How Do You Know You Are Adding Values Versus Just Trying To Justify Your Fees? - Kitces & Carl 155

[Music] well greetings Carl hello Michael kitus how are you I'm doing well I'm doing well we're we're getting into holiday season although probably will be just after holiday season by the time that this finishes so I'm presuming that means snow is falling in Utah and you are Outdoors on the once again y yeah it's been uh it's been good so far like it's it's but it's for me it's just fun to be I do my best work in the mountains for sure in terms of like thinking and conversations Etc so it's been it's been really

fun very cool yeah very cool I've I've been um crunching on our uh some of the research work we've been doing about advisor productivity because again you you have in the mountains on the ski slope and I have fun with the spreadsheet that's right that's right uh and and have been digging into some like some really interesting results and and and data and Trends we're seeing around so that this like these kind of counterbalancing factors I'm trying to figure out how to frame this well so you the more that a lot of the core investment

stuff gets commoditized or at least like asset allocated asset allocated Diversified portfolio becomes increasingly commoditized we're doing more and more in financial planning wealth management which is just kind of like a a metat trend written large across the industry we're going deeper we're doing more I've got to add more value to my clients to you know be competitive in the in the current Marketplace and I and I find it sort of shows up from two veins there's the like okay what else can we do to add value because that thing just isn't quite as valued

as it was in the past because there's so much technology to do it easily and then there's a you know I I charge my either proverbial or actual 1% fee like I feel like we got to do more to to to justify our fee to validate our fees and and what we're doing and why we're so valuable for clients and and so it's I kind of think of these is like opposite ends of the I opposite sides of the same coin there's like sometimes I'm trying to come up with new things to add value and

sometimes it's really just kind of trying to justify my fees and what I do and like I that sounds worse than I mean it like it's it's it's a fair thing to say hey I really want to sure my make sure my clients are getting like full and fair value for the fees that I charge so I'm not trying to be negative about that but I do like there there's a version that I see that is what else can we do to add value and there's a version I see that's cropping up that's I feel

like we have to do more things for our clients to justify our fees because we want them to stick around and not go away and what we're seeing starting to show up in our our research is that there there really is kind of a difference between those two in the purest sense we see some firms adding stuff adding Services doing more but they're not charging more and so in the simplest sense like I do more but I don't charge more and I've got it you know Steph Bogan likes to call it service inflation like I

I used to call it value compression or or margin compression like I'm doing more to get the same fees I always got which means I'm actually profiting less like this is kind of squeezing me as a business and then other firms that are going in and trying to do more and be more systematized and their revenue is going up and their productivity is going up and so I I it it's kind of crystallizing for me down to this Dynamic of like we're talking about all these different things that we can do to add value for

to clients and I feel like not enough firms are are are kind of bringing the lens of but but is that really a thing that clients want to pay for or or is it really a thing they want at all whether they're paying for it or not yeah yeah or sometimes a thing that of do they even want it at all I you I I I mean it reminds me of a version of the dialogue we've had in the profession for years and years around meetings around inperson meetings and right you the I mean I

used to joke like particularly being here in the DC area the the difference between an a client and a C client is that a C client Al only has to sit in crappy DC traffic once a year to come into our office but an a clients and a clients have the privilege of sitting in horrifically bad DC traffic three times a year right what a blessing of coming to our office and and I still remember I mean this was this probably would have been 10 years ago now uh a a a client who was like

very deep in the tech world and like we're trying to schedule the meeting for him to come in and like he's very active and busy in the tech world so scheduling for him was always difficult to get him to come to the office because he just worked a lot of hours and and he basically said to us to one point like you realize I manage a team on three continents and you make me drive to your office and it was not said in a particularly positive way I like he want he was happy to meet

but this whole idea of it's a value to allow clients the privilege to meet with you more often in person was literally not of value to him I mean he he was an a client for us and we were basically pissing him off by giving our version of a level value which was not actually a value for him and so I I remember that from many years ago but it to me it it it still kind of comes full circle for what we're seeing today which is a lot of firms just trying to do more

