This week I take a look at the interesting area of pricing your services. Everyone has an opinion on this. Read on to find out mine.
There’s so much talk about pricing and new ways to do it.
While it’s beholden on everyone to periodically review their charging policy, it’s very easy to find yourself going around in circles.
- The detail-oriented people want to measure the time every job takes and create complicated spreadsheets to accurately price every single client.
- I’ve been told by accountants and lawyers that the only professional way to charge is for time.
- Some thought leaders feel that flat fees are the only way to go in the modern world, and that ad valorem or percentage-based fees are just plain wrong.
I don’t blame you.
Is pricing actually this tricky? Or is it just that people are scared of getting this hugely important part of their business wrong?
The Arguments For Flat Fees
I know that Alan Smith has been beating the flat fee drum for quite a while now. I’m a huge Alan Smith fan, so if you are contemplating the flat fee approach, he’s probably a good role model.
My Australian consulting friend and colleague, Jim Stackpool, has been a fan of flat fee charging for longer than I can remember, and he also makes an excellent case.
However, the best argument I heard recently came from an adviser in his 40’s who is on my Uncover Your Business Potential course. When we discussed pricing, he said, “The bottom line for me, is that after spending quite a bit of time at the first meeting helping the client see how important financial planning is, it feels all wrong to then give them a charging model based on how much money they have to invest.”
I get it. That sums it up nicely for me.
Yet having grown up in the 1% pricing model era, I’m also very comfortable charging an asset based fee and then demonstrating to clients that I’m worth it.
It’s Horses For Courses
What I’ve heard around the traps, is that Alan Smith’s explanation of the benefits of flat fees is really resonating with prospective clients. His firm are picking up lots of new work off the back of their fee approach. That’s awesome.
Another leading firm, which I won’t name here, also work with high-net-worth clients, many of them in the £3M – £5M of investable assets range. They put the idea of moving to flat fees to their client advisory board, a group stacked with their biggest and best clients. The advisory board was unequivocal; they wanted to stay with the percentage- based charging system.
Mmm. What does this mean?
For me it means that what is right and spectacularly successful for one firm, may not be right and lead to the same results for another. That’s the tricky bit.
If you feel strongly that one fee charging method is better than another, then I recommend you run with it. You have to believe in what you do, deep in your soul.
However, if you don’t have a deeply held conviction about one approach over the other, you could do a lot worse than look at it from your clients’ point of view.
I attended an excellent presentation on pricing from Matthew Jackson of Simon Kucher and Partners at the Insiders Forum Conference in September 2018. I’m going to paraphrase what I felt was the main conclusion. For your ‘at-retirement’ or ‘in-retirement’ clients, the bundled pricing model, that is, the 1% of assets under management model, works fine. Where it doesn’t work so well, is for the next group of clients coming through; the accumulation clients in their 40s, or the Millenials, aged between 23 and 37 at the time of writing in 2019.
The best way to approach your pricing strategy is to think about the different client segments you serve, and to create a package of services and a pricing approach that is fair for each segment.
Clearly this might involve different pricing strategies for different segments.
Fiscal Fitness Clubs of America
Here is a great example of a business that has taken a completely novel approach to pricing because of whom they have decided to serve.
Fiscal Fitness Clubs of America was developed by Carol Craigie, an ex Director of Financial Planning at JP Morgan, Wells Fargo and other US banks.
While working for some of these major brands, she tried to get them to develop Financial Planning offers for middle Americans, but to no avail. So she created Fiscal Fitness Clubs.
Just like a regular fitness club, you join and then learn in groups of 10 to 15, delivered online. Topics taught include how to do all sorts of financial things, like budgeting, Wills, comparing insurance, paying off credit card debt, and not building new debt etc.
On the calls the Financial Coaches will inject some humour into money and make it relatable by talking openly about silly things they themselves have done in the past . Members can then open up and share their stories and learn from each other, taking the shame out of the whole process. You’ve got to love that approach.
It costs $59 per month, or $45 per month if you join with a friend.
Their goal is to become the Weight Watchers of finance.
The Bottom Line
When it comes to pricing, rest assured you don’t need to look like everyone else, especially if you are not serving the same clients.
What you need is a fair approach to pricing that works for you and your clients.
Let me know how you go.
|Here are two interesting articles on the topic of pricing. |
– If you want to see 8 variations of pricing strategies for advisory firms, then check out this article that quotes Simon Kucher and Partners as the source.
– Here’s another great piece from Michael Kitces, that features Alan Moore of XY Planning Network, explaining the variations and nuances that you can apply to your pricing strategy.