View more on these topics

Tony Mudd: Advisers should not be competing on price

The idea advisers should be motivated by price more than value is folly, and to the detriment of clients

While it is normal for me to use this space to discuss a variety of topical technical matters, I do not live in a technical vacuum.

Like advisers, I am impacted by a whole host of factors, not least the current debate on the value of advice and how this impacts the world in which I operate.

With this in mind, I, like many, am concerned about comments on pricing: specifically, how the lack of incentivisation for advisers to compete on price results in limited pressure on them to reduce charges.

As a technician, I do not have an issue addressing any matter that impacts adviser’s abilities and competence and its result in terms of advice received by clients. But the very idea that clients would always benefit from downward pressure on adviser charges is, at best, questionable.

The financial services industry is better placed than ever to regard those working within it as professionals, and advisers have made the greatest contribution to this. The idea that fellow professionals in related industries, such as solicitors or accountants, should or would compete on price is nonsense.

Indeed, most would find such an idea abhorrent.

The problem with price competition

In the early 1990s Rupert Murdoch set out to dominate the UK newspaper market by slashing the cover price of The Times to drive out its major competitor, The Daily Telegraph. The Daily Telegraph responded and a price war began.

The strategy did provide a modest boost to The Times’ and Telegraph’s readership but it had a devastating effect on its profit margins. More importantly, the papers spent considerable periods of time without the resources they needed to provide in-depth news and tarnished the quality perception of UK newspapers.

If you compete on price, is it possible to provide exceptional (or even acceptable) customer service and/or a quality product? The failure to do so can damage the perception of your product or service in the eyes of clients.

Our series so far taking a positive look at the value of advice 

Lest you think that is an isolated example used to demonstrate my point, let’s look at another from a slightly different angle. If you choose to buy an Apple product from Amazon or any other store in the UK, you will – by and large – pay the same price as if you visit an Apple store.

Apple continues to be very successful at maintaining its (high) prices virtually anywhere. Why? Because it understands the danger of price cutting. If it allows one retailer to discount its products it will have a lasting impact on their perceived value across the board.

How to compete on value

The question is how you can compete on value in a way that is in the best interest of your clients.

1. Drive value: Value can come from both demonstrable and abstract factors. It will be important to show clients how certain aspects and benefits are more important than price. There are many examples I could use but protection is a simple one. The cheapest life assurance policy, critical illness or income protection will not always be the best. There are a whole host of additional features, benefits and add-ons to protection policies these days that considerably widen their value. This principle can be replicated in most markets, and advisers should make sure their clients are aware.

2. Target audience: If advisers are to compete on value it is important they know as much as possible about their audience. In this way, they can be certain of understanding why they make decisions, what drives them, what they want and how they define value. Only then will value and client best interest come together.

3. Put customers first: This may seem an obvious statement but the best advisers I know are those where clients know right from the outset they can expect a truly trustworthy relationship. This can be achieved in a number of different ways but it is essential and something that should be adopted by all who work within the business.

4. Under-promise: The importance of under-promising and over- delivering applies to any business but even more so if you are competing on value. This will require feedback from clients which can always help referrals but, when discrepancies are identified, the adviser must ensure they fix them. Demonstrating your intent towards value early in the relationship can be just as important as actually providing it.

5. Consistency: Consistency is a common feature of all successful brands. Most clients will pay for consistency of products and service that provides real value. While clients can be sensitive to price, this is most often when it comes as a surprise. Bottom line: make sure you offer your clients the guarantee they can expect the same outcome every time. Good value; no surprises.

However you wish to trade, there will always be a place for advisers that operate ethically with good practices and understand the market in which they are working.

While there is also a limited place for those advisers who want to compete on price, the idea we should all be forced down that route is folly and would, ultimately, be to the detriment of clients.

Tony Müdd is the divisional director for development and technical consultancy at St. James’s Place

Recommended

3

What next for DB pension transfer advice?

Pension freedoms have opened defined benefit members’ eyes to the mouth-watering fear advicefer values currently on offer if they give up their guaranteed benefits and move to a defined contribution scheme. At the same time, the FCA’s requirement that people transferring out of a DB scheme with a value of £30,000 or more must take […]

5

Conservatives at odds over income tax rises

The Prime Minister is insisting the Conservatives’ tax plans have not changed after senior members of the party pledged not to raise income tax on higher earners. The Conservative 2017 manifesto did not rule out income tax rises for the wealthy, according to the FT. But defence secretary Michael Fallon told the Telegraph that voting […]

Dubai

White paper — Dubai International Insights

Jelf Employee Benefits discusses the legislative changes in Dubai, available medical facilities and policy considerations for employers with expatriate workforces in the country. This edition will be of particular interest to global human resource directors, compensation and benefits specialists and mobility managers who have employee populations in Dubai, or are considering operating there in the near future.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. If all anybody was interested in was price, we would all shop at Aldi, drive a Lada and Heinz would go out of business

  2. Something missing – quality. Quality of advice, professionalism etc. I do not disagree with the points made but the main problem with our profession is one of trust. The RDR was meant to restore trust but for many firms it is a case of selling yourself and emphasising your ethos, your professionalism, ethics, commitment to quality etc. This underpins much of what is mentioned here.

Leave a comment