Professionals serve the community, and that means charging fees that barely cover expenses, right?
Wrong.
Financial advisers are ethically obligated to charge fees that uphold:
– Best interest duty (and Standard 2 of the Code of Ethics).
– The value of diligence (from the Code of Ethics).
This means financial advisers are ethically obliged to charge fees which provide their clients with long-term relationships and to run efficient practices to stay in business for the long term.
Let’s unpack this.
Best interest duty and Standard 2 of the Code of Ethics
Is it in our client’s best interest to charge no or low fees? Sure, in the short term. We can probably stay in business for a couple of months doing that.
But in the long term?
That client will be orphaned if we go out of business.
If we start with the assumption that financial advice benefits clients (which it does), then it is in the client’s best interest to be able to get long-term positive impact from our advice and relationship.
This means that in order to act in our client’s best interests, we need to charge fees which keep us in business. Given the regulatory risks (cough cough) and other risks all business owners face, this means charging fees which deliver healthy profit margin without stressing out our team.
Further, our clients benefit not only financially from our advice, but they get peace of mind knowing that a competent and caring professional is in charge. By charging appropriate fees we are communicating to our clients that we are a trusted professional, that we are skilled, that we are experienced, and that we are worth it.
It can be confronting, but the prices you charge are part of your marketing. They need to be developed in accordance with the rest of your brand so your clients can get that peace of mind.
Everything we do, including pricing, needs to be in our client’s best interest.
Value of diligence
This is my favourite value. (Do you have a favourite value?)
It’s my favourite value because it combines two of my passions: epic advice + business efficiency
The value of diligence talks about the advice process within the context of your obligation to run an efficient practice.
In my opinion, this means that the value of diligence requires that you:
– Clean up your business processes so you have the capacity to help more clients (at potentially lower fees).
– Build your advice processes so they are streamlined for efficiency.
– Develop a complete pricing analysis for each team member and each service offered.
– Build out a service offering so that you can help every possible Australian in some way (even if it means having a $1 e-book, a $99 simple course, a $1,299 complex course, coaching, on-demand meetings etc).
– Learn how to price the value you deliver.
– Review your pricing in a structured way at least every year.
Now can you see why the value of diligence is my favourite value? It’s inspiring – it wants us to be not only epic professionals but efficient business leaders also!
This is all tempered with Standard 7 of the Code of Ethics which requires fees are fair, reasonable, and value for money, which is part of the broader discussion on the ethical pricing of advice.
Dr Katherine Hunt, researcher and speaker
Pricing should not be an issue once we have severed the advice/product nexus.
Supposedly we are now entitled to call ourselves professionals. We must be the only professionals who have government imposed regulations on what we can charge in terms of advice and implementation fees. Doctors can charge what they like and it’s up to the patient to accept the 85% Medicare rebate on the schedule fee, not challenge the actual fee charged by the specialist. Out-of-pocket medical expenses kill people quicker than incurable illnesses, metaphorically speaking.
Your statement “This means financial advisers are ethically obliged to charge fees which provide their clients with long-term relationships and to run efficient practices to stay in business for the long term ” highlights a couple of interesting questions. Many clients, particularly those seeking risk advice, are not looking for long-term relationships, instead seeking transactional advice. That’s all they want! But I do agree that the fee has to be sufficient and business practices efficient to enable advisers to stay in the business for the long-term i.e. be around to ensure the claim is paid.
But I really object to the lawyers in ASIC sticking their nose into the level of fees I can charge. At the end of the day the market will decide. Even practising lawyers know that. It’s obvious to me as a risk adviser that mum and dad clients are extremely resistant to advice fees over $1200 for risk only advice.
I get it that investment advisers can come up with a flat fee based on their anticipation of the level of service and advice to be provided after the clients fact find. But risk advice is very unpredictable. Clients can forget to disclose past medical history or provide dodgy descriptions of their actual duties. There GPs can be resistant to dealing with insurance companies or UHG. All of that takes time and it’s totally unpredictable and even experienced advisers still get caught. And a per our fee is not acceptable to any client.
I suspect that we will continue to see current practices expand where so-called “holistic ” advisers hide the reality of their risk advice fees in amongst their overall fee package for both investment advice, risk advice and implementation fees. To me that’s never been an honest approach but it seems to be de rigueur
As to an appropriate methodology based on accounting principles as promulgated by some, well I believe it will never work for risk only advice.
I totally agree Bill.
We live in a free market economy (apparently) where the value of the advice and service delivered will be determined by the client.
You charge significant fees and deliver meaningful, important and technically accurate and professional advice in the clients best interest that satisfies their objectives and needs and educates them, informs them and leaves them in a better position before seeking that advice and represent the experience, education, knowledge and professionalism you deliver to their position, the level of fee charged has absolutely nothing to do with the regulator or legislation whatsoever.
The value is determined by the payer.
If they determine you have not delivered value, they will either challenge or question the fee.
However, as this will be clearly set out at the commencement of the advice process and signed off, the advicxe better be as good as it gets and watertight.
If you promote yourself as the best at what you do and charge accordingly, make damn sure you deliver and you can justify the higher fee schedule compared to the people that are pretenders.
Do it right and get paid what you are worth.