Paul has been running his financial advice firm in South Sydney for twenty years.
He enjoys his clients.
A former school teacher himself, many of his pre- and post-retirement clients come from teaching and principal roles.
They have been with him for years.
He knows them well, their grandchildren’s names, the holidays they enjoy, the roles they had, the businesses some of them set up and sold.
However, three review meetings with good clients prior to last Christmas shook him.
In each one, the clients had asked if another person could join.
Adult children in two cases.
A friend in the third.
Each of the third parties had done some research.
Primarily about Paul’s fees.
What are all the services Paul provides for his fees?
Does his firm offer cheaper services, and what is included?
What does Paul expect his fees to be in the coming years?
Paul’s fee-for-service for these clients, all with roughly $1 million in funds, was typically a flat fee of approximately 66 basis points.
Paul promised to get back to them.
He took a few days to think about it.
Not wanting to lose these clients, he dropped his fees 25% to around 50 basis points.
Not only that, but Paul also agreed to new requests from the adult children for an additional annual investment review meeting with them.
This is what shook him.
He not only felt obliged to reduce his fees and give away his margins, but also to offer additional services.
Fee challenges are not new.
DIFFERENT
But this was different.
Paul felt a bit betrayed.
After years of good service, it felt unfair that his trusted clients could not defend his fees to others with influence in their lives.
If these conversations with his aging client base become a trend, he could not continue to drop fees and add more services.
That’s unsustainable.
He’s done the sums.
Reducing fees for $1M clients was unsustainable, but any pressure from clients with funds below $1M (his average was $600,000) could be terminal.
His anxiety and anger increased over his Christmas break. He felt the fee challenges were undeserved, given the years of service the third parties had ignored, were unaware of, or discounted.
UNEXPLAINABLE VALUE
Paul’s clients trust him.
His judgement.
His care.
His advice over many years of service.
Unfortunately, Paul found the connection between his client’s trust and the value of their relationship unexplainable when questioned by third parties at these review meetings.
Paul’s assumption that the value was obvious to his clients and to all those influencing them was being challenged.
No matter how strongly Paul believes in the value of his advice relationships, he cannot afford more meetings in which he expects his existing clients to quietly renew every year based on an unexplainable sense of value.
When their children or influencers share screenshots of index fund fees, new advice platforms or alternative approaches, unexplainable value becomes invisible value.
Advice value needs to be visible and engaging, not only for Paul’s clients but also for the financial strangers who influence them.
The influencers, believing that buying an advice relationship is like ordering at a café, want to see Paul’s service models, with the range of services offered and their dollar amounts, so they can pick the services they want.
Ordering breakfast is different to living your best possible financial life. The influencers, however, do not know that, nor can they be expected to in today’s product-first world.
The influencers simply want to know what their parents or friends are paying for and why they should pay the fees.
GROWING CHALLENGE
The world around everyone’s clients, not only Paul’s, is changing.
Influenced more by costs than consequences, their adult children, financial influences, and the clients themselves are becoming more financially aware than they were.
Lower-cost platforms and offerings are inevitable and easy to misunderstand as credible alternatives to the care from advisers like Paul. The marketing of these alternatives will intensify, thus fuelling more conversations around the client’s coffee and dinner tables.
Paul’s future review calendar demands a new proactive approach to better explain his value.
EXPLAINING VALUE
To understand value, it helps to understand threats.
Every comprehensive advice client relationship needs a consistent, unique repositioning of the value of the advice relationship annually.
Unlike technical advice relationships, where value is based on product performance, comprehensive advice relationships are positioned on something else.
Comprehensive advisers need to position their role for clients and any interested third parties, using language and valuable details that clearly identify the relationship’s aims while managing all real or perceived issues that may threaten progress.
For comprehensive advisers, this is less about the technical work of investment management, restructuring, taxation or cash-flow management, and more about what the client will uniquely experience and achieve due to the advice team’s expertise.
When a concerned adult child shows up asking hard questions about fees, the adviser who responds specifically and uniquely – these are the unique details your parents are hoping to achieve, these are the unique issues your parents and our team continue to manage, this is the path we are advising them to maintain, these are milestones we have achieved so far. We can never dictate the value of our work together; only your parents can.
This isn’t defending or justifying a fee.
This is the detailed and unique value the client seeks from advice.
This is ‘why’ they pay the fees.
That requires a structured, ongoing understanding of what every comprehensive client is trying to achieve — not just technically, but personally and significantly.
Most advisers know this intuitively about their long-term clients.
Fewer have built the skills of not only delivering the value, but positioning the value by articulating it confidently, consistently and specifically when their clients or someone outside the client relationship starts asking questions.
HOW’S PAUL?
Paul has twenty years of that knowledge.
He contacted us the first week back in January.
We helped him and his team prepare for all future reviews and new client meetings.
Paul and the team have made significant changes.
Both in mindset and practice.
He goes into every client review prepared with the positioning language and the unique, valuable details specific to every client situation.
He hasn’t had any more financial strangers come along.
Yet.
The review conversations have been better, quicker, and clearer.
He realises his Christmas anger and frustration were natural reactions of feelings of anxiety and rejection.
He now feels thankful for the wake-up call.
But that is what he gets paid for. Building a better advice team by better positioning his role and the value he aims to provide every client.
Jim
Photo Credit: Copyright (c) 2012 asife/Shutterstock.