Kitces: Why and how to disclose your fees

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The internet has brought remarkable transparency to shopping. Whether it’s a couch or a car, a snapshot of the pricing landscape is just a search query away. So why should advisory fees be so difficult to uncover?

Posting your fees and minimums on your website is good business. Not only does it help fulfill your brand promise of being a real fiduciary and make it easier for clients to refer to you, it helps screen out non-qualified prospects. It’s an efficiency play as much as a transparency one.

“Do you automatically reject them because they don’t meet your firm’s $500,000 minimum threshold?”

And yet when I look broadly across the advisory industry, I still find very few advisors who post minimums and fee schedules on their websites. Most of us seem to prefer the approach of, “Hey, just come on in and meet with us, and we’ll talk about fees, costs and minimums.”

Deep down, we know why we do this. We fear that the prospect might not actually be comfortable with our fees and might say “no,” denying us an opportunity to explain or justify our value. We also might suspect that the prospect doesn’t meet the minimums but maybe could become a promising long-term client. Imagine a prospect who only has $200,000 to manage, but they’re 37 years old, they’ve just made partner at a law firm, they’re going to be saving six figures a year for the next decade. Do you automatically reject them because they don’t meet your firm’s $500,000 minimum threshold?

“When we hit these issues with prospects and we fear we might lose their business or get rejected, fight-or-flight takes over.”

That’s a very good long-term prospect for most of us, better frankly than maybe someone who’s over the threshold but is 82 and will spend their money down and likely pass away soon. That feeds the impetus to meet and understand the prospect, so we can make a judgment call on the spot about whether they merit an exception to the minimum-to-invest rule.

First and foremost, hiding your advisory fees and minimums from your website is a terrible way to start off a fiduciary advice relationship. What does it communicate to a prospective client when you — by not disclosing fees and minimums — effectively say, “As fiduciaries, we believe in acting in our clients’ interests first. That’s why we won’t tell you upfront what we charge.”

And of course, what we charge — especially at the RIA side of the industry — is public information. It’s in our Form ADV Part 2 brochure, which is available to anybody on the SEC’s Investment Advisor Public Disclosure website. It’s a public document, making the lack of disclosure on our websites all the more embarrassing. It’s not a very client-centric thing to do. It doesn’t feel good.

Even worse, not putting fees and minimums on your website makes it harder for other people to refer to you. There would be nothing more embarrassing for a referrer than to send someone to you — only to have you reject them. It’s safer to forgo a potentially awkward situation by skipping the referral entirely.

Simply put, if you want more referrals, don’t make it so hard for people to refer to you. Reduce the uncertainty by being transparent about what your fees and minimums are.

Indirectly, this ladders up to one of the most pernicious problems with not posting fees and minimums on your website, which is our tendency to meet with and then take on clients who weren’t really qualified to do business with us in the first place.

A qualified prospect, of course, is someone who is actually qualified to do business with you. That means they have the income, assets and financial wherewithal to pay you, and they have some need or problem that you might solve.
By contrast, a non-qualified prospect may not value what you do. Maybe they don’t even understand what it is you do and won’t value it once you explain it to them. Maybe they need help in an area that’s not your area of expertise. Maybe they just can’t afford you or meet your minimums.

Early on, when you don’t have very many prospects, there’s a powerful compulsion to meet with anybody who can possibly do business with you. But as the advisory business grows, you have to be efficient with your time — including your business development time.

That’s why it’s so important to disclose your fees and minimums on your website. They are screening tools that work for you in the background 24/7. True, you might miss out on a prospect you might have converted, but you’re also going to avoid 10 wasted meetings with people who realistically would have never done business with you.

With that said, perhaps the most important reason to disclose fees and minimums on your website is that it protects us from ourselves.

Most of us are planners because we like to help people. We analyze someone’s situation, construct a plan, give them some recommendations and get them on a better track. The problem with a helper mentality is that tends to make it really difficult to turn away non-qualified prospects.

