It’s all in the name
Why would someone buy a “used car,” when you can buy a “certified pre-owned”? The term “estate tax” solicits a very different reaction from people than “death tax” does, even though they refer to the same thing. Food labeled “diet” versus “heart-healthy” conjures different feelings. Phrasing really can change the listener’s perception.
In psychology, it’s called the “framing effect” – where describing the same thing using different words can change people’s perceptions and decision. Marketers have clearly honed in on these discrepancies.
Financial advisors have an opportunity here, too. I’ve noticed one example in particular recently: “fee-based” versus “advisory.” Many advisors – and, at times, I’ve caught myself doing it too – refer to their advisory-based business (as distinct from transaction-based business) by using the short-hand “fee-based.”
Why is that unfortunate? It brings one of the most unpleasant conversation topics between an advisor and a client center stage — the fees. To me that’s the equivalent of talking about my baby girl, due in March, by first mentioning all the expenses she will incur (or even all the diapers I will have to change).
Starting with the negative diverts attention away from the positive. Of course, all fees must be properly disclosed. But fees may be in fact more transparent in an advisory relationship than in a commission relationship (because the advisory model distinguishes between costs for advice and the fee to manage the assets). This doesn’t mean you need to lead with the fee discussion.
When introducing the new relationship model to your clients, try focusing on the many benefits of an advisory account. For instance, talk about the alignment of your interests with your client’s, the flexibility and, yes, the fee transparency.
Words matter. Especially the words you use to describe a change in the way you interact with clients. It’s something to think about the next time you talk to your clients about transitioning to an advisory business model.