things do more to show more value and sometimes clients don't even actually want the more yeah I it's so fascinating so I could tell you kind of a funny story but first I I I think there's a I think there's a a fallacy I think we could even maybe name it because that's what I like to do the engagement fallacy I think it's I think it's interesting I've had lots of conversations with advisers like well I I want more I want increasing engagement like I want the client to log in more I want I want

more response to emails and one day I was thinking through like well maybe the goal is knowing it like maybe they've hired you because they don't want to worry about this anymore like maybe we got this backwards yeah and and that reminded me of um this client I had his name was I'll just call him Dr Terry and Dr Terry loved to ride his mountain bike and he was a he was a a radiologist he worked hard and I remember asking him at the end of the meeting it was a a a question I I

always asked which was in an Ideal World how often would you and I communicate and I would and I would follow up with saying and how would you like that communication right email in person and Dr Terry leaned back and he was like in an Ideal World he's like never he's like NE like in an Ideal World never like you would just take care of this now he he said like I realize we're never going to be at an you know ideal but he's like as little as possible like that's the goal as little as

possible and it also reminds me a bit of um we've talked about our it's actually not a metaphor but Kevin right our our adviser Kevin who was like has built the most successful business I I mean one of the most successful business I know of and if you ask him again today we should have Kevin on that would be hilarious um he would tell you uh I rapidly respond to client questions like we say we answer the phone we reply to emails and we give him a consistent experience on the investment side because he's a

heavily investment focused adviser like the experience is consistent and we rapidly respond to client inquiries that's all we do we don't send out anniversary cards we don't have 17 meetings we don't have like over and over and over is like so I I don't know now there may be client demographics or or or niches as we like to say that that want in fact Dr Terry said the same thing he's like Carl you're not my social coordinator like I don't I don't need a client appreciation event now that that reminds me of a client we

had where like we basically were their social coordinator we were their social activity so uh like lovely retired couple and like if we call Harold like if we called Harold hey like we we're sending you a form that we need to get wrapped up Harold be like oh I can bring it by the office I I'll I'll sign like Harold like we can we can send it to his e signature he like no no I can I can print it out I'll bring it to the office I'm like Harold we don't like we don't need

a we don't need a wedding signature anymore like we're not that like the world has moved on with that he like I can I can bring him by in an hour I'm like oh okay I see you're bored out of your mind because you retired too early and you need something to do come on by Harold drop the form off because apparently I'm the only thing you've got look to look forward to today and you just want someone to talk to for a while and then Harold would come by and he would chat with the

team for 45 minutes because he was bored and and so like yeah like in his case like that that was a thing to do something to get out that was valuable he was a little Bor in his retirement life that was was valuable like the the privilege of having a for to drop off at our office was yeah was valuable for them because that happened to be what he needed whereas Andrew which was our Tech um client like Andrew had a lot of things to do and hated coming to our office like the the fact

that you got to drive more often in DC Beltway traffic to come see us was killing the relationship because we were treating him like an a client our version of an a client and the way that we expressed what we thought was value that that he did not yeah I think that's I think that's an interesting way to frame it is like okay I are we really adding value that clients want or are we just running around trying to justify our fees to ourselves even yeah and let's let them determine that right like and you

could you could build your Niche around that right like we have a lot of Heralds and we don't have any of the other ones yeah um and that allows your service model to be more consistent but the point is the question I love to ask recently is like because I'll come up with an idea we need to add this to the Society of advice or something and the team will often say is anyone asking for that like did did anyone ask for that and then we're often like well no I just heard it on a

podcast somewhere that we it's something we should do and the same with ad advisor like we should add this does anybody care does anybody want it and and maybe you like working with people who love to come to the office great sure great that's awesome then get a bunch of people that value coming and don't get hung up on coming to the office versus Zoom or we saying it should be remote that's not the point here the point is just pick anything and decide like is this valuable to the client or is it just and

