Pricing the value of advice [Best Practices]

Putting a price on the value of advice can be difficult for advisers, as practices often face the issue of returning a profit that is not high enough to cover increased cost and regulatory burdens. 

Through the Lumiant experience, the value proposition delivered by advisers is enhanced and therefore clients will likely be happy to pay a higher price. We want you to capitalise on the enhanced quality of your offering by lifting your profits and at the same time, ensuring your clients receive value for money. This can be an extremely challenging area for advisers, so we have put together suggestions on how best to balance the right fee for your clients and right return for your business, whilst adhering to your Code of Ethics and improving the quality of life for your clients. 

Whilst you may not choose to alter the style and timing of your fee structure when implementing Lumiant into your practice, we want the bare minimum takeaway to be for you to reassess the quantum of your fees and the amounts you charge in order to obtain a profitable return on the cost of delivering your services.

Through deep expertise and evidence-based research, Elixir Consulting has provided an informative guide to pricing options to work in conjunction with your Lumiant client engagement. 

Option One – Initial Engagement Fee, followed by an Annual fee (paid in advance or monthly instalments):

Within this pricing model there are variations in the quantum of engagement fees, being: 

• Engagement Fee includes the design and implementation of the clients’ financial plan, and then the annual fee includes the first year’s ongoing service, or
• Engagement Fee includes the advice (Financial Plan) only, and the Annual fee includes the implementation of the advice throughout the first year
• Engagement Fee includes a summary of the clients’ full position (their Lumiant Best Life Plan), and the Annual fee includes the Financial plan and implementation throughout the first year

Regardless of your preference of what is included in the engagement fee, a common flaw that is witnessed with this model is the delay in cash flow if a fee isn’t received until advice has been implemented. To rectify this issue, it is recommended to charge your clients a deposit upon engagement with the balance payable upon completion of the work or dividing the fee and ducting on a monthly basis if the initial advice spans over a series of months. 

Option Two – Annual Fee, paid in monthly instalments from the time the client first engages your services: 

The advantages to this pricing model are that clients don’t see a large upfront fee as a hurdle to overcome as the monthly fee may appear more accessible; the value provided becomes apparent to clients as the monthly fees accumulate. As well as this, funds are received as soon as work commences and there isn’t the issue of two fee conversations when discussing the Engagement Fee and the Annual Fee. 

We don’t believe there is a traditionally right or wrong option to select, rather we want you to choose a model that will align with your views and values, as well as those of your clients.

Timing of your fee:

Lumiant helps you to scope your fee with a high degree of accuracy as at the end of your first meeting you will have sufficient information from the Your Life Survey, Your Values and Goals discussion. This will allow you to get a good understanding of your clients’ needs and complexities and allow you to estimate the scope of your advice quickly to ultimately quote your fee and sign the client on after the first meeting. 

Determining your fee:

Lumiant helps to determine the elements of complexity that will add to your minimum fees through the Your Life and Values discussions. Providing the framework and process to capture deeper and more personal information, Lumiant  uncovers  a client's whole of life complexity, scoping a wider strategic landscape.

Repricing existing clients: 

You will be able to charge more for your advice through the Lumiant experience via your increased value offering, and clients will be happy to pay more. Just under half of the participants proved that they can lift existing client fees quite significantly (on average 20%) and 69% of them found over 95% of their clients happily accepted their fee increase. 

At the very least, you will want to lift your fees by the marked-up price of Lumiant. For example, if you’re aiming for a 40% profit margin, you will lift client fees by $1000. 

So, what’s possible?

The actual numbers charged will depend on your business and your client demographic, but Lumiant believes that you should be able to average no less than $5000 per annum, or closer to $6000 as your minimum annual fee. This will of course vary with clients that have greater financial capacity and complexity. 

Most importantly, an implementation action for every practice should be to revisit your pricing model, consider the structure and reflect on the amounts you are charging. 

Interested in learning more about how to price advice and show your value?

Recently Lumiant and Peloton Partners presented a webinar where participants can learn how to calculate the cost of advice and hear lessons learned from going through a pricing change. CEO of Peloton Partners, Rob Jones, discusses a layered multi-factor approach to pricing through considering intangible value, services and advice, and structural complexity and additional value-add.

To watch the webinar – click here. 

References: https://elixirconsulting.com.au/pricing-research-for-financial-advisers/