Average client fees are a poor indicator of profitability and success as higher fees don’t guarantee increased margins, according to Peloton Partners principal Rob Jones.
“I don’t believe in average client fees and who cares what an average client fee is anyway,” Jones said at the My Dealer Services conference in Sydney last week.
Jones said he has a firm in his database with an average client fee of $38,000 and another with an average fee of
“The one with $3300 is more profitable than the one with $38,000, so [that’s] nothing to do with the average fee,” Jones said.
“There are no two firms in this room that are the same…and there’s no two clients that are the same.”
The number of advisers in the business, client complexity and the type of services being provided are greater factors which can cause the discrepancy.
Jones also criticised advice firms for being “reactive” in changing fees, suddenly raising and reducing fees following events such as the Hayne royal commission in 2019.
Historically, practices have adopted the problematic approach of “jump, static, jump” in response to changing fees.
“With everything we’ve done in this great profession, the one thing we have not done is invest a bit of science, time and energy into what goes into how we charge our clients,” Jones said.
Instead of changing fees to adapt to the individual client, advisers take the path of least resistance and “second-guess” clients.
Jones said 92 per cent of clients are mispriced in Australia, based on a sample of 10,300, which is an increase from the 85 per cent he told Professional Planner back in 2021 but around the same finding he reported in 2022.
Jones remains steadfast in his conviction that advisers are underselling themselves and their services and said the communication of the value of advice needs to improve.
“The impact of the people in this room on the clients they service is profound,” Jones told the conference.
“It is long lasting. It is helping them achieve financial wellness [and], in some cases, financial security. There is a massive amount of latent value sitting in most firms.”
He recommended communicating to clients advice is “an investment first, a cost second”, which he said he understands himself as a consumer of advice.
He also said almost all clients who leave do not do so because of the cost of advice.
“They’ll leave because of a perception of a lack of value, or if you’re not convicted enough and confident enough in what you’re doing that gives them [the] presence of mind to say, I need this relationship. They’ll leave that – they will not leave because of price.”
