Most Australians think financial advice is too expensive, yet many advice practices aren’t profitable, let alone flourishing. It’s a major conundrum.
But it’s one that can be fixed. The primary reason why so many advisers undercharge is because deep down they still believe they get paid for the sale of a product. They don’t place adequate value on the years of experience they have uncovering and understanding a client’s needs and priorities, providing and implementing strategic advice, securing appropriate insurance cover, managing claims and helping clients achieve their goals and objectives.
However, consumers value that expertise and experience.
If it’s clearly articulated and explained to them, they will pay for it.
Advisers who have been brave enough to test this concept know it’s true. Some have doubled their revenue simply by charging fees consistent with the value they deliver. There are clients now paying $5000 to $10,000 in advice fees each year.
While the service and advice their clients receive may not be markedly different, the difference is they’re talking to them about it.
As word spreads, more consumers will seek advice and more advisers will develop the confidence to ask to be paid well.
On the flipside, advisers who cling to the belief that Australians can’t afford comprehensive advice and won’t pay for it will struggle to make a decent living. Their profitability will fall as the cost of providing advice continues to go up due to mounting regulation and growing consumer expectations.
A conscious uncoupling
Historically, “financial advice” was all about selling a product because advisers were remunerated by the product. That’s why “advice” almost always culminated in the sale of a financial product.
It’s also why commission-based advisers have been afraid to ask clients to begin to pay, for fear of losing them.
But a conscious uncoupling of advice from product is underway. Advisers are also increasingly willing to walk away from unprofitable or difficult clients.
Having said that, it’ll take time for some advisers to unwind 30 years of thinking, talking and pricing a certain way.
Many have been applying the same sales techniques since they started in the industry. They’ve been trained how to frame client conversations, overcome objections and sell product.
New sales pitch
Now they need a new sales pitch. They need to sell advice.
It’s a vastly different proposition.
Fortunately, the reason why some advisers are stuck in the 1990s when it comes to their pricing is purely accidental.
They’ve already separated advice from product and they’re comfortable articulating their value proposition but they just haven’t gotten around to formally reviewing their pricing.
Their fees haven’t reflected the fact that they, and their staff, have become infinitely more experienced, qualified and efficient over the years, and added new knowledge areas such as self-managed superannuation, estate planning and aged care. That’s not to mention rising staff and compliance costs.
Opportunity cost
Unfortunately, the opportunity cost of maintaining the status quo when it comes to pricing is huge.
While advisers won’t be able to implement changes to their business model overnight, they need to start the process as soon as possible.
If the Future of Financial Advice reforms and the regulator’s recent review of retail life insurance advice showed the industry anything it’s that the government has the power to send traditional businesses broke by mandating remuneration. Similarly, advisers have the power to future-proof their businesses and minimise the impact of further legislative change.
By changing the nature of client conversations and the financial planning process from being product-centred to advice-centred, advisers will better represent the value they provide, reposition themselves as true professionals and be properly compensated for their time, experience and skill.
Todd Kardash is chief executive officer of Matrix Planning Solutions and ClearView Financial Advice.
