In “Teachable Moment,” FA-IQ asks an advisor to tell a story about a challenging client interaction that had a happy ending.
This week we spoke to Lynn McIntire, principal of Cadent Capital in Dallas, which is an independent affiliate of Raymond James Financial Services with $230 million under management. Her story offers a potential solution for financial advisors struggling with a client who’s adamantly opposed to paying wealth-management fees.
Lynn McIntire: You learn by doing when it comes to fees, as the whole environment for those has changed in the last 20 years. We had a client come to us about 17 years ago through an arrangement with a corporation. We were providing financial planning for the company’s high-level executives, so his company was paying this client’s fees.
As a high-level executive, this client had a very high level of understanding about finance and investment and very much liked the idea of eliminating all fees if possible. He invested his assets in a family of front-loaded mutual funds. But when the company stopped its arrangement, the client declined to continue paying the financial planning fees. So Cadent Capital received compensation only in the form of 12b-1 fees, nothing for financial planning or asset management.
We held off a long time before talking with the client. You don’t want to ruffle feathers. We knew if we didn’t explain the ideas to him well, he might think we were changing the rules — and that might have introduced all kinds of thoughts. But we had to tell him the relationship would have to be different.
Three of us met with him. We told him: “We want you to experience the way we are working with most of our clients.” We then walked him through the process and explained that what we called a wealth management fee covered our asset managing and financial planning. He said OK. He also arranged for his two grown children to receive our wealth management services.
His family’s assets, when he started with us 17 years ago, equaled around $200,000 and now are in the $1.6 million range. We previously earned $4,900 annually in 12b-1 fees from this client and his family, and we now earn about $4,500 in wealth management fees and $3,300 in 12b-1 fees from the front-loaded mutual funds that remain in his portfolio.
When we had our annual review recently, we had to explain to him again about our wealth management fees. But thankfully we’ve always done good work, and we had always been transparent with him. So it worked.