The Elixir team collectively spend many hours every week working with advisers in the art and science of getting their pricing models right. Part of this process involves understanding the true cost of advice, but this is only one step in the exercise. Cost does not equal value.
An important part of the art in pricing is to look from the client’s perspective to determine what value they will gain from the advice and service provided. This subjective and challenging part of the equation is critically important for a number of reasons:
- It’s mandated in standard 7 of the Fasea Code of Ethics,
- It enables a firm to build sustainable, scaleable profits not linked purely to human capital or compliance requirements, and
- Without it, a firm will struggle to acquire new clients or to sustain long-term relationships with clients AND be at risk of complaints, remediation and/or legal action.
When people make a buying decision it is generally because they have determined that the benefit they will receive is greater than the cost they must pay and so there is value to them in the purchase. They see an appropriate level of value relative to the cost, or put simply, value for money.
A clear concept of value is often difficult even for a physical item. Not everyone sees value in a watch costing $10,000 or more, yet sufficient people do to keep the high-end watch makers in business. The value of a physical item can also change due to circumstances
For example, you may be prepared to pay $5 for a bottle of water if you are out walking on a hot summer’s day, but at other times think this is exorbitant.
The determination of value is even harder when it relates to a service, particularly when a large part of the benefit is intangible. How do you value something that gives you greater confidence about your future or the comfort of knowing your family is financially protected in the event of a major mishap?
It is often said that what Financial Advisers provide is peace of mind. Is there anything more subjective that this? Everyone has different fears and concerns. Everyone’s level of anxiety about different problems is unique to them because of their past experience and current circumstances. The very concept of Peace of Mind will be unique to each person and so the value they will attach to it will also be unique to them.
This becomes a challenge for Financial Advisers because Standard 7 of the FASEA Code of Ethics says in part:
You must satisfy yourself that any fees and charges that the client must pay to you or your principal, and any benefits that you or your principal receive, in connection with acting for the client are fair and reasonable and represent value for money for the client.
In the past you could assume that because the client agreed to your fee, they saw appropriate value and made the decision to pay for your services. Now, you as the adviser, have a professional obligation to be confident that your service does represent value for money for each and every client.
How can you be confident that your service is value for money?
The first step is to embrace complexity. Clients with complexity in their personal affairs are in need of advice to resolve these issues and through this, advisers are able to demonstrate value.
The second step is to make the intangible tangible. You need to take the concept of peace of mind and start to determine what this looks like for each client. What are their concerns and anxieties? But also on a positive side, what does their desired future look like and what is their level of confidence of it being achieved. In short, what do they need to know and do in order to have confidence about the future?
People’s future is more than just an account balance, and so the client experience that an adviser delivers must include far more than simply a data collection and strategy presentation process. Regardless of their stage of life people have hopes, goals, dreams and aspirations. People’s financial situation is what enables these things to be achieved. A financial adviser that helps their clients to identify these aspirations, makes them clear and tangible, and then helps the client achieve them, will have created significant value in the client’s eyes. The focus is not on the rate of return but the level of confidence about the future and what can be achieved.
The value that advisers add is firstly the confidence that people’s goals and desires are attainable by having the right plan in place and support to course-correct where necessary. Success is then measured by the progress towards these goals, not just the achievement of a certain rate of return or the final size of their net worth at the end of life. You cannot ignore the rate of return from investments but instead of this being the focus, the conversation is instead around the impact of the result on the plans that are in place.
If the level of confidence people have is the objective, then it is important to track this like any other goal. When people first meet an adviser it is usually at a point where they are anxious about the future. As time progresses, having a clear plan, measurable progress towards the goals, along with educational and emotional support, most clients will measurably grow in confidence. This is something advisers should reflect on with the client and celebrate along with the other goals achieved.
As time goes by, clients may take what the adviser does for granted, and this can potentially reduce the perceived value. To counter this, it is important to continually reflect on what has been achieved, both in terms of goals achieved and milestones passed but also how people’s confidence and peace of mind has grown. Importantly, having a robust process to continually update clients’ goals and aspirations to reflect their changing life, and maintaining heightened confidence through all of life’s ups and downs will ensure that the advice relationship holds its value.
When determining the value of advice, advisers need to make sure they look from the client’s perspective, understand their specific issues and concerns, their individual levels of complexity and the required level of engagement. If the adviser can clearly articulate the value they create through both the tangible and intangible outcomes they achieve then it will be easy for the clients to make the decision that the value is greater than the cost and so the advice represents excellent value for money.
The good news is that there is now technology and engagement processes available that can help advisers bring the intangible benefits of advice to life and help the adviser track progress towards people’s life goals. A great example is Lumiant, which so impressed the Elixir MD, Sue Viskovic, that she has joined the board. You can find out more about Lumiant and view their special offer for Evolve Alliance members here. (link to provider page in portal when it’s live) .
Building out client experiences, and working with advisers on the way they deliver their proposition is an important part of the business improvement and pricing work that all of our coaches love to get engrossed with.