often when I I I think when we're referencing justifying your fees I don't think we're justifying fees to the client I think it's justifying fees to ourselves like we sometimes get in this this this cycle of like oh feed compression oh no AI oh no Robo advisers we must add more to justify our fees and often I have found that adding more actually makes it less valuable to people well yeah in The Logical extreme you get to the you know when I buy a service and I use the service it feels great when I buy

a service that has 20 things and I use the say one thing that I do all I can see is that it it it gives 19 things that I don't use and don't have the time to use and I feel bad that I'm not using it and I like well if they charge me for 20 and I only use one apparently I'm like not a good client and not utilizing the service well in fact I'm probably wasting my money because I only use 5% of it so maybe I should just let it go cuz clearly

I'm not doing it well like it's the same thing that I was totally F pay for until you gave me a whole bunch of other things that I can't use and made me feel bad that I'm not using them and then maybe question whether I'm getting the value for my own dollar because now I just see all the things that I'm not using that that was really a revelation to me when I started understand actually started calling it utilization rate right like I when when you start adding stuff because it it inevitably happens where you're

like oh we have you know we have a client leave they must have left because we didn't have enough stuff so let's add more stuff now I think your biggest battle I really think in the value conversation the biggest value the biggest battle is confusion and overwhelm like we confuse clients and we overwhelm them like oh plus you get a knife plus you get a Ginsu knife you know like the old TV commercials I was really surprised that like people would leave a service model because you gave them something for free I was like what's

that about and I it's exactly what you just painted it's called the utilization rate it's like well wait if you're offering all those things and I'm not using them I must not be a good fit I'm probably overpaying so trying to match not only the value the things the client's value and then also thinking through like utilization rate yeah and if people aren utilizing something take it away like just quietly in the middle of the night you know remove it if nobody's using it I'm fascinated by your comment earlier of the engagement fallacy yeah I

feel like just one step further on this because I I mean even we talk about you what what what can we take away because they don't actually value it I I mean the the other version of this so even when I think back to things like client meetings right there was there was always a point to me it's somewhere like five to seven years into the client relationship where you're on whatever meeting Cadence it is I'm assuming like you know one of our better clients like we're meeting with them two or three times a year

you know a client meeting Cadence and we get to some point where again we're like five to seven years in and we reach out for the next meeting and the client says something the effective of you know there's really not much new going on right now so look like we've work there for a long time if something comes up I'll call you so good if if something comes up for you call me but short of that like I just I don't really think I need to come in meet like I love you and what you're

doing like things are great good yeah I just I I don't I I don't really need to come in like I don't think I don't think we have much to talk about which you know my like early on my gut response was like oh my God I'm about totally big fire like they don't they don't want to come in they must be detaching from me they're probably already seeing another adviser on the side uh like I'm I'm doomed I'm screwed went through a few clients and like none of them actually fired us it was like

oh okay like maybe I was maybe I was freaking out a little bit more than I than I needed to and then it started to set in for me to say like oh so basically we were meeting more often than they cared and it took them five years to build up the courage to tell me to stop we' this is this is so good because I I think engagement policy is maybe the right term I it's so good because I remember one of my my next door neighbor who was also one of my best friends

became a client and I invited him to a client appreciation event where we were going to have somebody smart come talk about something smart and he was like hey I have an idea why don't you go and then just send me a note using email of anything that I need to know and that'll take me three minutes to read instead of 60 Minutes Plus travel plus you know schedule plus babysitter plus and he was like because I don't actually need you to be my social coordinator and if you're just going toart a bit of wisdom

just send me an email with the just send me the send me what I need to know and so I one thing I think that we could do when I started doing this is set set that up in advance meaning like early in the client engagement as early as first and second meeting start saying hey my goal at least the business I wanted to build you may want to build a different business where you enjo enjoy the meetings and that's F totally fine it's not a problem here but in this in this scenario that we've

been talking about here we can say like my goal if if we're really good at this like we'll take this plate from you yeah right and and if so if we ever get to the point where we feel like we know we can get we can we can do incredibly good work for you with a once a year meeting like high fives yeah like we're that's our goal is to get there and so then you're setting up in advance that you've actually become more valuable because they're not thinking about it anymore they're not worried anymore

