Defending a Fee Increase with an AUM Client
You are a private banker meeting a client with $18 million in assets under management. The firm is raising its advisory fee from 0.85% to 1.05% next quarter. Last year the client's portfolio returned 6.2% net of fees; the benchmark returned 7.1%. The client has already complained about a 0.9% cash drag and has a competitor quote of 0.75% all-in. Compliance prohibits any fee below 0.95% without committee approval; you may offer a financial plan, a tax-loss-harvesting review, and consolidated reporting, but not a fee waiver. The client says: 'Why should I pay more for underperformance?' You have 15 minutes and a prior relationship of eight years. Your goal is to retain the relationship without overpromising performance.
1. Deliver a 45-second opening that acknowledges the objection, reframes the comparison, and earns permission to continue. Then explain why you chose that sequence.
Read the worked answer
Opening script: 'Thank you for being direct. If I were looking at 6.2% versus 7.1%, I would ask the same question. Before we compare fees, can we check whether the 0.75% quote includes trading, planning, and the cash drag you flagged? I will show you what you get for the difference and where we fell short. May I walk you through that for five minutes?'
Why this sequence:
- Acknowledge first. 'Thank you for being direct' and 'I would ask the same' lower defensiveness. The client does not have to fight to be heard.
- Reframe, do not deny. The fee comparison is not 1.05% versus 0.75% until the service scope is normalized. The cash drag is also part of the performance gap, not a separate complaint.
- Earn permission. 'May I walk you through that' avoids a monologue and gives the client control. It also creates a natural point to ask about liquidity needs.
Do not open with 'our fee reflects our value.' That answers a question the client did not ask and sounds like a sales script.
2. Respond to 'underperformance' with one measurable explanation and one question. Do not blame markets alone.
Read the worked answer
Measurable explanation: 'The 0.9% gap is almost exactly the 0.9% cash drag you flagged. The portfolio returned 6.2% net while holding about 0.9% in cash; the benchmark was fully invested. That is a portfolio-design issue, not a stock-picking issue, and it is fixable.'
This is specific because 7.1% − 6.2% = 0.9%, and the cash drag is also 0.9%. It does not claim the benchmark is wrong or that markets were unfair. It locates the shortfall in an allocation decision the client already cares about.
Question: 'What liquidity do you need access to over the next 12 months-tax payments, a property purchase, or reserves?'
The answer determines whether the cash drag is necessary. If the client needs 0.9% cash for near-term needs, the drag is a service, not a failure. If not, you can propose reducing cash to 2–3% and reinvesting the difference. That gives the client a measurable path to closing the gap without promising returns.
3. Close with a compliant next step that does not promise a fee waiver or returns.
Read the worked answer
Close: 'Let us do a 30-day diagnostic. We will map your 12-month liquidity needs, compare the competitor's 0.75% on an all-in basis including trading and planning, and quantify the cash drag. If the analysis shows we are not earning the difference, I will take it to committee. I cannot promise a fee waiver today, and I will not promise a return. What I can promise is a written comparison and a decision date.'
Compliance check:
- No promise of a fee below 0.95% without committee approval.
- No guarantee of performance.
- No admission that the current fee is unjustified.
- A defined next step and timeline.
This close keeps the relationship because it treats the client as a decision-maker, not a sales target. It also protects the banker: if the client leaves, the file shows a documented, compliant retention effort. If the client stays, the diagnostic creates a reason to adjust the portfolio rather than discount the fee.