My colleague Jim Stackpool was complaining last week about orthodontic costs. Unfortunately for Jim, his kids have inherited his teeth and it seems that all four Stackpool kids will need braces.
The fee needed to install the braces and monitor each child’s progress over at least a two- year period is measured in the thousands for each little Stackpool. However, the ongoing fee to review the beautifully straightened teeth once the work has been done is nowhere near the financial pain of the first few years, when most of the work is being done whilst the braces are on.
Orthodontists charge more for the active work to get an appropriate solution in place for their patients and to monitor the progress of their work. Most financial planners seem to do the opposite, undercharging for their strategy and initial progress meetings, where they undertake and co-ordinate the up front strategy work required to get their client’s financial life “straightened” and in order. And unfortunately, the majority of financial planners also overcharge for their ongoing review of the implemented financial products. This can’t and won’t last if Senator Sherry is properly understood regarding his intention to lower the cost of owning superannuation products.
A possible reason for this contradiction of fees and service is the fact that the pricing of services and products in our industry is driven by the product manufacturers (fund managers, insurance groups, platform providers) rather than service providers (advisers).
To help explain this issue, we at SCAT have developed the Advice Grid. The Advice Grid identifies four client propositions:
The Product proposition is one where, after consultation with an adviser, both adviser and client agree that the needs are low and that a deep relationship isn’t or won’t be required. This is where the client has been advised or has had a situation arise in their financial life that requires an appropriate financial product. To them it’s like buying a fridge – but with lots more paperwork! Our industry insists this is done compliantly, but the client doesn’t want, and won’t enter into, a longterm relationship with an adviser to get what they perceive is a simple product into place.
The Process proposition is one where after consultation with an adviser, both adviser and client agree the needs are more complex than for the Product proposition but again the need for a deeper relationship isn’t warranted, no matter how much it might be “sold” as being required. These propositions (such as establishing a self-managed super fund or extracting ex-pat funds from overseas) are similar to buying a house. They are more complicated than a simple product but, like buying a house, the buyer doesn’t want an ongoing relationship with the salesperson. They have enough friends already.
The Care proposition is one where, after consultation with an adviser, both adviser and client discover financial gaps in the life of the client that can’t be plugged by product alone. Following initial consultations with these clients, both adviser and client agree to treat the causes of these gaps, not just the current outcomes. These causes are usually tied to many factors which might include a lack of financial discipline, or lack of financial awareness or just a lack of time to properly consider their options amidst the “noise” in our media-saturated environments. This proposition is similar to a long-standing family doctor who understands the history of the whole family, not just focusing on prescribing a drug for the problem at hand.
The Advice proposition is similar to the Care proposition. After consultation with an adviser, both adviser and client agree that the causes of the financial gaps in the life of the client are many and varied, emanating from diverse sources in their financial lives. Major surgery, major re-working, major due diligence, major renovations, perhaps right down to financial foundations, are required. These financial issues are very complex and require not just better financial management but also some project management as outside resources are enlisted.
You won’t be able to charge a premium for your review work for those clients who have purchased a Product or Process proposition. However, you will be able to charge a premium for your progress work for those clients who have purchased a Care or Advice proposition.
In other words, review meetings are going to get commoditised. Without a strong and active relationship foundation, reviews of products purchased can be done electronically or via telephone support. Advisers who charge for their review service based upon assets under management had better reconsider the real value of this segment of their client base. It may be a good time to rethink your proposition and pricing?
Without ongoing relationships where you are progressing your clients towards their well-understood financial goals and destiny, whilst bridging the inevitable financial gaps in their lives, you won’t be able to charge a premium for the ongoing advice that you will provide.
How does this apply to the four little Stackpools? From my last conversation with Jim, he seems resigned to the process. He tells me that the inherent complexities of raising four kids doesn’t compare to the joys. Sometimes.