{"id":50440,"date":"2020-06-11T17:18:22","date_gmt":"2020-06-11T07:18:22","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=50440"},"modified":"2020-06-26T12:55:17","modified_gmt":"2020-06-26T02:55:17","slug":"why-value-proposition-determines-the-level-of-adviser-pricing","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2020\/06\/11\/why-value-proposition-determines-the-level-of-adviser-pricing\/","title":{"rendered":"Why Value Proposition Determines the Level of Adviser Pricing"},"content":{"rendered":"\n
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\"\"A recent national adviser webinar organised by The Advice Movement<\/a> featured Elixir Consulting\u2019s<\/a> Andrew George<\/strong> and Graham<\/strong> Burnard<\/strong>, who reflected on the debate around the \u2018right\u2019 pricing model for advisers, which has been re-ignited since Covid-19 and the downturn in markets.<\/h3>\n

\"\"Hosted by The Advice Movement\u2019s Steve Crawford<\/strong>, 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\u2019s Annie Gray to sit in on proceedings\u2026<\/h3>\n<\/div>\n<\/div>\n

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Whatever pricing model a business operates under \u2013 whether it be asset based, a fixed dollar rate, commission, an hourly rate or a mixture \u2013 there is much more to getting the pricing \u2018right\u2019 than simply number crunching.<\/p>\n

Importantly, Elixir Consulting\u2019s Andrew George and Graham Burnard say, the first step is in fact, to get clear on the type of clients \u2013 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 \u2018no\u2019 to clients they did not wish to work with.<\/p>\n

When consultants from Elixir \u00a0work with practices to determine the right pricing model for their business, says Burnard, they always start with the client base.<\/p>\n

The more targeted the practice, the more successful it is…<\/p><\/blockquote>\n

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\u2019s client base \u2013 both their existing, and who they\u2019re seeking.<\/p>\n

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 \u2018all things to all people\u2019.<\/p>\n

\u201cWhat advice solutions do I offer to solve the unique challenges and desires of my chosen client market?,\u201d is the question advisers should be asking themselves, says Burnard.<\/p>\n

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\u2019t just be about great returns, but rather about the intangible outcomes and benefits they achieve.<\/p>\n

\u201cAsk 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\u00a0 to gain clarity on your minimum price points,\u201d says Burnard.<\/p>\n

Once an adviser knows what they need to charge to stay in business, they then reflect on the value they\u2019re delivering, and ensure there is mutual benefit for all \u2013 both in the initial advice engagement, and the ongoing client experience.<\/p>\n

Fees and profitability<\/strong><\/p>\n

George noted that Elixir has benchmarked differences between firms and found that tight client targeting drove a higher EBIT return.<\/p>\n

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 \u00a0targeted profit.<\/p>\n

Meanwhile, the consultants laid out a step-by-step process to determine a minimum advice fee:<\/p>\n

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  1. Define the target client base and client value proposition.<\/li>\n
  2. Establish onboarding and ongoing service processes, including how much time it takes from the initial contact.<\/li>\n
  3. Determine your charge out rates, including a profit margin. (\u201cI am not saying go to an hourly rate, but understand how valuable your time is and use that to understand your minimum fees\u201d)<\/li>\n
  4. Determine the costs involved in servicing the client.<\/li>\n
  5. Build out your minimum fees for a \u2018typical\u2019 client scenario\/experience<\/li>\n
  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.<\/li>\n<\/ol>\n

    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 \u2013 such as accumulator, pre-retiree, retiree; or in the example they shared, a service style:<\/p>\n