How to take the "R" out of FREE

 by Tony Vidler.

Traditionally the financial services sector has been almost entirely remunerated via commission, and many advisers are now grappling with the basic question of "how" to make the transition - even if only in their minds - from working solely on commissions to charging clients directly for advice and/or service.  

Consumers perceived rightly or wrongly that financial advice was "free", and the struggle now is how to take the "R" out of that, and establish that advice deserves a fee.  There are basically just 5 steps to being able to do that successfully.

In order to successfully value the advice component (in any line of work) there is the essential requirement to be able to define what it is you do that benefits the client. What precisely is your valuable contribution?  

 

Step 1 is a fundamental element that is often the real barrier to being able to successfully charge reasonable fees for expertise.  Or to put it plainly, the inability to explain easily what your expertise is, is the very thing that creates the awkwardness for many advisers.  

If one can be blunt, there is little real ability to put a fee on expertise if one cannot explain what the expertise is, and how that will benefit the person paying the bill.  Remember, value in a customer's mind is pretty much as simple as "benefits minus the costs", which is the clever way of understanding their key question: "what do I get for what I pay?"

So the first and most critical step is being able to explain simply what it is you do that warrants a fee being paid by a client.

Moving on to the actual steps of implementing fee's though, there are 4 more things that are "must do's":

• You have to initiate the discussion.  It cannot be avoided, and you cannot leave it to the client to ask the right questions - you must be proactive, confident of the value presented, and willing to be up-front.

•  You have to be totally transparent.  No trickery or magical playing with numbers.  No detailed fine print that obfuscates.  Provide your fees in a plain, easy-to-understand method.

• You have to put fees in context. Do not expect consumers to be able to work out whether your fees are reasonable compared to other choices, or how they relate to the benefits you provide to them.  This element is a little different to Step 1 - which was a general positioning of why you are worth paying at all.  Here, you must be able to personalize the value element for the client.  Having told them the cost, you must be able to explain the benefit to them in order to identify the value being created.

• You have to put it in writing.  Doing business on a handshake is fantastic, but to create lasting trust in a consumers mind, you must be willing to put it in writing for their safety.  This takes some of the "risk" out of the equation for them.  And of course, should there be problems in the future this is a critical element.  After all, in a dispute a verbal contract is not worth the paper it's printed on, is it?

By implementing these steps you will be able to move from the concept of providing FREE advice, to providing advice that is worth a FEE. 


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When is the best time for honesty?

by Tony Vidler.

I have found myself talking to several advisers recently about "disclosure" - not a scintillating topic, and one which I'd prefer to not talk about. There are many things far more interesting in life on which you can spend your time.

The disclosure talk has arisen though because it is still apparently confusing, and advisers continue to ask questions on what they actually have to do.  One thing I am sure about though, is it is not a good strategy to try and find a clever line that is just on the "right" side of the law (you hope), and then try to make the case later on that you are an honest person.  

Honesty in the advice relationship is there right at the beginning, or it is never there at all.

A quick recap on adviser disclosure, as a principle here in New Zealand.  Full disclosure applies to Authorised Financial Advisers only, and most are apparently meeting their requirements with a 2-tiered system.  They provide a Primary Disclosure Statement when first meeting with a client, which details qualifications and licensing status, and provides general information on how they might be remunerated and what conflicts of interest might arise.  Following the specific advice being determined for a client, they then provide their Secondary Disclosure Statement.  This secondary statement is where the bulk of the confusion lies, and where there is a tendency for some to still get it wrong I feel.

The rules are actually pretty straightforward.  The Secondary Disclosure Statement must (and these are highlighted pertinent points only): 

•  "set out the prescribed information clearly, concisely, and in a manner likely to bring the information to the attention of the client".  (surely there is no confusion as to what this means?)
• if charging a fee, then the adviser must specify the basis on which the fee will be charged, a reasonable estimate of what the fee is, and when the client must pay.
• provide details of financial interests and relationships that "a reasonable client would find reasonably likely to materially influence the adviser"
• provide "details of all remuneration....that the adviser.....has received, or will or may receive

Further guidance is provided by the regulator:  "the intent of the secondary disclosure document is to describe the specific nature.....you should do this clearly and concisely and in a manner that brings the required information to the attention of your client".

So with such abundance (and I think clear) guidance why would an adviser have a secondary disclosure statement that is generic, templated and holistic information that clearly is aimed at being provided en masse to anyone they deal with?

