Good painters don’t paint on top of previously painted, cracked, chipped, well-worn exteriors without first preparing the surfaces. Dodgy renovators, when their work is not subject to close inspection, can easily deceive their clients with their fresh and shiny exterior gloss.
But not for long. Hidden underlying cracks, decay and potential structural weaknesses won’t withstand the rigorous tests of time, weather and knocks. Clients will quickly be disappointed and demand a better job or some compensation.
Too many financial planning practices are ‘converting’ to fees for service in a matter akin to a dodgy renovator.
Their objectives are mainly self-serving – achieving compliance with their dealer group or impending legislation, or marketing themselves as progressive. Unfortunately their motives aren’t client based. They’re just trying to look good short-term.
The underlying weaknesses of their propositions remain.
My initial amazement at the speed and confidence with which many financial planning groups had allegedly ‘converted’ to a ‘fee for service’ proposition is waning. It’s being replaced by a clearer understanding that most early converters are quickly throwing on cheap coats of compliance and marketing paint, thinking it sufficient to weather the open (and tumultuous) seas of change towards which the industry is headed.
Good luck guys. You are going to need it. You’ll face your first headwind when your clients ask you to substantiate your ongoing charges.
To understand the future all ‘fee for service’ renovators are facing, go back to first principles. Fee for service is fee for service. It’s payment for actually delivering a service – year in, year out. It doesn’t get much simpler than that, but all renovators (dodgy and legitimate) will have tough conversations with clients if they try to masquerade a product-based proposition as a valuable service-based proposition.
Many renovators are going to feel ambushed by these tough client conversations. Having blindly followed the surrounding herd of advisers, they thought the push to ‘fees for service’ was similar to the financial services reforms and paperwork demands they experienced in the previous decade’s financial services reform.
They don’t fully appreciate that the bulk of their clients regard a trip to their firm like a trip to fill up the car with petrol. (Ironically years ago we used to call petrol stations service stations. In the 1960s, Mr Cameron from BP Chatswood used to meet our car in the driveway, fill it up, check the oil, clean the windscreen, and have a chat about the inevitable new dent – Mum used to park by touch – in the front bumper bar). Unlike the ever reliable Mr Cameron (for whom great service alone didn’t ensure survival), most financial planners have a skewed view of what ‘service’ is and therefore what their clients are paying for. Their new, fresh, glossy, but product-based propositions are going to wear very thin very quickly.
Cheapers
The most fascinating ‘fees for service’ proposition I’m hearing at the moment is ‘compared to xyz (insert appropriate more expensive service provider here) we are now much cheaper’. Unfortunately for firms coating their new offerings in this manner, the we-are-saving-you-money-compared-to-someone-else proposition isn’t a fee for service proposition but a cheaper (for now) product proposition. If you’re using this proposition, you’re placing the destiny of your business in the hands of an uncontrollable external force – i.e. someone else’s pricing. You might as well give someone else you don’t know the keys to your car, sit in the backseat and be forced to endure the ride to wherever they want to take you.
I don’t understand why advisers (particularly good ones) dress their offerings using ‘cheap’ as a foundation rather than their expertise, their experience, their specialties, their networks, and their leadership. I sense it is to do with their own lack of confidence in the value of what they provide year in, year out, and not knowing how to better articulate the real value they can (and do) add.
This is exactly where the current batch of renovators fail themselves miserably. They throw the baby out with the bathwater by understating and undervaluing their services in place of their comparable cheapness.
You can’t and won’t maintain ‘being cheap or cheaper’ as a product proposition. It’s too thin a proposition for an advice firm, and is useless for anything other than a very short-term tactic.
Cost savers
Another so-called ‘fee for service’ proposition that I don’t understand is the ‘cost saver’, which is really an opportunistic product-based proposition, such as, “We saved them $20,000 in tax, so we could justify our $5,000 fee!” or, “Our investments made them $80,000 in just one year, so they could see the value in our $7,000 fee!”
What happens with these clients in the years that you (or probably more correctly, ‘the market’) can’t make them $80,000 on their investments or there isn’t a $20,000 tax saving to be had? How do you justify your fee in the years that they withdraw funds from your platforms or investment accounts, or the market sinks, or their tax bill or insurance underwriting cost increases?
If your fee for service proposition only works when everything in the client’s financial world is ‘above water’, your firm isn’t ready for the open waters of competition, turbulent markets, inevitable headwinds, and huge new competitors with scale trolling through all markets for any product opportunities they can get.
On demand
If your fee for service proposition is more akin to “We’re here whenever you need us” then you really are pitching yourself similarly to a petrol station. This isn’t a service proposition and, again, your survival will be about the product pricing and breadth of wallet you can capture in that brief time when customers visit your shop.
So what should your fee for service proposition be based upon?
Complexity. The client’s financial complexity, to be precise.
Clients only need advice when they’re suffering from financial complexity that they cannot solve by themselves.
Complexities are things like:
- not running out of money
- affording a deposit for a home
- setting their kids up in life
- retiring by a certain date
- wanting to start having kids whilst dropping back to one income
- looking after their elderly parents
- affording their kids’ schooling
- negotiating their next pay rise
- starting their own business
- handing on the family farm
Whether it’s due to their lack of time, experience, expertise, objectivity, desire, ability, or knowledge, they realise that they can’t solve their financial complexities themselves.
If clients are not suffering from financial complexity, or they won’t open up to let you understand their complexities, you can’t deliver a fee for service proposition. This is simply because they won’t see the value and therefore won’t pay for it, year in year out.
Your job in your conversion to true fee for service is to scrape back not only your proposition, but your mindsets, your skills, your processes, and your commitment to industrialise and build a real advice firm that year in, year out, endeavours to maximize the probability of your clients achieving their financial destiny as markets, products, laws and their own circumstances change.
This is the only space that you will profit year in year out – by delivering valuable financial direction, leadership, expertise, options, advice, and confidence that helps your clients achieve their outcomes. Only thus, do you earn your fees for your services every year.
These are the best of times to be building valuable advice firms.