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Traditionally the financial services sector has been almost entirely remunerated via commission, and many advisers are still grappling with the basic question of how to make the transition – even if only in their minds – from working solely on commissions to charging clients directly for advice and/or service.
Consumers perceived rightly or wrongly that financial advice was “free”, and advisers themselves reinforce this belief by advertising services as “free”. The struggle now for many advisers is how to take the “R” out of that, and establish that advice deserves a fee in the consumers mind.
There are basically 5 steps to being able to do that successfully.
In order to successfully value the advice component (in any line of work) there is the essential requirement to be able to define what it is you do that benefits the client. What precisely is your valuable contribution?
Step 1 is a fundamental element that is often the real barrier to being able to successfully charge reasonable fees for expertise. Or to put it plainly, the inability to explain easily what your expertise is, is the very thing that creates the awkwardness for many advisers.
If one can be blunt, there is little real ability to put a fee on expertise if one cannot explain what the expertise is, and how that will benefit the person paying the bill. Remember, value in a customer’s mind is pretty much as simple as “benefits minus the costs”, which is the clever way of understanding their key question: “what do I get for what I pay?”
So the first and most critical step is being able to explain simply what it is you do that warrants a fee being paid by a client, and that needs to be described in a way which makes the benefit obvious.
Once you’ve settled on that there are 4 more things that are “must do’s” in order to have the consumer pay you directly, and they are:
- You have to initiate the discussion. It cannot be avoided, and you cannot leave it to the client to ask the right questions – you must be proactive, confident of the value presented, and willing to be up-front.
- You have to be totally transparent. No trickery or magical playing with numbers. No detailed fine print that obfuscates. Provide your fees in a plain, easy-to-understand method. It is what it is.
- You have to put fees in context. Do not expect consumers to be able to work out whether your fees are reasonable compared to other choices, or how they relate to the benefits you provide to them. This element is a little different to Step 1 – which was a general positioning of why you are worth paying at all. Here, you must be able to personalize the value element for the client. Having told them the cost, you must be able to explain the benefit to them personally in order to identify the value being created.
- You have to put it in writing. Doing business on a handshake is fantastic, but to create lasting trust in a consumers mind, you must be willing to put it in writing for their safety. This takes some of the “risk” out of the equation for them and creates confidence. And of course, should there be problems in the future this is a critical element. After all, in a dispute a verbal contract is not worth the paper it’s printed on, is it?
By implementing these steps you will be able to move from the concept of providing FREE advice, to providing advice that is worth a FEE, and which meets with little resistance from worthy clients in reality.
Related: Doubts About Impartiality: Challenges in Perceiving Free and Unbiased Advice