. Well, okay. All right then. Well, tell me a little more about the plan and the process and what they did for you. And what was that like? And right. And I can start to understand what was the depth and quality of the prior planning versus ours because this is a… They’re envisioning I charge $5,000 for the not-ideal plan they got in the past. So, of course, they don’t want to pay 5 X the fee for what wasn’t a good experience last time. So I have to explain why my planning is better. For others…
Carl: Let me just mention one thing. Don’t lose your place but I think one thing that’s really interesting about that is, but you’re here meeting with me, so. And you won’t be meeting with somebody else in a year. I can tell you that much right now. I think that idea of, yeah, we’re not going to chart. Yes, I understand, but you’ve been terribly disappointed in what you got over there. You’re not going to be disappointed here, but don’t lose your… I love that question by the way.
Michael: And so the other response that I sometimes hear to this is something to the effect like it’s the fee itself. Like when I say $5,000, there was something going on in their lives that was going to be five-ish thousand dollars. And as soon as I put that fee out there, in their head, they are giving up what they were going to spend the money on to work with us. And that may not feel good. Like, I was going to redo the entertainment center in my basement. I’ve been looking forward to it for a while. I had all the equipment picked out. But it was a couple of thousand dollars. Five thousand dollars. That’s what we were going to spend on our family vacation this summer. I don’t want to give up my trip with my family. Financial planning is important. I want to give up my trip with my family for that.
And so, understanding what they’re comparing and what they’re anchoring to because that becomes an opportunity to re-anchor them. Like, no, look, your vacation budget comes from your annual income, from your paycheck, you take a portion of that and use it for enjoying time with your family. A lot of what we do is on focusing and protecting your entire balance sheet. Now, your entire balance sheet, you have almost a million dollars. This is a fraction of a percent. So, I’m not asking you to give up your family vacation out of your income. I’m asking you to draw 0.5% from your balance sheet to protect the other 99.5% that I’m going to give you advice on.
And so, again, reframing what that context is, but if you don’t know what they’re comparing your fee to, you don’t know where they’re stuck. Like, are they comparing you to the last crappy planning experience they had? Are they comparing you because your fee was their vacation or their entertainment center or whatever it is? If you don’t ask you don’t find out. And so, just asking that question, just wondering, compared to what? When you say our fee seems expensive, I’m just wondering, what do you compare that to?
Carl: Totally. And that’s a really good question. I think the ultimate reframe for me, which we haven’t mentioned yet, is helping people to reframe that from an expense to an investment. And really, honestly, it’s been life-changing for me in the last five years is when I started to see things as investments instead of expenses. That was human capital for my business. That was coaching particularly. Like my strength coach in New Zealand was expensive. I went three times a week. When I added that number up, I was like, “Are you kidding me?” It’s more than a crappy car payment. That’s for sure. Because I was going three times a week. But then when I started to realize it’s something I can’t afford not to do. And I’m talking direct ROI. I’m not talking just like I feel better. Like the work I was doing there was producing a return in my business, let alone the lifestyle, the health return.
So I think having that conversation like, Oh, I get it. I get it why you’d see that as expensive. You’re seeing it as an expense. I see it as an investment. Let me walk you through why. Every single client I’ve ever worked with over three years, like $5,000 pales in comparison to what we add to their lives. And I’m talking about like dollars that we can calculate. I can’t guarantee that to you. I can just tell you that when we look back three years from now if we can’t find that, you should not be a client of ours, let alone, I’m going to simplify your life and take this plate from you. Like, let alone. That’s the bonus. That’s like the cherry on the top. Right?
So I think reframing it from an expense to an investment. And you better believe that. If you don’t believe that nobody else will either. You got to get clear about that first. You are an investment, not an expense.
Michael: So, as we wrap up, though, for me, the one other, just takeaway to all of this and, and just what strikes me in the conversation, never once did we talk about anything like, well, the fee is the fee because it takes me 17 hours to produce the financial plan. The fee is the fee because of the comprehensiveness of our plan and the 13 different areas that we cover. All of this at the end of the day comes down to, what is the value perception in the eyes of the client? What is their problem that they’re trying to solve that got them off their duff to come into your office to talk to you and have this meeting? Something hurts in their life that they’re trying to solve for, as you put it in the last podcast, “to get to a desired future state.” What is that pain point, that desired future state? What is the fee relative to their world? Is it an expensive fee, a family vacation, or a crappy car payment?
And when you can relate the fees to their lives, their spending pricing scale, and the problems that they’re trying to solve that brought them in the first place, the whole nature of the fee conversation starts to change.
Carl: Totally. Absolutely. Awesome.
Michael: Well, thank you so much, Carl, for hanging out and talking today about fees.
Carl: So fun. I can’t think of a better way to spend 35 minutes. Perfect.
Michael: Perfect. Thank you.
Carl: Bye.
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