An aged care expert in his team could not reconcile charging an advice fee equivalent to the price of a small used car.
She could not reconcile such an amount of money for her advice.
She is surrounded by a large crowd of advisers feeling the same way.
The greatest barrier to many advisers’ progress is this lady’s fear – a sense of fraud, of lack of worth, of lacking justification for a fee potentially perceived by others, or regulators as being ‘too high’.
Fundamentally, her beliefs about her worth do not match the perceptions of her colleagues. I’m guessing for many of her clients as well.
For too many advisers, this fear is smothering their growth and their ability to deliver on promises made.
The last aspect in this series of blogs that I believe identifies an ideal advice client is that they pay and value the right fee for their advice.
The ‘right’ fee isn’t based upon affordability, which is the basis of the aged care expert’s pricing but based upon value.
VALUABLE or AFFORDABLE
What’s the difference?
Value is subjective and unique to each individual.
Affordable is objective and common to many individuals.
Advisory firms that price on affordability tend not to lose ideal prospects. These firms price to engage.
Whereas advisory firms that price on value tend to lose more ideal prospects. These firms price to grow.
Value is two way.
Not only do clients engage their advisory firm on value, but advisory firms should also engage their clients on value too.
When firms are in start-up, there is a thin sliver of difference between pricing based upon affordability or pricing based upon value. In the early days, every client is valuable and every effort is made to over-deliver the value each client seeks.
However, as firms succeed and grow, the tiny sliver of difference between affordability and value grows into a chasm, entrapping many founders into their affordable pricing comfort zones which act like gravity restraining a firm’s beliefs about their true worth, their greater potential and the real, not perceived, client value.
Building advice fees based upon affordability ensures an ideal client engagement and re-engagement rate of nearly 100% which is almost a status symbol of success for some advisers.
But is it?
Pricing has to be valuable to the firm charging the fees as much as it is of value to the firm’s clients.
Therefore, there is a balance or point of tension – a fee tension – when the value to the firm aligns with the value to a client.
Many overwhelmed and over-worked advisers fail to recognise, respect or value their unique point of fee tension.
Since the 2018/9 Royal Commission headlines, many firms have adopted pricing policies based upon effort-based ‘price-to-serve’ models.
Unless I’m a hole-digger, effort alone doesn’t equate to value.
Believing professional advice pricing is intrinsically linked to hourly rates and charging for effort is believing the earth is flat.
Ask an over-worked, ‘successful’ practitioner in time-based billing industries such as law, accounting, or engineering how much they enjoy their ‘success’ selling a limited commodity – their time – or worse still ask them how they feel having spent a business lifetime creating tremendous value for so many of their clients while still having to work hard to meet ridiculous demands on their precious billable time. Hourly based pricing for professionals has never made sense.
(Please note – price to serve models do play an important role in price checking and price audit, but not price-setting).
Therefore, this final element of what makes an ideal client are those that pay valuable, rather than affordable, fees.
For firms beyond start-up, their point of pricing based upon value for both the firm and their client is somewhere between 100% acceptance (every ideal prospect engages) and 0% acceptance (no ideal prospects are engaging).
Chairing numerous pricing committees across a myriad of tiny, large, regional and metropolitan advisory firms, the ‘common’ fee tension point where a price is considered of value to ideal prospect while also being of value to fund the firm’s service promises, and fund growth is approximately somewhere between 50%-100% – my benchmark is about 66%.
That is, an ideal client is one of the 66% of new ideal prospects who engage.
This is a tough number for advisers used to engaging everyone they wanted to engage.
The alternatives are tougher.
If advisory firms are not pricing for their growth, their return on investment, and re-investment, their valuations will suffer.
Thankfully, the days of valuations of ‘planning firms’ based upon how long clients pay their renewals are being replaced with the logical valuation basis for all professional service firms – profitability.
Specialist market broker Steve Prendeville, who gave an insightful update on the state of advisory firm valuations before one of my presentations at the Affinia Conference, confirmed that the rising role of sustainable profitability is driving what purchasers are increasingly seeking.
Ideal clients will continue to pay while their annual advisory relationship is valuable to them.
The value is unique and subjective to them, it is not based upon ‘what’ is provided, but ‘why’ is it valuable to each client.
The aged care specialist is right to be concerned about being ‘of value’ to her clients.
But the cost to the client and the client’s family of not getting their affairs in order, of not taking her advice, guidance, and expertise would probably be much more than the cost of a small used car.
The only people who should ever assess the value of advice are the people it is intended for – your ideal clients.
What do you reckon?
Photo credit: Shutterstock_1979157704
ABOUT JIM STACKPOOL
For over 30 years, Jim has influenced, coached, and consulted advisory firms across Australia. His firm, Certainty Advice Group coaches, trains and is building a growing group of advisory firms delivering comprehensive, unconflicted advice, priced purely on value. The community of advisory firms aligns with Australia’s highest and only ACCC/IP Australia Certification Mark standard of comprehensive, unconflicted advice – Certainty Advice. He has authored four books regarding financial advice with his latest – What Price Value – available now since release in March this year.