A recent national adviser webinar organised by The Advice Movement featured Elixir Consulting’s Andrew George and Graham Burnard, who reflected on the debate around the ‘right’ pricing model for advisers, which has been re-ignited since Covid-19 and the downturn in markets.

Hosted by The Advice Movement’s Steve Crawford, the over-subscribed capacity audience of 100-plus virtual attendees also heard why an effective pricing model is far more than just numbers, and we thank the hosts for kindly allowing Riskinfo’s Annie Gray to sit in on proceedings…

Whatever pricing model a business operates under – whether it be asset based, a fixed dollar rate, commission, an hourly rate or a mixture – there is much more to getting the pricing ‘right’ than simply number crunching.

Importantly, Elixir Consulting’s Andrew George and Graham Burnard say, the first step is in fact, to get clear on the type of clients – and the value proposition that is being delivered in exchange for the price. The most successful practices they see are those with a highly targeted client base and those who had learned to say ‘no’ to clients they did not wish to work with.

When consultants from Elixir  work with practices to determine the right pricing model for their business, says Burnard, they always start with the client base.

The more targeted the practice, the more successful it is…

The more targeted the practice, the more successful it is, says Burnard, who stressed the importance of building up a key profile of the practice’s client base – both their existing, and who they’re seeking.

He says when an adviser or practice is explicit about its target client market and knows who they are dealing with (for example, they might be a business owner with small children and large aspirations) that means they can more effectively design their services to suit their clients, rather than trying to deliver ‘all things to all people’.

“What advice solutions do I offer to solve the unique challenges and desires of my chosen client market?,” is the question advisers should be asking themselves, says Burnard.

An important step for advisers, according to the consultants, is to deliberately ask clients what they value most about working with their adviser. They guarantee the response won’t just be about great returns, but rather about the intangible outcomes and benefits they achieve.

“Ask yourself what services you need to deliver, and how you deliver them. These are the inputs to start working out your price. Start by assessing the cost of delivering those services, and include your targeted profit margin  to gain clarity on your minimum price points,” says Burnard.

Once an adviser knows what they need to charge to stay in business, they then reflect on the value they’re delivering, and ensure there is mutual benefit for all – both in the initial advice engagement, and the ongoing client experience.

Fees and profitability

George noted that Elixir has benchmarked differences between firms and found that tight client targeting drove a higher EBIT return.

He also noted that while firms in the research were targeting an EBIT of 32 percent on average (once income to principals had been paid), the average EBIT actually being achieved was only 23 percent, meaning that many firms were a long way off achieving their  targeted profit.

Meanwhile, the consultants laid out a step-by-step process to determine a minimum advice fee:

  1. Define the target client base and client value proposition.
  2. Establish onboarding and ongoing service processes, including how much time it takes from the initial contact.
  3. Determine your charge out rates, including a profit margin. (“I am not saying go to an hourly rate, but understand how valuable your time is and use that to understand your minimum fees”)
  4. Determine the costs involved in servicing the client.
  5. Build out your minimum fees for a ‘typical’ client scenario/experience
  6. Determine the additional complexities that may be present for some clients, and a price premium for those, to enable you to price each client in a consistent, yet bespoke manner.

Elixir also has a fee calculation model based around three different service levels that can be refined to suit any business. The base services might be defined around a life stage – such as accumulator, pre-retiree, retiree; or in the example they shared, a service style:

  • ‘Do it for me’
  • ‘Do it with me’
  • ‘We have done it’

The consultants recommend advisers determine the costs associated with delivering each of these three service level propositions and how to allow for more complexity within each.

The webinar was told advisers needed to look at the nature and complexity of their clients circumstances. Whilst the size of the portfolio may be one of these elements of complexity, there may be other factors such as:

  • How many different entities the client has (trusts, corporate structures etc)
  • Whether they’re co-ordinating with other advisers (accountants, lawyers etc)
  • Whether there are travel costs

Then, they say, the ‘value overlay’ comes in, and that can be subjective. It could include:

  • How ‘high touch’ a client may be
  • Whether they want to engage extensively
  • The complexity of a family situation

If great value has been created by the adviser that is difficult to quantify or allocate specific time for , it was suggested that advisers may apply a percentage premium to their minimum fees to arrive at the appropriate fee for each client. One that is suited to their needs, and that the adviser is confident they can meet their FASEA obligations of providing value for. If they cannot provide the value for the fee they need to charge, go back to step 1 and perhaps redefine the clients they choose to work with. Or deliver services differently, to close the value gap.

How to have the conversation around raising your fees

George and Burnard explained that when advisers first undertake a robust pricing analysis, it’s not uncommon to discover a need to increase the fees they’ve been charging existing clients, and in fact, to remove themselves as the adviser for some clients who no longer need an ongoing service. They told advisers it’s important for them to carefully consider their wording before they sit in front of the client, which can help them to gain genuine confidence around what they are going to articulate.

“We see it time and time again, that advisers say it went better than expected.”

Sometimes clients do depart, warned the consultants, but they pointed out that in most cases where the client has made the choice to decline the services, they’re the clients that the adviser expected to leave in any case.

…95-98 percent of clients are agreeing to fee increases

Burnard told the webinar that in the experience of the advisers they work with, 95-98 percent of clients are agreeing to fee increases or moving from asset-based fees to fixed fees, and those who are choosing not to re-engage are easily replaced by new clients that better suit the proposition of the firm.

Reflecting on their experiences in working with numerous advice businesses, Burnard said he and his Elixir Consulting colleagues have been finding very little push-back from clients, with George noting that the acceptance rate was very high “…and when you have a great process to not only articulate – but deliver value to your clients, that only increases the success rate of having a great conversation, and builds a more sustainable future for your business and your clients.”

During the webinar two sets of polls were conducted for adviser participants. The first set of questions revolved around ‘Where are you at right now?’, while the second set asked advisers ‘Where will you be in 3 months’ time?’. Scroll below for the outcomes and click the charts for a larger image view…

Andrew George and Graham Burnard are senior consultants with Elixir Consulting.

Click here for more details on Elixir Consulting’s Pricing Advice resources.

The Advice Movement is a practice management school for financial advisers which provides online and on location training such as events (LTMA), live webinars (like this one) and on demand courses teaching modern and practical technical and client focussed skills.

This webinar was recorded and is available on demand (with 1 hour CPD – Client Care & Practice), via The Advice Movement’s school site, located at: https://theadvicemovement.teachable.com/

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