In an ideal world, service agreements would be simpler.
Client + adviser + mutual agreement on how it’ll work along the way. End of story.
However, personal responsibility is a complex argument. We don’t live in an ideal world.
Consumer protection matters. We should always seek to ensure those with knowledge don’t do the wrong thing by those without – I get this – though I still can’t help but see it as over-reach when we don’t trust informed adults to define the terms of mutual commitments without unrequested interference.
As such, the scope and value of any service offering offered to a (retail) client by an advice firm must meet certain third-party standards.
Last week I wrote about how pricing is a major lever to change your business.
It’s always a project which touches on many others.
If we did pricing together, we would also define service packages. Maybe not to the degree I have over the last month with our Service Offer Fast Track, but it’s a key element.
One output is pricing for however many service packages your business needs (obviously) the basis upon which you and your client agree on how to work together, and a fee they’ll pay.
Back in our ideal world (how nice is the weather here!?), that decision to engage will be based upon lots of sensible things, like what they can afford, what’s reasonable, and all those sorts of things.
Only that’s not how it works. Not even close.
It’s (roughly) 2012 and I’m talking with Geoff about fee sensitivity.
His point is, “It does not exist”.
“Doesn’t exist???”, I say incredulously. “Well, why do people decide they can’t afford something then?”
Geoff chuckles. “Value, not price. It’s always value sensitivity. Always”
A few months later, I finally concluded without any further doubt that he was absolutely, spectacularly, and completely right.
Because if most people were fee (or cost or affordability) sensitive, a lot of financial issues simply wouldn’t exist.
Lack of fee sensitivity is the more common issue.
Pricing is a project of stages and (awesome) lightbulb moments.
Once we’ve done the technical work of building a pricing model, tweaking and optimising the numbers, and generally kicking it around until we’re confident it’s what it should be, we work out how to actually present it to new and existing clients.
Then the truth becomes obvious.
It’s remarkably easy to understand what people want and value. Ask in the right ways, listen instead of talk and it’ll be shared openly.
If you also genuinely have the ability to help and can put forward a proposition that demonstrates this, “Yes” will happen more often than “We’ll think about it”.
Put another way, charging higher fees is a lot easier than most realise.
This is one of the reasons it’s really important I only do this work with people who a) genuinely are good at what they do and b) have the right intentions.
Part of this is about backing up your ongoing proposition with a “why”.
A rationale for recommending clients work with you a certain way and pay a certain fee, as opposed to another way, paying a different fee.
This means being able to answer three questions to one of three audiences.
Let’s start with the audience.
Audience 1 – The Regulator.
Personal opinions on personal responsibility aside, it’s simply good practice (and less hassle) to be able to be open and transparent about the way a service model is built, priced and why certain clients get x and others get y, delivered on a foundation of clear and logical basis rather than opinion.
Audience 2 – Clients.
Being able to openly answer questions about the way that you work is also inescapably sensible. My guess is most of you do it pretty well, even if some of you might want to be able to position ongoing service a little better.
Audience 3 – Ourselves.
The final missing piece, and arguably the one that often gets overlooked. The more confident you are, the more confident you can be the others will be, but the Experts Condunrum can get in the way, right?
…and the three questions?
Question #1. What’s in it?
This is a bit of a no-brainer and something already under the spotlight.
Most of us have worked out the need to be able to articulate to clients what they’re getting in return for a fee, with many of us doing it long before it became a requirement.
Whether it’s an agreement, disclosure statement, or conversation, this is simple enough to be able to do. Next!
Question #2. How did you work out the fee?
Let’s be honest, the few people likely to ask this is either a) a shadow shopper or b) some of the more detail-focused clientele (mostly new).
For most of us who approach pricing in a top-down AND bottom-up approach, this isn’t hard to produce. It’s relatively easy to break things down item-by-item, advice area-by-area.
Mind you, though it’s the foundation of the work, doesn’t mean it’s what gets put in front of each-and-every client.
For me, the fee is the fee, and one of the issues to avoid (which itemising can invite) is “service picking” as opposed to realising it’s not a choice of lower fee vs higher fee; more a choice or done for you vs. done by you, and more or less likely to achieve the outcome
But, when asked, being able to break it down and show how it works in minutes is about demonstrating that the approach is something more diligent than licking a finger and holding it to the wind.
Question #3. Why are you recommending THIS?
This is a key one. It’s the rationale and there are four criteria based around the advice itself (complex or simple), capacity, level of interest and knowledge, and past performance.
This is a large topic, so let’s break it down into one big idea.
Einstein once said, “If you can’t explain it simply enough you don’t understand it well enough“.
By that rationale, if someone can’t explain why they’re recommending an ongoing fee arrangement service in such a way that:
- makes sense,
- is relevant, and
- can demonstrate the clear benefit
…it may signal time to revisit not just the pricing model, but also the way you work with clients moving forward.