they don't they're not anxious anymore and on top of that they don't have to come to meetings and they don't have to go to a lunch and learn and they don't have to read they don't have to do any of that stuff cuz if it was important Sally's gonna call me if it's important well to me then it it it comes right back to it's like just why I'm fascinated by the Fring like yeah I feel like we have this engagement fallacy but again like the first time a client said didn't want to meet my

first thought wasn't sure mine too like then I guess we just just don't need like oh I'm so sorry I was like bugging you with all the meetings like just my brain didn't even go there I'm in like oh my gosh they're about to fire me like I'm getting they're about to break up with me this must be the breakup moment it's coming any moment like just the the immediate fear Panic set in of oh if their engagement level is going down I must be in trouble not if maybe if their engagement level is going

down it's because they're so happy they don't need more or heaven forbid it's going down because I was actually basically bugging them with too many meetings and it just took them like 5 years of client relationship to to tell me to stop asking them for meetings you know I I I agree I think I and I think there's a warning here though that's interesting that I noticed this and I had a client advisory Council that once a year I would take eight clients eight client households so 16 people we'd have a a meeting where I'd

ask them questions and I noticed that we we would send out this week this monthly email that simply said you know we've looked at your stuff we've said this in the past we get a million emails about this please don't email we we've performed the 17o wealth management audit whenever I say that everybody wants to see the audit don't worry it's just like a list of stuff we've done we've gone through a list of stuff we've looked at your stuff everything seems to be okay based on you know your financial plan your your statement of

financial purpose like whatever based on everything seems to be okay if anything's changed in your world let us know if not we'll talk to you soon we'd send that email out and nobody would reply to the email or I'd make a phone call and they'd be like fine oh it's great everything's good okay how are the kids all right great and so at the client advisory Council I asked once I'm like look it's pretty obvious to me that this doesn't matter much like there's never anything to change or update like is it okay if we

just stop and all the clients are like no we love knowing that somebody is on top of this so this this engagement fallacy is I appreciate that you asked don't be offended that I say no and don't engage with it every time I still appreciate you asked just knowing it was amazing so I think that's to me that's the key here is like find a way to regularly remind them that you're on top of things just like hey we've looked at all your stuff anything's changed simple email right simply if anything's changed please let us

know if not we'll see you at our annual state of the plan meeting in February right if anything's changed and so you're just finding a small little way I love we've we've looked through you know we have 17 points we review every month or we have 12 points or like we've we've looked at everything your Dividends are being reinvested you realize 17 is better than 12 I mean don't downgrade it car of course like whatever like in a you know is your beneficiary designations correct like we had a whole list we just made a list

of everything we did and then we'd tell them we've gone through the checklist this month everything looks great on our end if anything changed on your end and then we'll see you in your annual state of the meeting if anything comes up between now and then like we're one email away so then I think you're really hitting this both like yeah you know we want you to know we're engaged we want you to know we're looking at your stuff and go about your lives that's what we're here for to like remove stuff from your plate

here's an example does anybody body really want I mean this is going to be controversial does anybody really want a document's vault some clients do but if nobody's using it is it your job to force them well and you're like how how many new clients do you get today who have been living their lives for the past three five seven 10 years and do not already have some place that they put electronic files like Dropbox yeah like who really doesn't have a thing I mean it's one thing to say like look I've got a a

document portal for where we securely share client files back and forth between clients like you know I'm dropping you right you like well we often have that with our service providers like please don't email me uh things that have private private information accepted but like but yeah just try to make distinction like not how do we exchange files back and forth securely but like do I need to give my clients a service of a document Vault to put all their financial statements and their information and the worlds and their trusts and whatever else as though

they don't already have something yeah I'm only and again maybe there's use cases for that stuff that's really and there are I can think of them right now like it's really important I'm not but I'm simply remembering back 10 years ago when I was like forcing people to use those things and people were like I don't want to use that like I got a file folder out my house my wife and my my husband or my wife know where it is the kids know where it is we're good and I'd be like no you have

