It has been widely reported that costs for providing financial advice have risen significantly over recent years. A recent article from Rod Bertino at Business Health mentioned average ongoing fees at $3,558 per annum in the current landscape of advice.
I am seeing many practices going through the exercise of re evaluating their cost to serve with current overheads factored in and a reasonable profit margin. In some cases there are considerable gaps between current fees charged and what they should be based on a up to date cost to serve analysis. I observed this seems the case in particular for some mature businesses with long term clients. Though the issue has arisen also when looking at making acquisitions involving clients with annual fees.
The challenge is having to work on presenting fee increases to long term clients.
The issue of the value in ongoing advice needs to be addressed as part of the overall fee review project. This is where the illustration of the iceberg comes in.
The Iceberg Principle or Iceberg Theory is a theory that suggests that we cannot see or detect most of a situation’s data. The theory, which we also call the ‘Theory of Omission‘ or ‘Iceberg Model,’ applies to systems and problems too. As with an iceberg, only its tip is visible, while the bulk of it is below the water’s surface, i.e., invisible.
It is interesting to look at some cost to serve analysis and see the small number of hours client facing during a year vs the overall hours spent providing services to clients.
In some examples I have viewed recently 10% of the total hours served on a client’s work was face to face. It is clear there are many tasks that clients do not see over the course of a year yet are providing value.
The list of items that are below the Iceberg water line is quite extensive including the following: review of goals & the implications, Record of Advice, supporting documentation and facilitate the implementation of any additional advice provided, review portfolio management, review debt and insurance, Centrelink, effect of legislation changes and administration.
When presented with all of the information clients can make their own decision regarding what price they are prepared to pay for ongoing advice and the peace of mind it brings. I have many stories where clients have surprised their financial planner with the determination shown to maintain an ongoing relationship at a higher price. I believe some of the issue lies with financial planners lacking confidence in their value and unable to appropriately position their fees.
It is important that you work with a licensee who understands these issues and may provide appropriate support.