DUE DILIGENCE: “Fee-based” is a Four Letter Word for Financial Advisor Clients

Are you a “fee-based” financial advisor? That is, an advisor who gets most of your revenue from fees on assets rather than commissions on trades?

Are you a “fee-based” financial advisor? That is, an advisor who gets most of your revenue from fees on assets rather than commissions on trades? You probably are—the vast majority of financial advisors are these days, whether they work at a Wall Street bank or brokerage or at a boutique one-man investment advisory shop.

But the more important question is, do you use the term “fee-based” with clients and prospects?

If so, well, don’t.

Fee-based is not a phrase that warms investor hearts, according to a recent study from Sullivan and Northstar called “Rebuilding Investor Trust.” Sullivan and Northstar asked survey respondents whether they had a negative or positive reaction to a number of words or phrases often used in the industry. About 64 percent of respondents had a negative reaction to the phrase “fee-based.”

It’s not hard to see why. After all, it suggests that fees are the focus of what you do, rather than, say, helping them plan for the future or protecting their assets or providing great service or awesome performance.

“Advisors use this phrase all the time,” says Philip Palaveev, President of Fusion Advisor Network, which provides business management services to a network of 120 independent advisory firms. “You will find it all over marketing materials, presentations to clients, verbal interactions. We use it to show a contrast with commissions, but for clients it sounds like the advisor is ‘nickel-and-dime’-based. They don’t hear a good thing, they hear, ‘This is going to cost me money.’”

Advisors should probably describe what they can offer clients in clear terms instead, he said. But they should also be careful about what language they use in general, he said. There are so many words that financial advisors take for granted that their clients probably don’t get. “First we have to clarify what we mean by wealth management, financial planning and investment advice. Those are the three most commonly used terms to describe financial advisory services,” he said. Another word that means many different things to many different people and probably makes no sense at all to clients is “independent.” And then there’s “wirehouse.”

To continue reading, click here.

(Read more from Features Editor, Kristen French on her blog, Due Diligence.)

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