to use it and it' be like the utilization down oh no they must not like our thing and like no we're good just an example all look at our stuff where I mean a lot of firms I see like our our client portals have these like 10 20% utilization rates one version says okay we're not good enough job engaging our clients like we have to get the engagement rate up look how few people are using the portal and the other version is or maybe it's not that useful to them and how much time could we

save by not trying to offer that yeah and and I don't know the answer either way but that's exactly the inquiry I would engage in like well H maybe it's not important to them so so I feel like there's an implication in the engagement fact policy framing that basically it's it's us not not them right that's a thing we're we're doing to assuage our fears of whether we're offering yeah enough yeah are we valuable like how do we the conversation we've had over and over where people are like man a teacher gets paid you know

1/4 how am I justify like oh no AI oh no you know all those things yeah it's us it's us that's more terrifying when clients really aren't engaging much right do they do they still like me do they still love me are they still engaged with me these are deeply human yeah deeply human feelings of course like deep empathy for this feeling and the question really becomes like wait who said somebody was upset who said they're leaving because they didn't return your email who said well I was GNA ask so so how do you how

do you separate the wheat from the chaff like I mean how do you figure out whether it's a thing they really don't value and I should stop whether it's your example they totally value it even though they completely don't engage because they're so appreciative that I was yeah thoughtfully offering a thing that they just persistently Decline and don't use right I me even make the case you maybe yeah uh I mean not maybe like I can I I can think of client scenarios where they were probably quite happy to be asked to to come into

the office several times a year and then persistently declined it wasn't bad that I was asking they didn't want to get the traffic and come up but they probably appreciated that we were diligently reaching out to them saying Now's the Time for the check-in did you want to come into the meet in the office and they'd say no and they weren't getting angry or rejecting us they just really were cool and trust us and happy but probably appreciated that we asked so so how do you yeah how do you figure out which is which I

mean sounds like your approach was client Advisory Board yeah here's all I would do i' just run experiments like just figure out and and one thing to keep in mind in experiments is revealed preferences are more valuable than stated preferences and so like here's a here's a crazy example um you know and again I don't know if this works in a you know a big firm a small firm a little firm but like just start paying attention like what if you did do something what if like we had we had a a not with clients

but we had a service once where we were like pretty sure nobody was using it and so we did a security like re Global reset of passwords where everybody would have to go in and get a new password and it was like a security audit anyway like it was valuable anyway it was like and he waited to see how many clients actually reset their password no no one reset their password so like that's that's it interesting right like asking the client advisory council do you want this email like that's a that's a experiment it was

revealed it was a stated preference rather than revealed like a revealed preference would be you know for instance does anybody listen does anybody listen or value Behavior app radio my daily podcast well all I have to do is not do it for a week and see if anybody misses me when I'm gone right right if I get emails like where did they go then that's interesting and again these kind of experiments where the the sample size is small we we don't want to over index on any of the results but I I think you just

use the phrase like oh that's interesting so I just run experiments like is there something you're doing like hey we've been meeting every quarter for two years I've been making you drive in would you like to do this via Zoom or would you like I was thinking we could get away with meeting twice a year what what do you think oh man that'd be nice right like I if you do a quarterly client appreciation event maybe ask if no if it's like really hard work to get anybody to come well that's interesting yeah right if

you got a service that you're trying to like Wrangle people to use interesting yeah I think my struggle it's one thing I mean I totally agree if I'm trying to do a thing if I'm trying to offer a new thing to my clients and it's really hard to get them to engage with it maybe they just actually don't really want the thing and I should should stop like they're they're they're voting with their free they're revealing their preferences by not like jumping at the the the new tech or offering or portal or whatever is that

we're rolling out my struggle is the subtract part because I'm terrified I to take something away and then people will be pissed and then I you may or may not have already done damage by the time I try to put it back uh so you know I I actually agree with you very much on the dynamic of revealed preferences are better than state preferences right sometimes people say they want a thing and then they don't use it or they say they don't want a thing but then they actually get upset when you when you take