For example, statements provided following specific advice to a specific client say things like "I may charge you a fee, or I may charge you a commission.  There may be bonuses, and I might receive incentives.  There might be conflicts of interest, but maybe not....."

How would an adviser, let alone a reasonable client find this sort of statement to clear, concise and specific?  Clearly it isn't any of those things - it is not clear what is actually being charged; it is not clear what material influences are actually at work here in this piece of advice; it does not specifically draw the client's attention to conflicts of interest.

Perhaps it is because some advisers are confused over what their obligations are.  Perhaps it is because some advisers feel uncomfortable spelling out their cost or remuneration.

Whatever the reason for not providing specific disclosure at the appropriate time, I am reasonably sure such behaviour will be severely frowned upon by regulators.  It is also very highly likely that any disputes resolution or legal intervention in the future would place some weight upon the fact that the disclosure was not of an appropriate standard (perhaps bordering on misleading?  oooh, there's a nasty thought....).  It will be difficult for an adviser to make the case at that junction that they are in fact an honest person who was operating in a professionally transparent manner.

Most importantly though, how can it build trust in the adviser-client relationship if one is not willing to be direct, specific and transparent from the beginning?

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Eliminate tyre kickers, and value expertise.

 by Tony Vidler.

One of the most common dilemma's for financial advisers is how to make a transition from purely commission-based remuneration to generating fee-paying work.  

It is more simple than you think - though not necessarily a swift process. 

There are several critical decision points for the adviser to work through when considering how to do it.   Most importantly though, you need a framework or process to explain your methodology to clients in a way that makes sense to them, and gives them confidence that your business approach is in their best interests.  I shall explain how to do that in detail shortly.

Before moving to the process and client conversation in detail, let's review the decisions you have to make to transition to fee generation in your practice.  The first is to decide, and commit, to the process of valuing yourself appropriately.  For many advisers this represents a paradigm shift, and having to move from the mindset of "competing for every potential client" to "choosing who to work with".   We should not under-estimate how big a mindset shift that is either...it is the critical element, and major step in business thinking.

It is a given that you have to establish an appropriate fee level, though some advisers seemingly struggle with this.  Doing so though is actually just a simple mathematical process of determining what your own cost of time is, together with your desired income rate, and allowing for expected downtime (or non-income generating work you have to do).  Having said that, there is still the need (regardless of your desired income level for example) to take into consideration other market forces - what the usual rate is in your field, consumers expectations, particular expertise you may have or services you might provide, and so on.

Next there is a decision as to who you will be trying to move to a fee-based relationship.  All existing clients?  Just some of them?  Only new prospects you see?  There is no right or wrong answer, though there are clearly some risks in trying to change the existing adviser/client remuneration basis, so careful thought is needed.  Let's assume though for this example that you have decided to maintain existing client relationships & remuneration agreements as they stand, and you are looking at how to bring in fee's for new client work in the future.  A gradual transition to fee generation in other words for a purely commission-based adviser.

The most simple method of doing so is to consider your advisory work as a "project".  Or rather, a potential series of projects.

The conventional best-practice advice theory holds that we undertake a 6-step process with every client, every time.  The theory holds true IF a client actually wants that - and some don't.  But even if the client does want the full process of engagement, data collection, analysis, recommendation, implementation and monitoring/review, then there is no reason why this cannot be broken down into different projects with different client choices at different stages.  Remember, clients like some choices - and committing to the entire 6-step process up-front is sometimes a barrier to gaining a new client.  If you can give them some choices and remove some barriers, that has to be better for everyone.

Moving to a fee-generation model can be as simple as having a conversation with prospects that essentially goes like this (though this is a VERY abbreviated version):

"there are three parts to engaging an adviser that you might consider:

1.  Planning

2.  Implementing

3. Reviewing

The first part of the project is to provide a PLAN.  During this stage I gather all the pertinent facts, analyse the possible solutions, and provide you with a recommended course of action.  That is all done on an agreed fee basis, and on completion you have a plan which you are free to do as you wish with.  You can ignore it, or implement it.  If you decide to follow the advice (which we call implementation) then you are free to take that to another adviser, or buy online, or direct from a product provider, or you can talk to me about implementing it for you. It is your choice.  My role as the adviser here is to provide you with the best objective advice I can, so you are simply paying for my time and expertise in providing you with good advice.  It is like having an architect draw up plans for a house - you don't have to commit to building the house with him, but drawing up the plans is a significant piece of work that you must pay him for.

