April 2019
BETTE R BUSI N ESS
The adviser
PRICING DEBATE What’s the ‘right’ way to charge for financial planning services? Brett Davidson of FP Advance gives some practical tips on how you can work out what is best for your firm – and your clients
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here’s a lot of discussion around what is the ‘right’ way to charge for Financial Planning services.
I get it. We’re at another inflection point in the development of our profession and it’s right to question everything, including how your business charges. You need to be positioning your business for where things
I know some advisers who charge 1% p.a. on a client ’s investable assets, who are doing nothing more than portfolio management. That ’s getting into outrageously expensive territor y for me
are headed in the next ten years and not where we’ve come from in the last ten. In light of that, I believe the charging conversation needs to be done in context; that is, considered in conjunction with the services being provided and the value being delivered. That sort of goes without saying, but in most of the industry commentary I see, there are lots of words written and spoken about the price of advice, but almost nothing about the other side of the ledger: what’s actually being delivered. When it comes to pricing here are a few questions to consider: • Is your service expensive if you charge 0.5% of assets under management? • Is your service expensive if you charge 1% of assets under management?
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• Is your service expensive if you charge a flat fee? Clearly the answer is, “It depends”. An awful lot of financial advisers basically do portfolio management for clients. If they were charging me 0.5% p.a. of my invested assets for that I’d think they were expensive. Most of the online investment options would fall into this category for me too; expensive for what’s being done. I know some advisers who charge 1% p.a. on a client’s investable assets, who are doing nothing more than portfolio management. That’s getting into outrageously expensive territory for me. Why is that outrageous? It is simply because it is not a very value-added task. LIFTING THE LID On the other side of the coin, if you’re a genuine Financial Planning firm, and you provide a lot more than just portfolio management, then it’s possible you are too cheap at 1% p.a. The same could apply if you charge a big fat flat fee to clients. Here are a range of services that I’ve seen and heard about during my career: • Helping a client define their life goals • Holding clients accountable to their life goals • Cashflow modelling – which probably underpins many of the other services on this list • Education planning and funding • Investment advice: • Portfolio design • Portfolio management • Behavioural finance support (i.e. stopping clients from doing dumb things at the wrong time)
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