Adviser charging is already generating competitive pressure ahead of its official start. In the past few weeks firms have announced execution only services and other “non-advised” propositions which tend to be priced below the full advised model.
In addition, increasing numbers of IFAs are setting their initial charges on a tiered basis using percentages of funds invested.
All of the evidence points toward price pressure which necessitates a crucial strategic decision for business owners.
At the extreme, firms need to decide if they are going to compete on price or on added value and service.
That is not to suggest that low prices equate to poor service, but it is clear that comprehensive financial planning tends to be relatively heavy on personal service and should be priced accordingly.
By way of contrast, streamlined, web-based transactional services are cheaper to run, and this is reflected in their prices.
This raises the question of how should you respond to price competition? There is a real danger that businesses in the personal and comprehensive planning part of the market cut prices to meet their execution only competitors.
There are two problems: low price can undermine an “added value” proposition and a flight to low prices puts firms out of business.
We are entering new territory so the pricing decision is not easy.
At high level you should set prices that you are confident reflect the value for money you are offering clients.
The structure of your offer and how you communicate it is critical because, in the end, all firms in all markets have to answer the client question, “What do I get for my money?”
To survive you do not have to be the cheapest in the market but you need a price that can be fully substantiated by the service, benefits and value that you provide the client.
David Shelton is the author of “The Business of Advice” book and website www.businessofadvice.co.uk