Deb runs a boutique advice business in Sydney’s outer suburbs.
She followed up with prospects Katrina and Stephen, hoping they would be engaging as new clients.
Deb’s Terms of Engagement quoted $14,500 for the coming twelve months.
After some phone tag, she made contact with Katrina.
She and Stephen enjoy their meetings, the recommended plan and the approach.
They were intending to proceed.
But.
Before they did, she needed more details about Deb’s fee.
She explained that a friend with a lot more assets was paying less to their adviser.
Being an architect, Katrina understands job pricing, hourly rates and how fees for similar clients can vary. But she doesn’t understand how Deb’s fee was determined.
“Can you provide some more clarity about your fee?”
JUSTIFYING FEES
It is a common and reasonable request from a prospect.
It is usually a sign they like the proposition, the approach, the potential future relationship and the plan.
But they need more clarity about the fee before they engage.
For some prospects, justification is needed.
It needs to be provided.
That’s the point.
But it can not come from the adviser.
Advisers don’t start valuable advice relationships by telling their prospects what should be of value to them.
Similarly, advisers can not justify their fees based on what should be of value to prospects.
Advisers can make fatal relationship errors during these ‘justification’ conversations by trying to justify their fees.
Responding with ‘reasons’ based upon the work required regarding investments, or superannuation, or about binding nominations, re-structures, or tax considerations among different entities, or risk minimisation analysis and management, not only misses the point, but worse, diverts the focus from where the real issue is.
HOW TO
So how did Deb respond?
It went something like this.
“Here’s the thing. I can’t justify or clarify our fee. Only you and Stephen can. We’re different. Unlike your friend’s advisers, we don’t price on assets. We don’t price on hours, as that too is not a measure of the true value you experience from our advice.”
Katrina was still confused.
“So if you price on our value, why isn’t your fee $6000 or even $16000. Help me understand how you calculated our fee of $14,500?”
“Our fees all come from the same place. From our clients who are on similar paths as you. They, and only they, confirm the value of our fees.”
“It is essential for any potential relationship between us that our fees are valuable to Stephen and you without any regard for what our other clients believe is valuable. Anchoring any engagement decision on a value that isn’t yours, isn’t in yours or our best interests.”
“The clarity you’re seeking about our fee is based upon the impact and value of engaging in an advice relationship that specifically is about delivering on the value we discussed and presented in our Terms of Engagement.
“These included ensuring your hopes of affording the substantial renovations that allow for the sleepovers for your kids and any future grandchildren when they visit.
“Supporting the smoothest of financial transitions from your busy full-time role as founder of your firm to part-time over the coming 18-24 months.
“Having the funds to caravan around Australia to music festivals, tennis tournaments, and occasional month-long overseas trips to visit family.
“Importantly, too, the maintenance of an emergency fund for your youngest son, as neither you nor Stephen trusts today’s NDIS support will always be there for him.
“Gaining clarity or justifying the fee is something only you and Stephen can do based upon the impact of an advice relationship totally focused on achieving everything in our Terms.
Notice what Deb did here.
She didn’t justify.
She didn’t educate.
She redirected the conversation back to what Katrina and Stephen value.
Katrina had another question.
“What about next year’s fee? Will next year’s fee be similar to this year’s?’
“We’re different from advisers who do not price on your value. For our advice relationships to work long-term, they have to be based upon the values you and Stephen seek and experience every year. While the majority of our clients continue for years, there aren’t any ‘lock-in’ relationships. Our fees have to keep being of value year on year, otherwise there’s no basis for an advice relationship.
Katrina and Stephen engaged Deb’s team late last week.
There is only one way to justify your fee.
Never do it.
That’s the client’s job.
What do you reckon?
Jim
PS – when you’re ready to accelerate your shift to value fees – comment below with “VALUE FEES”
Photo Credit: CANVA/photos/MAD8WJuwo38