Attention advisers: Stop undercharging
Listening into a webinar this week, there was an extensive discussion about the fact that very few, if any, financial advisers in the industry are pricing their clients appropriately. The theme of the discussion may well be right; however, the fact that it was delivered by a number of ‘experts’ who were unlikely to have been at the ‘coalface’ of financial advice for over a decade was difficult to accept initially.
That is, until the inevitable client meetings occurred during the week. It’s been an incredibly busy time at my advisory firm, with an unprecedented flow of new clients looking for advice. Whether due to the well-publicised exit of thousands of advisers from the industry, or a pandemic-induced reason to find something better, I have no doubt that other firms around Australia are seeing the same trend.
Advice is in high demand, but is short of supply; yet advisers, like every other business, have legacy issues. Whether it is the clients you took on many years ago when your business was just getting started, or the friends-of-friends who were advised as a “favour,” every client takes a considerable amount of time to provide the appropriate level of support. In theory, it makes sense to ‘cut’ these clients or seek to increase their fees closer to the actual cost of providing advice, yet in the real world, these are highly emotional, individual discussions with real people.
Another driver behind the mispricing of clients is the willingness for many advisers, or clients, to compete on fees and performance. If there is one lesson of which I remind myself every day, it is that you will never win in the long term when seeking to gain a client by offering lower fees or suggesting their performance would have been better.
There is always another benchmark or alternative strategy that can be found that exhibits your underperformance; and similarly, cutting fees becomes an anchor. If you can service one client at a loss, then what is stopping you from servicing many clients at the same level? Similarly, as is generally the case, there is always someone willing to go cheaper than you ever could.
The value of advice by now is well-appreciated; it is isn’t simply investment management and annual reviews, but a trusted relationship with a person to whom you will turn to at the time of most uncertainty. Whether that is in the middle of a pandemic, or after making a life-changing decision.
As I was trying to understand the reason why myself (unfortunately) and many other advisory firms are willing to cut our fees to gain clients, an advertisement from a well-known super fund came on the radio. One of its key marketing points was something along the lines of, “are you sick of losing your super to high fees?” Clearly, that is an emotive comment aimed at changing the narrative around the management of your superannuation fund.
By paying fees you are not “losing” that money, you are paying a professional for a service, be that investment management or strategic financial advice. It is the complete opposite to that super fund’s advertising argument: you are in general supporting small and medium-sized businesses that are the beating heart of the Australian economy.
In many parts of the world, including the UK and US, the 1% percentage-based fee for financial advice is well-appreciated and near-industry-standard. Yet I’d suggest most Australian advisers are delivering advice at as much as a 30% discount to this level.
As the industry is further weakened, it is time to change the narrative around financial advice fees, and focus on the value they represent.