I had a conversation this week with an advice firm that is convinced its fee-for-service pricing is working well for them.
I disagreed.
Here’s why I don’t like fee-for-service pricing for comprehensive advice firms: it creates misalignment between what advice teams provide and what clients value.
This advice team was pricing like this:
- Risk insurance: $2,500
- Superannuation advice: $1,800
- Investment strategy: $3,200
- Estate planning: $2,000
- Statement of advice: $3,000
Sound familiar?
This is pricing advice components, not based upon capacity and definitely not on client value.
Fees-for-service pricing makes team growth harder.
It empowers clients to cherry-pick options rather than positioning the sum of the parts as being far more valuable than the components.
Behaviours fundamentally align with remuneration, causing teams to focus less on client value and more on the delivery of perfect components.
Worst of all, it positions advice teams as commodity providers in a growing AI-advice market, and lose their unique differentiation providing valuable relationships that help their clients achieve what is important to them.
Note: Fee-for-service component pricing might be OK for advisers positioning themselves as a team of specialists for specific components. But it isn’t OK for advice teams positioning themselves as an expert team of principal advisers.
Instead of pricing based on what teams do, advice firms need to price based on the value the team provides.
For instance, instead of itemising advice services, charge $8,000-$12,000 (or whatever fees are relevant for your team’s capacity, profits and market value) for a twelve-month comprehensive advice relationship.
How to respond when asked what the team will do for that fee?
Whatever is required to maximise the probability of the client achieving what is of value to them at a price that respects your team’s capacity.
Value and capacity pricing ensure three things:
- Clients get teams engaged on what they value
- Advice teams focus on why the clients are engaging
- Owners of advice firms get more consistent revenue and confidence from a growing market of clients who confirm the value of their fees.
Component fees-for-service pricing makes teams busier and busier, while pricing on value and capacity makes teams profitable.
When advice teams price for capacity and value, clients may still challenge fees, but those objections are handled with a focus on the client’s value rather than on the client’s components. There will always be cheaper components, but there is no such thing as cheap value. Fundamentally, if the client does not value what they want to achieve, it is not in the best interest of either the client or the advice team to create an advice relationship.
Value and capacity pricing help advise teams focus on the ‘big pictures’ important to the clients and help stop the endless perfection that attempts to justify advice fees with near-perfect components – though necessary, the components are not as valuable as why the client is engaging.
If you’re building a principal advice team, tired of current capacity bottlenecks and justifying components of your expertise, you might be ready to explore capacity-based pricing that actually reflects the value your team delivers – let’s chat.
Together we will:
- Review your current pricing model and identify what’s costing you money
- Map out your steps towards a capacity and value-based approach that fits your client base
- Create a transition plan that protects existing relationships while attracting ideal value-based clients
When you’re ready, comment below with “CAPACITY” and we’ll be in contact.
But before you do, understand this isn’t for everyone – this is for principal advice teams of the future.
Jim