Once again the debate around price versus value has reared its ugly head. A tweet last month from an experienced financial commentator asked: “Friend with inheritance has decided against financial advice because it was ‘too expensive’. Quote seemed reasonable. How do we overcome the price problem?”
Restrictions Twitter imposes prevented this person from describing the full situation but we can all understand the question. We do not know how much was inherited or how much the adviser was going to charge but we do know the potential client thought it was too much. And if they thought this, maybe that is because, in their head, it really was.
Most consumers of advice do not have much of a reference point when it comes to determining if a price is too high. I have always said if a potential client says “no” to my proposal, then it must be my fault. I have obviously not demonstrated the value of what I do clearly enough.
If someone has an inheritance and is thinking of investing it, the first piece of value we might add is to convince them not to. What if paying off debt with the inherited money made more financial sense? What if giving it away (possibly by a deed of variation) to the next generation was the right thing to do? How about spending the money? Not having had a particular experience is said to be the biggest regret for many in later life. Advocates of lifetime cashflow forecasting will tell the client these decisions can be demonstrated via financial planning.
“The key is also to show what might happen if they do not take advice”
If the inheritance is to be invested, then we can demonstrate what it is we are going to do for the client. That will more than justify the fee to be paid. Risk assessment, risk analysis, asset class modelling, tax wrapper selection and investment fund selection are all valuable things the adviser does. And then to which we can add in the implementation of whatever products are required and take that task away from the client.
This is where the engagement letter is so useful. Write to the potential client setting out precisely what it is you are going to do for them and at what price. They might still reject the proposal but at least then they are doing it, having been given a good chance to understand exactly what it is the adviser does. They may choose to go the DIY route but that is up to them.
The tweet asked how we overcome the price problem and surely the answer is by being as descriptive as possible. The more detail in terms of the systems and processes we employ to deliver advice the better. The key, however, is also to show what might happen if they do not take advice. What mistakes is the client likely to make? Value also lies in challenging thinking.
Each of us has a slightly different way of explaining what we do for our clients but if we do not demonstrate value then rejection should not be unexpected.
Nick Bamford is executive director at Informed Choice