Two approaches to pricing

In my last post, I posed the question whether you price the whole job for your clients, or only your part of it.

I’ve found there are generally two approaches to pricing jobs where our advice is interwoven with ‘other financial aspects’ in our clients’ lives.

The differentiator between those advice firms taking one approach compared to the other is not qualifications, not experience per se, not length of time in business, nor their initial technical training (e.g. originally trained as accountants, insurances advisers or investment advisers). These were all the things I might have first thought would have determined a firm’s approach.

Rather, I’ve found that the differentiator is the mindset and focus of the firm.  

Those advice firms that first and foremost focus on their role as ‘advisers’, generally price just for their ‘bit’ on the financial advice smorgasbord. The terms of engagement letters these firms give their clients usually state their fee, mentioning that there are other potential fees, but stating the need to confer with those subject matter experts to understand the extent of that ‘other’ work and the quantum of associated fees.

The other group of firms are those that first and foremost focus on their role as business people. They focus on their roles as advisers second. These people, I find, generally try to present the whole price to their advice clients.

Which one is the right approach?

In my opinion, that’s not quite the right question as both approaches have their place. The better question is – what is your firm trying to achieve? Once you’ve answered that question, charge accordingly.

If your firm is trying to achieve excellence in a specific area, then pricing for that area makes a lot of sense. If, say, you’re the ‘go-to’ firm specialising in solving complex underwriting cases for importers, then it makes a lot of sense to price just for your advice.

Similarly, if you are an investment adviser and the majority of your work in managing a client’s investments, then it makes sense to price your work just for your investment advice.

If you’re a ‘financial planner’ and you provide insurance and investment and superannuation advice do you separate the pricing or do you bundle the pricing? Again, I imagine the majority of readers will have accreditation in each of these areas and be quite comfortable bundling that package into a price and even separating it, if the client wants to see the pricing separated.

What if you are trying to achieve something different with your firm?

What if your focus isn’t about being a ‘financial planner’, but your focus is about building a business that provides financial planning, among other services?

Consider for a moment, regardless of your technical background in accounting, or investment, or law or insurance, if your role was more a financial project manager for your advice clients.

Would you still price just for your ‘bit’?

Further thoughts in my next post.

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About Jim Stackpool

For nearly 30 years Jim has influenced, coached, and consulted to advisory firms across Australia. As founder of Certainty Advice Group, he leads a like-minded team of professional advisory firms seeking to create greater certainty for their clients. As an author, blogger, columnist, and keynote speaker, Jim is regularly called upon for his professional insights into the advice industry. His latest book Seeking Certainty is available now.

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