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.
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