A while ago I facilitated a pricing review session for a Adelaide firm with a number of senior advisers.
The firm was an amalgam of a couple of firms over the previous few years with each of the principals well-known to each other and motivated by the benefits of integrating and scale.
The integrated firm is well regarded in Adelaide’s tight business network. The firm had an envious waiting list of client projects and good quality junior advisers eager to expand their careers.
HOW MUCH FOR THIS?
As is my approach, early in the session’s proceedings, knowing a bit about the firm’s clientele, I described a fictitious prospect and asked each senior adviser to write an estimate on paper of how much they would charge my fictional prospect.
I then asked them to share their figure, not the reasoning, just the estimated fee they had individually written down.
Most of the advisers were around $10,000, one was between $10,000 – $15,000 and one was above $20,000.
Two of the $10,000 advisers wanted to better understand what was involved in the $20,000 pricing to reconcile the significant difference in estimated pricing.
The first session the next day started with each senior adviser presenting an existing client with pricing that was similar to the fictitious prospect.
I asked the $20,000+ adviser to present last.
After the presentations, one of the $10,000 advisers hit the pricing nail on the head declaring she wasn’t sure if the firm was under-charging, over-charging or both.
The $20,000 adviser was not the ‘oldest’ or most experienced of the group. Nor did the $20,000 adviser work as many weekends or have as many clients as the other senior advisers. What was clear during the presentation of the cases was that it wasn’t just the pricing was different, the accepted value by the ‘similar’ clients was different too.
Importantly, this firm abides by our Certainty Advice standard for pricing. That is, rebating all commissions, no profits from any platforms, no referral fees, no platform asset ownerships, while charging in annual flat fee amounts for their model of comprehensive advice.
One group of advisers in this firm was pricing on the ‘inputs’ of effort and assets plus range of services required. They generally had more clients and a lower ‘mean’ fee. The other group of advisers was pricing on the ‘outputs’ of client value plus range of services provided. They had less clients and higher ‘mean’ fee.
Who has the right fee?
The right fee is the fee that engages the majority of new clients, that retains the majority of existing clients, that ensures the team are not consistently pushed beyond capacity, that funds the growth of the firm and most importantly delivers the value clients seek from their annual engagements while serving their best interests and the greater public good.
The above scenario repeats itself again and again as the success of busy senior advisers within the same firm tends to create a ‘silo’ with unique propositions, pricing and precedents. The resulting ignorance about their fellow senior advisers silos often blocks the needed conversations as to how to consistently, specifically and methodically determine the price, worth and value for all the firm’s clients not only those within each silo.
It is not about governing the same price for the same client throughout a firm, the issue is about formalising and managing a consistent framework and methodology for advisory teams to determine price based upon what the client’s perceive is the worth and value of the advisory relationship.
As firm’s grow there is understood and accepted consistency for functions such as IT, HR, financial reporting, governance, technical compliance, positioning, and remuneration. The future of advice belongs to those firms that ensure a similar consistency of how a firm prices its worth and value.
What do you reckon?
This is an extract from Jim’s latest book – What Price Value – due for release Spring ’21
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 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 three books regarding financial advisory firms and is due to release his fourth book later this year – What Price Value.