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No one wants to pay full price. Fran Dresher in the TV series, said: “It ain’t half off, it ain’t on sale”1 As Americans, we want to get a good deal. The financial services industry is very competitive and has many challenges. What do you do when a client asks for a discount?
The simple answer is you will probably give them one. Bear in mind certain items cannot be discounted because the fees are baked into the product. Insurance policies are a good example. The advisor’s compensation is built into the product price. If the advisor were to hand cash back to the client, the law would likely view that as a kickback. That is illegal.
1. What should be removed?
The airlines introduced us to unbundling. The fare is low, but seat selection and checked bags costs extra. A NY advisor has a great approach in this situation. He explains how he does business, laying out all the benefits received by the client. When the client asks for a discount, he is agreeable. Next, he simply asks: “Which of these benefits would you like to remove?” In many cases, the client likes the benefits as a group and wants keep them all.
2. Volume purchase discounts.
You learned about this with mutual funds, years ago. There are breakpoints. If you invest more than a certain amount, the sales charge goes down. “The more you buy, the cheaper it gets.” This likely applies to separately managed accounts.
Do you discount on bundling?
You head this mentioned on TV ads sometimes. “If you bundle you home and auto insurance…” You might not be in the business of selling personal lines of insurance, but this might still apply. If your client wants a mortgage through your firm, do they get a lower interest rate if they also do banking and inventing with your firm?
3. Establish a time limit.
You get credit card offers in the mail. They might have low balance transfer rates, but they only last several months or a year. When an advisor gives a client a fee discount, the unspoken agreement might be this will last forever. If you are providing a discount, establish an expiration date or a point when it will be up for review.
4. Can you keep the fees yet provide a free service?
Let us assume you provide financial planning at the start of every relationship. A plan is prepared, which you present and refer to in future years. The plan comes at a cost. Can you keep the fees on the investment products stable and prepare the financial plan on a complimentary basis?
5. We can discount here, but not there.
Insurance products are one example where fees are built into the structure. Discounting is not possible. Explain there are areas where you have latitude and areas where you do not. Discount where you can.
6. Do they understand the discount comes from your slice of the pie?
A client might assume you pocket all the fees they pay. They might not be aware the firm might share in discounting in a minor way, yet deep discounting primarily comes from the portion of the fees paid to you. The client would not work for free. They should not expect you to do so either.
Many of us are hard wired to buy things when they are on sale. Sometimes we negotiate (jeweler) other times we pay the posted price. (groceries). You are hoping this will be a long term relationship, so you need to be flexible.
Related: Seven Practical Reasons to Call Clients Before Christmas