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Shaping the Future Your Clients Deserve

Practice Management

On Feb. 26, 2020, the CDC identified and announced the first non-travel related case of COVID-19 in the United States. At that point, a spiraling uncertainty gripped America that continues to affect families, gatherings, the workplace and lives of Americans. Not only have workplace environments been immeasurably affected, but processes, systems, travel, entertainment and corporate real estate have been abruptly stifled at the crossroad of Normal and Viability. The first business-related question has become: “How is your business performing?” 

For advisors, that pointed question leaves only two possible responses: is the business thriving or surviving? 

Advisors that are currently thriving have a distinct advantage over the competition. Not only does this advantage exist within the financials (assets, liabilities, revenue and cash flow), but there is also unparalleled opportunity in the maneuverability afforded by the strength of those financials. 

Margin can be managed by controlling expenses, and healthy margins can represent a big opportunity. During 2020 most advisors experienced static or growing revenue, while expenses were considerably lower than the year before. In 2020 most retirement plan advisors experienced their best year ever—primarily due to expenses (travel, conferences, entertainment, client neetings and real estate) dropping to a mere fraction of the 2020 budget. The next question becomes: “Did your margin increase during 2020? ”

If your firm experienced a large margin increase during calendar year 2020, what is your strategy for deploying or preserving those margins this year and in subsequent years to protect your company’s future?

Is it Time to Invest in Your Clients?

That 2020 margin increase may be considered “found money” by advisors preferring to see it drop to the bottom line. Benevolence, social causes and giving back to the community are truly personal issues, but a more appropriate use for your 2020 margin windfall might be to share it with your clients. Margin-sharing via a client fee reduction aligns the interests of the plan sponsor, the retirement committee and every plan participant. 

Read more commentary from Steff Chalk here.

Communicating the Margin Windfall

Sharing with clients that your 2020 expenses were less than anticipated, and for that reason you will be reducing 2021 fees by ‘X’ percent, sends a profound message to clients. Making such an admission—that your lower expenses were the result of “the times we live in”—is making an argument against your own self-interest. But arguing against your own self-interest by rebating fees or reducing future fees gets noticed by your clients. Communicating with clients that you do not want to profit from unfortunate circumstances that were beyond your control sends a firm message about who you are and what you stand for. (There is academic research supporting the benefits of arguing against one’s own self-interest. The practice is used in annual reports, e.g., Berkshire Hathaway, and verbally in boutique firms where the proprietor wants your business today, but they realize the long-term benefits that inure to the “honest shopkeeper.”) A one-time fee reduction by you delivers a strong message. 

Direction Outweighs the Magnitude

The fee reduction does not need to be substantial. In the years to come, most clients will not recall how much the fee reduction was when you introduced it. However, they will recall the direction of the fee move—for a very long time. Possibly through the life of the relationship.

Seasoned retirement plan advisors understand that serving in a fiduciary capacity is about putting the client first. By arguing against your own self-interest, and by taking swift action to reduce plan fees, you have established a relationship of trust among your clients. Reducing fees this year due to lower-than-anticipated expenses last year can solidify those client relationships. 

Steff Chalk is the Executive Director of The Retirement Advisor University (TRAU), The Plan Sponsor University (TPSU) and 401kTV. This column first appeared in the Spring issue of NAPA Net the Magazine.