I was getting a haircut at Martin’s place (they’re great, always busy) here in Manly (just downstairs from our new office) when I was reminded by Martin’s partner Masa of the Japanese saying “free is the most expensive price”. We were initially talking about bad haircuts but like good conversations, it lead to other things.
Masa’s conversation reminded me of a telephone call I had last Friday with well-established adviser in Melbourne who doesn’t believe he can charge what our pricing models suggest should be his advice pricing.
He prefers to price his financial strategy for nothing to get an on-going fee for his service based upon the amount of monies invested by his clients. He says it’s academic because he always gets every bit of business he pitches for.
I reckon he’s crazy.
It’s an expensive tactic to deliver your advice for free (or discounted).
Firstly, where’s the commitment?
If clients don’t have to commit, they won’t. So later on, when times inevitably get tough (like today) on investment markets, do you think they are all of a sudden going to commit to your long term strategy when they are losing money?
Secondly, clients know that they have to purchase something to get something for nothing. The ‘free’ phone offers always have expensive behind-the-scenes usage plans. Don’t you believe that the type of clients that we all want (i.e. long term trusting, loyal and enjoyable clients) will see through a thin “there’s no entry or plan fees” proposition as being similar to ‘free’ phones? You might be attractive to those clients that always buy the “free” offer and will switch with someone else offers a better “free” offer. Do you really want them in your advice firm?
Thirdly, the path to building a great advice firm isn’t about getting more of the same type of new business. That could be better described as a path that leads to a business treadmill – lots of activity, not much progress. Lacking the confidence or ability to able to pitch your value and it’s price is similar to steering a boat without a rudder – you’re at the mercy of the currents (which for financial advisers are the product manufacturers which is exactly where they want you to be).
Thanks to most financial advisers product-based evolution, the “free-upfront” offerings have not done the emerging advice profession any favours. The biggest cost hasn’t been the credibility issues facing financial advisers, but the confidence of good advisers who still under-price and under-value their worth like the guy I was talking to in Melbourne last week. Thanks to years of packaging his advice within financial products he hasn’t the confidence to price the advice effectively.
Financial advisers are in the business of delivering financial certainty and it costs. Don’t be fooled by offering something for nothing in the hope of building a great advice firm.
What do you reckon?