For most of the financial advice industry’s history, figuring out compensation has been relatively straightforward, as the commission rate that a broker received was set by the manufacturer of the products that were sold. And even as the industry moved more towards the investment management (AUM) model, compensation rates became a little less rigid, the standard fee of 1% of assets under management acted as a firm pricing anchor. However, with the shift in recent years to holistic, advice-centric approach – where advisors sell the value of their personal time and advice and can ask for any price they want – clear pricing standards have gone out the window.
In our second episode of “Kitces & Carl”, Michael Kitces and financial advisor communication guru Carl Richards sit down to discuss the question of establishing a price for your financial planning services, why many advisors feel such anxiety over setting (and sticking to) their pricing model, the ways in which advisors can communicate their value to prospects and clients to justify their price, and why, many times, problems around pricing are really the result of our own inward confidence problems.
Because the reality is that advisors offering holistic planning are essentially rudderless when it comes to knowing how much to charge for their services. For the first time we, as advisors, have to convince our clients (and ourselves) that the intangible service that we provide is worth at least the price at which it makes sense to operate as a viable business. As while value in the past was defined by the products brokers had access to, now that “value piece” is far more esoteric and relies not only on our own knowledge and expertise, but (sometimes more importantly) in our ability to communicate effectively enough that it results in positive client outcomes!
And since consumers have access to far more information than they did in the past, the odds are that, at some point, a prospective client is going to push back on your price and wonder why they should pay you more than some other advisor with a seemingly similar “comprehensive financial planning” offering who charges less… or the inexpensive, automated service from the online robo-“advisor” with a substantial advertising budget. Fortunately, though, by focusing on a niche with unique challenges and by going deeper on issues that that virtually no one else is talking to them about, advisors can have an easier time communicating the value they bring to the table.
More generally, advisors who get questions about their fees might look at their own “lead nurturing” process. Because, if a prospect has opted to sit down with you in the first place, and after uncovering their desired future state, what’s holding them back, and how you can close that gap for them, they still don’t understand why you charge what you do… then the problem might not be with your pricing, but with how you present yourself to the public in the first place.
Ultimately, the key to the pricing conversation is that you, as an advisor, have a story that you believe in around the value that you provide, and can articulate that to clients and prospects. Because once we believe in ourselves and the value that we bring, then we can set a price… and be confident that we are worth what we say. In other words, if at the end of the day you’re concerned about your pricing, be mindful of whether it’s really a problem of whether your price is appropriate for the value you provide… or if you just need to get more confident in your own value proposition in the first place.