Originally published on Advisor Perspectives, March 7, 2018
Before every talk, I ask participants to send me their most pressing concerns. At, or near, the top of every list is “justifying fees.” That concern will grow as technology invades every aspect of the advisory industry. But you have a secret weapon that few advisors will use effectively to respond to this challenge.
Fee compression is real
The prominence of fee compression is not surprising. Investors can get an advisor and comprehensive planning from Vanguard (and others) for a fee of only 0.30% of assets. It launched this service only three years ago and already has surpassed $100 billion in assets. I predict Vanguard will lower its advisory fees in the future as it scales up. If it does, expect pressure on your fees to accelerate.
Technology will cause more fee compression
About half of investors in a recent survey thought “most financial services” will be automated within the next 10 years. Automation will include not only areas like onboarding but financial planning as well. Investing is already commoditized.
There’s talk of a “bionic relationship” between advisors and their clients, where artificial intelligence, machine learning and “connected ecosystems” will be integral parts of the process.
Delivering this new level of service will require a significant and ongoing investment in technology. The question for advisors is: Will clients pay current fees for services that are largely automated and fungible?
Your secret weapon
The services (and often the fees) of advisors are frequently indistinguishable. The key to holding on to clients in this competitive environment will continue to be your personal relationship with them. If there’s nothing special about that relationship, clients will shop around for the lowest fee.
While defining a “special relationship” is challenging, one fact is clear. Without full engagement, you can’t build a relationship of trust and confidence.
I define “full engagement” in technical terms because it’s measurable. Your client is “fully engaged” when the entire bandwidth of his or her brain is focused on you.
Fortunately, achieving this total focus is easy, but it’s also counter-intuitive.
You get there through “mindful listening” which is defined as focusing on what the other person is saying, as well as their facial expression, gestures, and the volume and tone of their voice.
You can’t be a mindful listener if you are distracted by your smartphone, thinking about how you are going to respond, preoccupied with steering the conversation where you want it to go or inclined to interrupt.
True mindful listening allows the other person to express themselves without interrupting, judging, refuting, or discounting.
By asking genuine, sincere, thoughtful questions intended to learn about the other person, and thoughtfully following up where appropriate (“tell me more”), you can achieve total engagement with prospects and clients.
When you are speaking, you are fully engaged. The other person isn’t. This is the most common mistake advisors make.
Many people have never had an experience with a mindful listener. That’s how rare it is.
Some have speculated that psychotherapy, and coaching, is popular because it’s the only time when you can be assured of having an in-person, focused, engaged listener for a prescribed amount of time.
Think about that. If a prospect, or client, finds that rare and special level of engagement with you, are they really going to be focused on your fee?