Most financial planning firms in Australia and abroad reprice their advice offering every four to five years and often only after profit has been challenged by expense growth. This produces wildly fluctuating profit outcomes and individual client pricing outcomes that are not aligned.
Through implementing flexible advice pricing frameworks, changes in expenses can be reflected seamlessly and logically, delivering fair outcomes for both clients and the business.
That means a right and fair fee every client should pay while ensuring the fee is also right and fair for the firm providing the advice. Sounds obvious but too often guess work is involved and any short-term gain gives way to further pricing issues down the track.
If a major correction is required now, then you may need to undertake a large “jump” in your pricing initially but with a good framework in place you can then simply “bump” your way forward to maintain pricing momentum and consistent profitability. This avoids the need for numerous “jumps” which are hard to achieve and causes adviser and client anxiety.
We spend several months getting this aspect right for every firm through proper financial analysis including profit target identification, understanding the value and services clients receive, understanding how clients engage with your advice service and testing the model until it meets all the objectives above. This builds confidence and ultimately conviction at the adviser level and advisers succeed in executing change when these elements are clear.
Fully unpack your value
Historically, advice businesses have not positioned their value fully. When you don’t, you effectively put a ceiling on your fees.
Break this down into two key areas. The first is the reason why clients are ongoing clients i.e. link them to the “investment” they are making in themselves/their family/their future, for example. This is intangible value and we put a price on the value each client receives.
The second key area is your core and optional services. There are core services that define many of your clients but there are also optional and stage of life services that are not core. Identify each and showcase your depth and breadth capabilities to your clients. Don’t limit your capability. Combining the value clients receive and the services they need fully values the relationship and works for clients and advice businesses. A little tip – being licensed (whether self or external) is both a “value” and an “expense” so charge for it.
Limit and set rules for ‘excluded clients’
This is a bigger issue than most firms think. When developing then implementing pricing frameworks, start with a “catch all” policy. There will always be some exclusions but when pricing clients fairly you should work out the “real fee” every client should be paying first and then consider a discount framework – not the other way around.
Our job is to defend the underlying profit and valuation of a firm by accurately promoting the value and services they provide so naturally we will seek to limit client exclusions unless there is a very clear reason why a client should be excluded – you should also do this. A disciplined approach to the setting of advice fee policy then delivering to the policy is critical when changing your advice fees and maintaining fee growth over time.
Practice makes perfect
If you are changing your fee structure, then practice delivering it. We have trained over 400 advisers to reposition their value and to deliver a change to a client’s fee. Not every adviser is the same – some are comfortable to discuss fee increases, others are not. Some are comfortable to only make a change where the change is relatively conservative, others can go beyond this.
We use role play techniques, frequently ask questions from advice clients and a very clear structured discussion pack to be presented to clients. The key tip is to practice and practice under pressure where possible. It is too important to leave to chance.
Project management, then more project management
Because we are past owners of advice businesses and made many mistakes including a failure to properly complete projects, we know effective project management is critical to get right when making a change to advice fees.
Project manage every engagement so the project is completed on time and delivers what it set out to achieve. Unfortunately, we have had firms who wanted to implement this change themselves only to circle back to us because it was not completed on time, to the same level and lacked discipline, accountability and reporting frequency to get it right. Appoint an internal project champion, ensure accountability is clear and regularly report results to all the team – it is too important not to do this.