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How’s Your Value Proposition?

In an era of fee compression, how can you escape the race to the bottom? While there are several answers to that question, basically they all focus on one thing: proving your value to prospects and clients.

How severe is advisor fee compression today? In a March 19 “super session” at the 2017 NAPA 401(k) Summit in Las Vegas, Tom Kmak of Fiduciary Benchmarks used the conference app to poll the standing-room-only audience of nearly 400 advisors on eight questions over the course of the session, including these two:

  • How severe is advisor fee compression? A total of 85% said either extreme (35%) or common (55%). Only 10% said it’s a minor issue, and no one said it’s nonexistent.

  • How important is price in landing a new client? A total of 79% said either critical (9%) or a major factor (70%). Only 21% said it’s a minor factor, and no one said it’s not a factor.

Kmak served as facilitator of the session, joined by Jim Detterick of Morgan Stanley Wealth Management/Graystone Consulting and Pat Oberlander of UBS. The three shared their takes on three key differentiators for advisors: quality, service and value – and added a fourth: “extra credit.”

Quality of You and Your Firm

How do you convince clients and prospects that ERISA requires that fees must be reasonable – not low? “Employers want to get the best deal they can,” Oberlander observed. Quoting Warren Buffett – “Price is what you pay; value is what you get” – he noted that the key is to maximize the value they get.

Oberlander’s combined wealth management/retirement practice focuses on small businesses and their owners. For him, in serving the small business niche, the key differentiator is trust. Their secret sauce: “a concierge level of service.” In both parts of the practice, he says, they strive to be “the first people the client calls” for help.

Transparency is a key to demonstrating your value, says Oberlander – “Here’s what you pay, here’s who’s paying [sponsor and participants], and here’s who gets the fees. Then use benchmarking tools to connect the services provided.”

For Detterick, it’s all about the metrics – backing up the firm’s talk about their key differentiators with numbers showing their performance in moving the needle on retirement readiness, for example. “We also talk about our intellectual capital and bench strength, and how our service model differs from our peers,” he said.

Services You Provide

Most advisors provide the same four essential services: investment advice, plan management, vendor management and participant services. Investment advice isn’t really variable, which makes the variability of the other elements – especially vendor management and participant services like education – important ways to create differentiation, Oberlander noted. “In the sales process [for prospects], we transmit our “concierge” message,” he said. “Plan takeovers are different; there’s more emphasis on our fees. But both start with the same model.” Detterick agreed, noting that, “Repeatability is an important key to building a practice” – an important consideration that constrains variability.

Value to Plan Sponsors and Participants

How do you measure value? To Detterick, the answer to that question must be on an individual client basis. “What’s important to your company?” he asks clients. “How does that affect the choices you make with respect to your retirement plan?” With many services models now available, it’s important to boil it all down to what’s important to the client, “and help them get more bang for their buck.”

For prospects, “at the end of the day, client references are the ultimate value message,” Detterick noted. Of course, that can’t be the sole focus. His firm also does research and analysis on prospects that they share with the prospect – in some instances where they really want to land the client, he indicated, a significant amount of research and analysis.

For Oberlander it’s about pain points. “Listen to prospects.” He said. “What are they striving for? Find that out and address it.” For existing clients, he said, “it’s all about delivering on your promises.” He reported that in 2016 his firm began documenting the results they achieved for each client, with the intent of delivering a presentation annually showing metrics and other documentation in areas like outcomes and retirement readiness.

Extra Credit

“Extra” credit is a term Kmak uses to describe the extra work that every advisor provides to clients: extra work, extra meetings, extra reports, asset allocation models, fiduciary services, etc. The question is, how do you build all that extra work into what a client pays?

“How bad do we want a piece of business?” Oberlander asked. “The more we want it, the more we’re going to do research on that prospect. But we do have a limit. We can always come back to that prospects when the opportunity arises in the future.”

But Wait, There’s More

As noted above, during the “super session,” Kmak conducted instant polls of the SRO audience on eight questions related to fees and services using the conference app. In a follow-up post, we’ll take a closer look at the answers to those questions.