Let’s say you are meeting a friendly, good-natured prospect who doesn’t quite meet your minimums. You really want to help them and so you say, “I’ll tell you what.” And then you make a concession. You take on a client below your minimums who won’t ever be profitable. Or you disclose your minimums and fees, and they say, “Wow, I didn’t realize it was going to cost that much.” Immediately, you’re doing the math to determine by how much you could lower your fee and still make this work. That’s a problem.

Stephanie Bogan wrote about this phenomenon recently on Nerd’s Eye View. When we hit these issues with prospects and we fear we might lose their business or get rejected, fight-or-flight takes over. We’re emotionally driven to do whatever we can to fix and save the situation. And when we go down this road, our services invariably become undervalued.

But when we put fees and minimums on our websites, we spare ourselves this struggle. Your website isn’t going to put you on an emotional guilt trip to make a concession to a prospect. Rather, the prospect will look at the website, make a decision about whether to work with you or not and either contact you because they value you at your full fee and minimum, or they’ll move on. Either way, no one asked you to make a concession. You’ve removed yourself from the situation where you tend to make bad business decisions.

I’ve done this for years at my own practice. I know from experience that if I meet with all these folks and they don’t know what I cost and I told them on the spot and they say, “Well, what if we did this,” I may capitulate and make a concession. But by being transparent, if someone doesn’t think the service would be worth their while, they just move on, and I don’t have conversations where I put myself in a position to take business that’s not actually a good fit.

I always get the question, “OK, but how do you put this information on your website? What are you supposed to say?”

Honestly, it’s not that hard. Just write it out. “Our fee schedule is this.” Put your tiers in. “The minimum to work with us is $500,000 of assets.” It is what it is. Don’t apologize or be embarrassed about it.

Instead, be proud of your value. If you’re afraid you might miss out on a 40-something prospect with $300,000 and an active saving plan, simply write on your website, “Our minimum is $500,000 of investable assets, however our services are also available to active accumulators under the age of 45 with only a $300,000 minimum.” And you know what’ll happen? People under 45 who are at $300,000 and who like the look of your services will call you.

In fact, you’ll probably find someone at $270,000 of assets who says, “I don’t quite qualify for you, but I’d like to work with you, is that OK? Can I come up to your minimums?” And you could say yes. You’ll be amazed to find how often people will contact you below the minimums you publish — because they want to work with you. And if they want to work with you, that may be a good fit and a good long-term client.

So if there are good business reasons to have exceptions for your fees and minimums, that’s fine. But don’t be bashful about it. Just say it on your website. “Here’s how we work and who we work with.”

We recently had Anna Sergunina on the podcast, who talked about how she explains the value of her advisory fees on her website. Her approach, distilled, is, “If this is your situation, here’s exactly what you do. And here’s what we do for you.”

The average all-in cost of an advisor in the industry is a known quantity, so if you want to emphasize that your services come at a reasonable cost, then show it:
“Our advisory fee is 1%. Wouldn’t you sleep well paying 1% for good advice to protect the other 99% of your net worth?” Alternatively, “Our minimum is $500,000 and the average client pays 1.3% of total all-in investment cost, including our advisory fees and underlying ETFs when they work with us. According to Inside Information’s advisory fee benchmarking survey, the median all-in cost for a $500,000 client is 1.65%. So at 1.3%, we’re nearly 20% below the average cost to serve a client like you because we’re so effective at working with people just like you.”

Simply put, if you want to be certain your prospects will understand and appreciate the value of your fees and what you do, then ensure your website clearly indicates whether they’re qualified before they meet with you.

The bottom line? Recognize that putting your advisory fees and minimums on your website is good business. It helps you fulfill that brand promise of being a real fiduciary and actually being transparent, and it makes referring to you easier. And most of all, it screens out non-qualified prospects — so that you can spend time adding value to your firm, rather than squandering it.

So what do you think? Is not listing your fees on your website a terrible way to start off a fiduciary relationship? Does posting your fees keep you from haggling with yourself? How do you publish fees on your website? Please share your thoughts in the comments below.

This article originally appeared in Michael Kitces
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