Since the introduction of various pieces of legislation affecting the advice industry, there has been increased interest in being able to convince clients about the value delivered in return for the commissions, fees and charges paid for advice.
As this definition indicates, value for money is in the eye of the buyer not the seller, but the seller (you) nonetheless has to be able to clearly articulate and influence the buyer’s perception of the value being delivered.
In order to help you do this, we must first go back to basics.
The real story of how you create and deliver value for your clients is intrinsically embedded in your practice’s business model. A business model is “… a story about how an organisation creates, delivers and captures value”. (Saul Kaplan, The Business Model Innovation Factory).
You create value for your clients through your unique value proposition, which represents the intersection point of your clients’ problems and your solutions. The cost of delivering this value is described by your cost structure and some of this value is captured back through your revenue streams (commissions, fees and charges). The first key point to realise is that value in your business model is always defined with respect to your clients.
To establish a business model that works for your practice, the following two conditions must be met:
1. CREATED VALUE (CLIENT EXPECTATION) > CAPTURED VALUE (REVENUE)
This is the value equation that drives your business model’s unique value proposition. You need to create more value for your clients than you capture back. If your clients don’t get back more value (even perceived) than they pay for your service or product, they will not have enough incentive to use your services and your business model will not work.
2. CAPTURED VALUE (REVENUE) > = COST (VALUE DELIVERY)
This is the monetisation equation that drives sustainability and profits in your practice’s business model. You need to capture back at least as much value as it costs you to deliver this value or your business model also falls apart.
A for-profit business model aims to maximise the difference between captured value and the cost of delivering value.
Now let’s put these two equations together.
CREATED VALUE (CLIENT EXPECTATION) > CAPTURED VALUE (REVENUE) > = COST (VALUE DELIVERY)
As you can see, every practice needs to create client value and leave clients better off than where they started.
It follows that if you truly understand your practice’s unique value proposition, you will also understand how you are creating value for your clients, so ‘selling’ them on this value is down to how you communicate the value.
Here are six core values, first articulated in this post, that you may be providing your clients, together with some suggestions about how you can communicate the value delivered.
Where practices help bring order to their clients’ financial life, by assisting them get their financial house in order (at both the macro level of insurance, superannuation, investments, estate, taxes, etc and also the micro level of personal or household cash flow.
Communicating value may entail preparing a checklist of all the things you have reviewed with each client in order to get them better organised and reviewing that checklist with them. It could also entail the preparation of a before and after scenario where you are able to compare the tangible financial outcomes associated with the risk advice you have provided versus the status quo e.g. the quantum of anticipated financial benefits that would arise as a result of your advice compared to the lower benefits arising without your advice.
Where practices help their clients follow through on financial commitments, by working with them to prioritise their goals, showing them the steps they need to take and regularly reviewing their progress towards achieving them.
Communicating value can entail documenting the review meetings and comparing the actual results achieved to the goals that had been mutually agreed in the first place.
Where practices bring insight from the outside to help their clients avoid emotionally driven decisions concerning important money matters, by being available to consult with them at key moments of decision-making, doing the research necessary to ensure they have all the information, and managing and disclosing any of their own potential conflicts of interest.
While there is a clear legal obligation to always act in your client’s best interest, communicating how you bring objectivity to the table is a valid way to prove value for money. This may be done by describing the research process you have been through (including how long it has taken) and reminding them of the number of times you made yourself available for consultation.
Where practices work with their clients to anticipate their life transitions and be financially prepared for them, by regularly assessing any potential life transitions that might be coming, and creating the action plan necessary to address and manage them ahead of time.
Communicating value for money may be as simple as reminding your clients of the comprehensive fact find you completed upfront and that was subsequently updated during the review process.
Where practices explore what specific knowledge their clients will need to succeed in their situation, by first thoroughly understanding their circumstances and providing the necessary resources to facilitate their decisions, and explaining the options and risks associated with each choice.
Communicating value may be something like preparing a reading list or details of online training, and resources the practice believes will help educate each client and providing this to the client to action and later validating that each client has accessed the resources. It may also consist of providing access to online educational resources owned by the practice and regularly reminding clients how they can access them.
Where practices attempt to help their clients achieve the best life possible by working in concert with them to make this possible, by taking the time to clearly understand each client’s background, philosophy, needs and objectives, and working collaboratively with them, offering full transparency along the way about costs and compensation.
While much of this is already embedded in legal obligations and documentary requirements, it doesn’t hurt to remind your clients of the processes involved to get to partnership-ready status and to document known financial outcomes such as the value of protection provided to family and loved ones, taxes saved, additional returns generated, increased retirement savings realised, etc.
Your clients are more likely to question value for money now than at any previous time so it’s critical to the sustainability and success of your practice that you are able to convince clients that you are delivering value for money. Using some or all of the core values described above will help you achieve this outcome.
Ray McHale is the founder and chief executive of Valuiza
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