Getting Nickle & Dimed - How This Can Help w/ Private Investors

I hate getting nickel & dimed. You know what I mean.

 

You go to your bank and you need a statement from 7 months back and they want to charge you $10...for printing out a sheet of paper. Or, you get charged fees for checking your bags on an airline or they charge you $10 for lunch on the plane, etc. I was just at Panera this morning and they charged me $1.20 to get cream cheese with my bagel. $1.20 for cream cheese!

 

This fee pile-on bull**** is really getting on my nerves. It's like these companies hire a consulting firm or a bunch of MBAs that see clear to boost revenue by 5% this quarter by creating a heap of ill-will from all of their customers. It's just plain dumb. Just roll everything into one easy price. But, alas, that sort of simple and common sense thinking doesn't crank up the billable hours for the consulting firms.

 

But I can't shake the though of my bagel; it should have been $1.49 with cream cheese and they could have just rationed the cream cheese a little more.  The worst car salesman is the one that tells the customer the total price of the car and add-on's ($20,000 for the care, $1,500 for the sunroof, etc.), versus the successful car salesman that tells people the monthly payment amount and "for just $5 more per month you could have a sun-roof and power windows..."

 

Ok, anyway, I was going somewhere with this as it applies to raising private money.

 

If you aren't already aware, the financial services industry is perhaps the biggest perpetrator of 'nickel & diming' customers. You would be absolutely floored at the fees that are piled onto everything. Consider the advertising costs of mutual funds (12b-1 fees) - it's pretty ridiculous that the investors in a mutual fund have to pay for the managers of the fund to attract more capital, which enriches the managers as they get paid a % of the invested assets of the fund. Not to mention that the larger a mutual fund gets, the more difficult it is for the fund to achieve higher returns (more capital = more places to put it, which causes return inhibiting limitations). And that's not even the beginning of it all. Not by a long shot. The examples are endless.

 

But - there's a silver lining in all of this for you. Here it is... You can use turn this around in your favor when marketing to private investors. For instance, I don't know many smart real estate investor who charge a fee for using somebody else's money for deals. Imagine that for a second: somebody wants to place their funds with you, you can do a deal that will net a $50k profit for yourself and a 12% return for the investor but...you decide to also charge them a 2% 'management fee' as well. That would be dumb.

 

That's what every other person and company who is going after their money wants: fees, fees, fees. You, however, can propose the exact opposite. You can propose a deal with incentives that are aligned. You make your money when the deal profits and your investor is paid. This is the fastest way to stand out from the crowd of screaming voices who want to get their hands on your investors money.

 

I will tell you that, without fail, EVERY SINGLE TIME I talk to a prospective new private investor I remind them or bring up in some way that they are making more money by investing with me because they aren't getting nickel & dimed on fees and other expenses that eat away at returns over time. It's very, very important that you have a strong unique selling proposition when you market to and speak with private investors. Setting yourself apart by not chipping away at their nest-egg with non-value added is a good thing to add to your presentation.

 

I've found it helpful to print out some mutual fund prospectuses from the largest funds (Fidelity Magellan, etc. - just go to Morningstar.com and look up the largest funds by assets).  Look through these and find the holes. Find where the average mom and pop investor - and the sophisticated investor- are getting bilked. You can work this into your presentation. Not in a negative selling standpoint, but to show differentiating characteristics.

 

-Happy Investing

 

P.s. If you ever worry about your investors getting scared off from paperwork (SEC disclosures, etc.) you can just compare yours with one of those mutual fund prospectuses and your 'fine print' will compare quite favorably with the 'fine print' of the mutual fund companies. It's a good exercise for you to go through as well.