If you decide you do wish to IMPLEMENT any recommendations from the plan with me, then that is fine.  I will do that on a commission and/or fee basis (insert you own preference here).  That means I will do (explain in detail the work you will do for them, showing what a headache it is for them to do themselves of course) to put any recommendations in place and ensure you have as few hassles or headaches as possible - my team & I will take care of it for you.  This part is like appointing the building project manager if you decide to build the house the architect drew up - and it is you choice who you appoint to do that.

Once any recommendations are put in place, it is your choice as to whether you wish to work with me on an ongoing basis.  That is what we call the "REVIEW" phase - and it means that each year (?) we will review the previous recommendations and (explain in detail your ongoing value and advice process).  As a client you will also get (explain in detail your service proposition) each year.  We charge clients commission/fee for this ongoing service and access to advice reviews.  Once the house is built you can decide on who services and looks after everything you put in it"

Now this has been a quick gallop through the positioning talk - but sufficient to convey the principle of it hopefully.

The key benefits of adopting such an approach is that it actually positions the adviser to be able to give good honest objective advice at the front end - and be valued and compensated accordingly.  The client has clear choices as to how much work they wish to engage the adviser to do, or not do.  The client has choices about how and where to implement any advice.  The adviser can work fee-paying work easily into their business model with new clients.  

Perhaps most importantly though, it is a wonderful screen for eliminating the tyre-kickers who were never going to buy the car.  The good adviser has expertise and knowledge that is valuable, and that should be valued by both the adviser and the prospective client.  If a prospective client does not value objective advice sufficiently to pay for it, then don't work with them.  They tend to be consumers who purchase based on price, and no price is ever low enough.  Those who come to you for low prices, will leave you for lower prices.

Value yourself appropriately, and then position yourself accordingly.  In doing so you will begin the transition to generating fees and moving away from purely commission (at risk remuneration!) only work.


To see (or download) a graphic explaining this process to clients, click on

http://www.strictlybiz.co.nz/uploads/tools%20docs/Building%20an%20Advice%20Business%20-%20edited.pdf

or go to
http://www.strictlybiz.co.nz/tools#fees


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Why your "FREE" service is a barrier to business

by Tony Vidler.

Most advisers at some point offer initial meetings, or consultations with clients, for "free".

The fundamental reason this just doesn't cut it with consumers is that they don't believe the advertiser.  It simply isn't true, and that will stop business coming your way.

Even at the institutional end of town we find businesses advertising their services as "free" to prospective customers, and most advisory practices fall into the trap at some point.

The first rule of professional marketing should surely be "tell the truth", in which case we should be advertising the initial-no-obligation-meeting as being "at my cost".

Nothing we do in business is free, and consumers do not believe for a moment that they are getting anything from us for nothing.  If it doesn't have an obvious price then there will be a hidden one, right?  If that is the case then the very first thing you have created with your advertising is distrust on the part of the potential customer - and that is a barrier to doing business.

It makes no sense to put a trust barrier up to begin with, and particularly not one that is so patently transparent.  All the initial effort by the adviser in any customer relationship is focussed on establishing rapport, trust and credibility.  Yet advertising yourself as free undermines the entire process.

Be honest in your marketing.  While being honest lay the foundations for a truly professional relationship that is based upon trust from the outset, and which clearly values your expertise.  There is a harsh conclusion for the advisers sold on hiding behind "free" - if the adviser cannot place value upon their expertise right up front, why should a consumer?

So instead of telling the world that your expertise of services are "free" at the outset tell it how it really is.  As a professional adviser you provide no-obligation (on either party) initial meetings "at my cost".  It isn't free.  Using my office, is at my cost.  If I come to you, that is at my cost.  Sending you the pre-meeting material and disclosure information?  That is at my cost too.

It is not at "no cost".

Offering information and providing the time and resources to potential customers at the outset is a marketing expense to the advisers business.   Why try to hide that?

Give yourself the right professional positioning at the beginning of a potential engagement.  It makes perfect sense to offer an introductory meeting at no cost to the potential customer.  A no-obligation meeting to begin with makes as much sense for the adviser as the consumer.  There are some consumers you just cannot, or don't want to, help.

There are very few potential customers who will ever truly value you and your expertise if the business relationship cannot begin with you valuing yourself.  Advertising yourself for free will prevent the type of business you want coming your way.



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