it away so looking what they do is much better than just what they say yeah but if I take away something and what they do is get pissed it's kind of a little B yeah I think I think let's let's frame this a little bit clearer um don't take away a core art of your offering without some real thought but I think we're generally talking about things around the edges yeah and and I think think you can always add it back in right and so I think there's like you know I mean I first discovered

this when I accidentally forgot to mail out quarterly reports and I thought I thought it was the end of the business I was like I realized it over the weekend I'm like oh my gosh and I mean I've told this story before I was like Monday morning is going to be terrible there going to be so many upset people guess how many people complained exactly zero and so I forgot again the next quarter and then I changed my ADV to say reports available on demand like if you need them ask I'll generate a report but

we stopped mailing quarterly performance reports I didn't know that was allowed clients were like what I don't even open the thing like that's amazing nobody nobody cared and if they did guess what hey man I got one printed right here I'll mail it to you or hey I've got the PDF right here I'll email it to you so that's an example of an experiment accidental experiment but obviously being like spreadsheet guy that I am I'm still like I'm like I want I want data first like I'd rather do a client survey I mean just ask

like you know what they're going to say though that's the problem but but it's something like it's something I age well I so in that vein like I I don't do surveys by saying like you do you know would you like you know do you want us to keep providing the portal do you want us to stop saying the quarterly statements because clients like they're trying to figure out what they think you want them to answer of like yes or no and then they you know they they answer accordingly and it may not actually be

how they how they really felt uh like I just do these by saying like look you know here's a bunch of the things that we do on a scale of one to seven how valuable do you think this is for you interesting yeah and whatever shows up with a whole bunch of really low scores whatever is lowest on that list like may maybe I could take that away because apparently people literally don't don't care that much I mean it's one thing if like they love everything I do everything gets sevens and one thing gets a

six like a six is spr is still pretty good but if the reality is like the client portal that almost no one logs into you're going to send it out and like the average is GNA be a two out of seven yeah just like a one I don't use it I never I never log in and you start and you start getting a sense of where clients really where clients really are yes it's still a stated pre preference and not and not revealed but you know I can take that and then corroborate it against well

you know my because we're picking on Portals say my my portal got a 2 and a half out of seven and then I go and look at my utilization rates and it's like 12 it's like oh okay that's kind of all fitting together that their revealed preferences appear to be consistent with their stated preferences uh that that this isn't a thing and then maybe if I want to I can have a client Advisory Board structure and ask them for feedback there I know some advisers that will do a survey and then bring their survey results

their client Advisory Board and then ask them at the client Advisory Board because they're like Belton suspenders Ro to to to checking but I I like to do it with surveys where we just ask how how valuable like how valuable to you is our client portal our quarterly reports our three times a year meeting structure whatever other thing you want to put on there and let people Express no I that's great and I I think like I think I think a lot about experiment design in terms of like and this to me is just from

the entrepreneurship world around around products Market fit like what are we offering here that's valuable and trying to design experiments to fet out that information but even like a survey that's like if you were telling your friend about what we do here which of the following five would you tell them about like can you list five right like like that none of the above or these five like just thinking carefully but here's where I'd love to wrap on this at least from my perspective is I promise you you that you are doing things that clients

don't value they don't care they don't even they're I don't know what they are yeah I don't know what they are but I promise you and I also promise you you will if you dig into it you will be shocked you'll be like what I thought that was the most important thing I ever did and I promise you'll be shocked and then if you do realize it you'll be like oh my gosh my business could be so much simpler the stuff that I that people really value like I could I could really double down on

making sure we do that better than anyone right like we really like if they call we reply immediately and we make sure that this one report that everybody loves is seamless and delivered perfectly we execute flawlessly on the things they care about and we cut ruthlessly the stuff they don't care about at all yeah I promise you that you'll learn things if you think that way I don't know what but I promise you you'll learn something I all right thank you Carl yeah it's yours Michael thank you you