Trust is an obvious component of a successful relationship between an advisor and a client. But there are some areas of the relationship where advisors may be jeopardizing that trust, and without even knowing it. The way advisors talk to clients about fees, for example, can either build or bust a client relationship. And a recent study suggests a lot of advisors may be bungling that conversation.

According to the study, conducted by State Street Global Advisors and Knowledge@Wharton (an online resource that captures research generated from the Wharton School, the University of Pennsylvania's business school) many clients are confused about the fees their advisors charge. Nearly all (95 percent) of the 366 financial advisors surveyed say they discuss fees with their clients, but less than half (43 percent) of the responding 500 high-net-worth investors say they understand their advisor's fee structure "completely" or "fairly well."

“There’s a bit of communication disconnect between the reality and what advisors think their clients understand,” says Gary MacDonald, vice president at State Street Global Advisors. In fact, while 52 percent of advisors believe their clients are satisfied with the fees they pay in exchange for the services they receive, only 36 percent of investors feel the same way. “Just because a client is silent on the issue does not mean he or she is satisfied,” MacDonald adds. And that kind of miscommunication can be dangerous. In addition to undermining trust, a lack of communication can result in loss of business.

It’s not that advisors are trying to be elusive about the fees they charge, rather, they find the fee topic can be an awkward one to discuss. Z. John Zhang, marketing professor at Wharton, says, “In all service industries, nobody really wants to talk about the prices. You want the customer to focus on the service you provide and the results that you can deliver. I think for financial advisors it’s the same.”

But sometimes service alone is not enough, and advisors need to be to upfront about the fees they are charging. Dr. James Grubman, psychologist and consultant to wealth managers and high-net-worth families, says there are a few basic tricks to discussing fees with clients. First, don’t procrastinate, he says. Also, the more straightforward the conversation is the better. Clients don't want shades of gray, they want fees in black and white. Offering too much detail about a wide range of fees to be charged “is experienced by clients as loopholes, fudging and being untrustworthy,” says Grubman.

Barbara Hudock, founder of Hudock Moyer Wealth Management in Williamsport, Penn., says she makes sure clients know how and how much they will be charged at the start of the relationship. Just recently, Hudock says her team also decided to discuss fees with clients at each face-to-face meeting. “During those regularly scheduled reviews we plan to make sure we’re all on the same page,” she says.

Also important is making sure fees are explained clearly and put in writing so clients can refer back to the paperwork. This way there is no doubt about what was said in a meeting.
Hudock says she has no reservations about openly discussing what her firm charges. In fact, she prefers to initiate the conversation. “We talk about the percentage they are paying based on the assets they have, write it down and show them. We make clear upfront that we are not a non-profit, and clients understand that. As long as clients feel we are being fair they don’t have any qualms about the fees they’re paying,” she adds.