I’ve got the best job in the world.
Clients pay me to observe and recommend paths they’ve already considered.
Such as a pricing session I ran for a fast-growing advisory firm.
I knew it would be interesting when I read in the pre-work that one director had suggested it was not the right time for the firm to hire someone like me to facilitate a project to increase fees when the economy was in a cost-of-living crisis.
It is always hard to discuss how to increase advice fees.
However, another director noted that it would be even more challenging for the firm to handle its own cost-of-living crisis if current trends persisted.
Strong myths and paradigms were affecting their pricing practices.
ADVICE IS A PRODUCT
One was the belief that advice is a product.
Beyond academic textbooks, advice isn’t a product.
It is a role.
The firm had ample client evidence highlighting that the value of their roles was far more important than any value from products managed. The firm, however, still justified their fees based upon ‘what’ was being provided – number of meetings, amount of assets, timesheets of hours.
During the session, someone commented this was similar to rewarding a teacher based on the number of subjects taught rather than the confidence, objectivity and problem-solving skills they imbue in their students.
As advice firms and roles continually improve, the fees they used to charge at, say, $x, need to increase to possibly $2x, simply because the offering is better, not because it is bigger.
Advice isn’t a product.
More meetings, assets, or hours of effort, are not indicators of value.
The only indicator of value is what most clients are willing to pay.
Bigger isn’t better. Better is better.
Another fee myth for this firm was the myth of old promises.
I OWE THEM
It is a common occupational hazard for advisers.
They love their client’s plans more than they love their own plans.
The advisers who most suffer from an inability to say “no” to client requests are often the same advisers who are too busy to focus on their own plans.
Most of the advisers that hire me have become advisers driven by a desire to help people make smart financial decisions and lead their best financial lives.
For some, this sense of ‘owing’ comes at a ridiculous cost to themselves, their advisory teams and their lifestyles. Fee increase conversations for these advisers often don’t get much further than an agreement to index fees using inflation.
Unfortunately, this doesn’t resolve capacity issues as firms grow far quicker than inflation.
For some directors, increasing fees when there is no corresponding service increase creates significant reputational risk, and they would rather stick pins in their eyes.
Others countered they were already sticking too many pins in their eyes as the current demands were too great, dependencies were increasing, systems were bursting, and promises were slipping.
Such is the cost of loving your client’s plans over your own.
Love can indeed be cruel.
But the myth that was most damaging to my consulting client was the affordability myth.
Some of the directors genuinely believe that, first and foremost, the firm’s financial advice must be affordable.
This might be understandable if the directors were in the business of delivering financial products.
But these directors want to be in the business of delivering financial advice.
Therefore, this is ridiculous.
The affordability of advice narrative is fueling a race to the lowest-cost providers where the only guaranteed winners will yet again be advice distributors, not their clients.
It is also missing a fundamental point – value.
Only fools would safeguard what is precious to them via the cheapest possible methods.
Thanks to the power of the affordability debate, Australians are asked to believe, safeguard and trust their futures to the providers who focus on being affordable before being of value.
Place affordability before value, and future generations will not forgive us for forcing them to save but failing to provide the paths to save.
My consulting client has decided to pilot a ‘newco’ advice proposition driven by a couple of the younger directors, allowing the others to continue with their ‘oldco’ model for the foreseeable future.
Similar thoughts and discussions are held in many advice firms as the financial advice industry hurtles out of a three-decade bias fixated on product distribution.
The industry’s narrative needs to acknowledge there is a place for financial products and advice.
Advisers, however, cannot be remunerated for the distribution of products, nor can distributors of products be remunerated for advice.
Technology, not regulation, will overpower most of today’s product distributors, while value will fuel a booming new financial advice market.
What do you reckon?
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