Tips to help advisers move the client focus away from price and more towards value
Mifid II ex-post charges disclosure means advisers must state explicitly the effect their fees have on clients’ investment returns, which could raise some uncomfortable questions.
The trouble a lot of advisers are facing is the perception of need. In the public’s eye, advisers are not as necessary as other professionals.
I love my accountant, solicitor, HR adviser, IT support worker and insurance broker, but I hate having to pay their bills.
Nevertheless, I know I have to use them, so I pick businesses that are good at what they do and have people I enjoy working with.
Advisers cannot really rely on being nice people who are good at their job, whose clients like them but pay their fees grudgingly. Their need is going to start being questioned, particularly when their fees are thrown into such stark focus. They need to make clients love paying their bills.
So what’s the trick? Well, moving the client focus away from price, which is fact, to value, which is perception, will help.
Here, it is worth bearing in mind the words of the greatest philosopher of our time, comedian Chris Rock, who (in a much less polite way – Google it) said not to take credit for the things you are supposed to do.
Will a client be convinced you add value when you say things like:
- Our team is dedicated to helping you reach your goals;
- We put our clients first;
- We are fully qualified;
- We act with integrity in everything we do?
No. They will assume you are supposed to do that. That does not add value.
As an extension of that, do not confuse your service proposition with added value.
The service proposition is what you provide for the fee you charge. It focuses on price rather than value. Instead, focus on what the proposition can do to deliver value to clients.
There are two types of value: one marketed by the company and the other accepted by the client.
To reinforce value, don’t focus so much on telling your clients what they pay for, but rather remind them of their intention behind the purchase.
Why clients pay
A recent survey by Next Wealth identified the top five reasons clients pay for advice:
1. Better potential investment returns (36 per cent)
This is tricky, as if you suggest you will deliver this outcome, you have to know you will achieve it all the time without fail – which is never going to happen.
If you have a client with this expectation, it is important to establish what it is they want the performance to be better than; better than cash or better than their existing investments? Better may even just mean less volatile or more predictable.
If they are being unrealistic, it will save a lot of hassle and heartache to tell them so as early as possible.
This type of expectation is likely to be reflected in a percentage-based charging model, as the fee generated is linked to the value of the investments. Just be careful you manage that expectation well.
2. Peace of mind (26 per cent)
Peace of mind is going to mean different things to different people. You cannot demonstrate value until you identify what this is.
3. To ensure financial goals are met (15 per cent)
I was surprised this was as low as it is. After all, everything about suitability is linking a client’s goal to a means of achieving it. Nonetheless, it has to be the most effective means of delivering value as it can be measured by progress, and removes some of the awkward conversations that can happen in times of poor investment returns.
4. Help with the administration of financial affairs (13 per cent)
Clients looking to engage you for this reason present a real challenge in terms of proving your value.
Time is the key (i.e. the amount spent dealing with insurers, on continuing professional development, on administrating documentation, etc), which is going to be difficult to reconcile against assets-under-management fees.
5. Access to markets (8 per cent)
Advisers are the intermediation between the client with an objective and the product that will help them achieve it. The value in this is the amount of work you have done to research the wider market and conduct due diligence on the shortlist. I recently wrote about how Prod should be your best friend, and it is exactly these types of clients that will value the work you do under it.
The action you take in relation to creating a perception of value will differ depending on how you charge:
- If you charge hourly rates, what value are clients getting from every hour spent on their work?
- If you charge flat fees, what value will the client get for every pound they spend with you?
- If you charge AUM, what value do clients get proportionate to the amount they are investing?
This could be a great time to review how you charge to ensure your clients really understand the value of what you offer.
Damian Davies is director of The Timebank