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.
Financial planner salaries: Are you getting paid enough?
Advice sector getting tougher for independents, more consolidation expected
Independently owned firms take on the big boys