Should You Give Your Clients a Discount?

Sometimes discounting is a fact of life but it’s important to put some ground rules in place.

By Bryce Sanders
Bryce Sanders
Bryce Sanders

We Americans love a good deal. Black Friday, the shopping day after Thanksgiving, brings people out before dawn to get the best deals at sales. We will buy things we don’t need because we cannot pass up a good deal. One of the great lines from the 1990s sitcom “The Nannywas, “It’s not really on sale if it’s not 50% off.” Some clients will ask for discounts. How should you approach it?

Here are some different approaches that you might want to tweak for your client relationships, including suggestions on how to keep discounts from getting out of hand.

The ‘friends and family’ discount

This can be great for promoting referrals among relatives. In the 1970s and 1980s, a municipal bond firm used this line in their ads: “We treat you like family.” In the UK, they have an expression “mates’ rates,” for the lower price that building contractors charge their friends. It doesn’t need to be big, but it’s an incentive to choose you over an outsider.

Personally, during my years in production as a financial advisor, I did not offer a friends and family discount. Nor did I did expect one in the situations when I become their customer. I would offer a discount when necessary, in competitive situations.

The introductory rate

Here is a curious observation: If you get a credit card offer in the mail, they might offer a 0% interest rate on balance transfers. Yet the letter goes on to explain the rate is only valid for a specific time period; then you revert to the regular rate. You might see this with cable TV or wireless promotions, too. The great rate does not last forever. What is the curious observation? When an advisor grants a discount, it is often open ended. It becomes a permanent discount. If you grant a discount to win the account, set a time limit. This gives you the opportunity to show what you can do.

The volume-purchase discount

You know this as breakpoints on mutual fund purchases or managed money in separately managed accounts. Put another way, “The more you do, the cheaper it gets.” In this situation, you are not granting a discount. They are “earning” it by increasing the size of their investment.

The more products you use, the cheaper it gets

This is a technique associated with the banking industry. The more products the client uses, the stickier the relationship. If the client has their checking, savings, credit card and retirement account at the bank, they might get a slightly better rate on their mortgage or a little more on their CD rate. If this is available, the institution usually spells it out in print.

Fees as a percentage of assets under management

You have heard the expression “Look at the big picture.” Your client might object to the fee on managed money. They have a larger relationship with you. This includes certificates of deposit and individual municipal or U.S. Treasury bonds. You are providing advice across all asset classes, all their holdings at the firm. What are they paying as a percentage of all the assets they have at the firm, not only the managed accounts?

Negotiation based on services

A New York City advisor had a great approach. They would explain their investment process and service model from end to end. They might even use a printed chart or draw one. They would explain their fee structure. If the client wanted a discount (pay a lower fee), they would say, “Fine. Which services should we take off the table?” This gives the advisor some degree of leverage, since the client likely wants everything included.

Additional Reading: The High Maintenance Clients

Where does the discount come from?

When talking about commissions, you get a piece and the firm gets a piece. You know that. Your client might not. If you grant a small discount, it might come off the top, shared in the same proportion between you and the firm. Put another way, the split is the same, but the pie is smaller.

Once the discount gets larger, your firm might not want to share anymore. Your firm might have a policy that the excess discount comes from your piece of the pie. This can mean you might be working for almost nothing! Your client might not know that. They would not work for free. They would not want you working for free either.

Areas where you cannot discount

Your client may buy life insurance or annuities. The fee structure is “baked into” the product. Your client may have read articles about fees embedded into products and want a discount. You cannot provide a discount because it is out of your control. You cannot hand over cash as a rebate on fees. That would be similar to a kickback and is illegal. If your client isbuying other products like managed money, you might be able to negotiate a lower fee on that product, but you cannot touch fees on products when they are built in.

Sometimes discounting needs to be a fact of life. Getting 90% of something is better than getting 100% of nothing.

Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor,” is available on Amazon.



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