Avoid under-charging for your financial advice

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Advisers changing from commission to fee-for-service models should be wary that they don’t start under-charging for their advice. After charging commission for so long, it could be hard for some advisers to make the transition without worrying about losing their clients, says Damian Hartley from Branton Mannix Consulting.

After working with advisers doing estate planning, Hartley noticed that some were doing a lot more work than they were getting paid for. “One client is happy to charge $250 a month when he’s actually doing $600-700 worth…it just hasn’t been priced out properly,” he says.

Hartley says advisers tend to look at how much a client could stand to pay, and charge them accordingly. “Quite often you’ll find some lack of confidence in being able to articulate their value to clients and because of that, price it very conservatively. That being said, I think it’s also a case of ‘I don’t want to scare this client off and lose their business, so I don’t want to charge too much’.”

As well as learning to articulate service offerings to clients, Hartley says building a strong client relationship is vital to being able to charge the right amount. Many advisers have an aged client base that will have a short longevity, but they have failed to drill down to the next generation of clients through their family, he says. A good client relationship will provide loyalty and trust to the adviser.

“My advice would be to think very carefully about the service and level of service they provide to clients. Concentrate strictly on what the client wants and needs, and develop a service package around that.”

If you find you do need to change your pricing, Hartley says you should be upfront and honest with the client. And if you’re unsure about how the client feels towards you, ask them or even conduct a survey.

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  • GAB on 26/02/2013 11:50:09 AM

    That sounds great Matthew...thanks. But we can now see the issue here with extra regulation. If it costs Matthew $1500 just to get a client onboard without profit margin, there's not much hope of looking after your average working family really, not a time based schedule anyway. Wait for the cost of preparing and delivering annual fee disclosure statement and preparing and chasing up signed opt-in letter. Oh the joy....

  • Matthew Lock on 26/02/2013 9:43:33 AM

    I find that the best way to determine if you are charging enough is to have an intimate understanding of what it cost the business to deliver the service. To do this try investing in some simple flow charting software like Visio and process map your services…initial meetings, review meetings etc. Then try investing in some software that will cost this process like Clarizen. This is an Activity Based Costing system that will enable you to assign a cost to each and every step required to deliver your meetings. The last time I did this, I determined that the real cost incurred by the business in delivering my 3 initial meetings inclusive of data collection, SOA construction and presentation etc. (up to the point of presenting the client with the retainer contract for the ongoing service) was approximately $1,500. Once I had worked this out I immediately started charging an hourly rate from the commencement of the data collection. The decision for the business then becomes whether it makes a profit margin on every minute spent in front of the client. In my case I was more interested in generating profit from my ongoing services rather than my client on-boarding process. As a consequence I only based my initial charges on a cost recovery basis.

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