Value for money
Advice fess - Value for money
Talking fees with clients can be difficult. Some clients willing accept the fees whilst other clients challenge the proposed fees and want us to justify the fees for the advice we are giving.
Therefore, I included a chapter on fees in my latest guide, Retirement Advice; art or science?
I struggled at first to find a way of discussing fees, then I came across a brilliant formula:
Price of advice = cost + value added
Price is the fee for advice charged to the client. Cost is how much is spent on fixed and variable costs to provide the advice, including PI cover. Value is the monetary and non-monetary benefit such as peace of mind and security.
In simple terms, this means the fee for advice is the cost of delivering the advice plus an amount to reflect the value we add to the client’s financial circumstances and overall wellbeing.
Feeling smug about this I sent a draft of the guide to a potential client who I was getting on with very well and thought this would help justify my fee.
I was taken back, in a good way, by his response; “I wonder whether ALL the value added goes to the adviser, which would leave none for the client.”
This certainly got me thinking and after a couple of strong coffees I decided that the value added was clearly the profit for the adviser firm, but this should be proportional to the profit or value added to the client.
Clearly the adviser’s added value is measured in monetary terms, but the client’s added value is often intangible or invisible.
For example, part of the added value to the client may be ‘peace of mind and security’ and this is clearly something you can’t put a monetary value on.
Don't be shy
We shouldn’t be shy about discussing fees and profit shouldn’t be a dirty word. I remember well, in the early days of our business a particularly wise client told me that in business is there is only one important metric and that is profit. If firms don’t make a profit they go out of business, so advisory firms must be profitable if they are to continue delivering good advice to their clients.
Therein is the challenge; how do we set our fees at a level that ensures we make a reasonable profit but at the same time adding real value to our client’s financial affairs and their peace of mind in retirement. With regulatory fees increasing and many clients more conscious about value for money this challenge gets harder.