In the last few weeks we’ve looked at the basics of getting your pricing right by charging in three places for the planning, implementation and ongoing advice/service. Whilst this covers most of the clients you work with, there are some variations and exceptions that seem to cause advisers all sorts of mental anguish.
Over the next few weeks I’ll cover some of these, and hopefully let you see that they’re not too difficult to handle!
If you are working with clients in more typical ranges (with £100,000 – £500,000 of investable assets) you don’t need to be too fancy, and any sliding scale charging system will be pretty easy to construct. For example, you might charge 3% on the first £100,000 of investable assets, 2% on the next £150,000 and 1% on anything above that.
The challenge for many firms comes when they get better as a business, and start to attract larger clients. Your first £1M client walks through the door and, understandably, you get thrown into a bit of a spin. If you currently work with £1M clients, it happens when your first £5M client walks in.
However, larger clients are not really that much different than smaller clients, except that there can be a little more complexity to their affairs which usually means more opportunity for you to add real value (in cash).
The tendency can be to quickly discount your fees away for larger clients. Don’t be too hasty! Instead do a great job focusing on what the client really wants out of life (using your great questions), and then come up with strategies that make (or save) them a lot of money (which is easier with larger clients than it is with smaller clients, in most cases). You can then charge a premium price and still have a very happy client!
all you need to get paid is enough. Not less than enough and not more than enough. Just enough.
Let’s say you meet a client with £10M (happy days). If you were to charge them 1% of assets under management for ongoing service and advice that would be £100,000 pa of fees. For that money they could probably employ a full time Financial Director, who could spend 40-50 hours a week, 48 weeks per year and could meet with fund managers, explore tax angles and so on. Now putting aside whether or not that would achieve more value than you could deliver, it might start to look interesting to a client of significant wealth. So, for £60,000 – £70,000 pa you could probably deliver a fantastic service, deliver loads of value added (via yourself and your personal network of professional contacts and/or the client’s own professional advisers), save them £30,000 – £40,000 in wages and the hassle of employing someone.Even with the considerable work involved (and it will be considerable) and the risks that managing a sizeable client entails for you as a small business (because any mistakes here are costly), £60,000 – £70,000 is probably enough to cover it. So, set your fees on that type of thinking and work back.
That is how a negotiated fee might come about with a client of this size.
I realise most advisers are not working with clients of this size, but the point I’m making remains the same, regardless of where you are in the food chain.
As you find yourself moving upwards and working with better quality clients (and trust me, that happens of its own accord as you get better as an adviser), you needn’t be too quick to discount your fees. Take a deep breath and think about the four factors that will affect how hard you price a particular job (which I covered in last weeks article):
- The size of the amount invested
- The value you have added to the client
- The value the client perceives you have added
- The time and effort it took to get the work done
This will give you some context in which to think about pricing some of your more extreme (and infrequent) larger cases…because you really do want to pick them up when they come in.
Next week I’ll look at another exception: working with younger accumulator clients.
My next BrightTALK webinar:
Why Marketing & Communications Matter…Big Time
Wednesday 5th March at 12pm.
“Everyone says they know that marketing and communications matter, but their focus on this business critical area suggests otherwise. Perhaps they get too busy, or no one person is responsible for the output, but whatever the reason it is a huge mistake. In this webinar I’ll explain just how important this aspect of running your business is, the costs of not addressing it and how to get some of the basics up and running without a great deal of fuss.”
by Brett DavidsonGoogle