Don't Sell, Help

A Dallas-based client paid a financial planner I know $3,700 for a comprehensive financial plan including retirement, investment and estate planning. One day, the client mentioned that his broker, who works for a national firm, was steamed at him for having hired the planner. The broker claimed he could have done the same planning work for the client. When my planning friend asked the client why he

A Dallas-based client paid a financial planner I know $3,700 for a comprehensive financial plan including retirement, investment and estate planning. One day, the client mentioned that his broker, who works for a national firm, was steamed at him for having hired the planner. The broker claimed he could have done the same planning work for the client. When my planning friend asked the client why he didn't use the broker, he said, “[The broker] was going to charge me $250. What on earth of value could I possibly get for $250?”

In clients' minds, your fees are a leading indicator of the value they will realize from your services. Clients expect to pay good money for good consultative services. Now I'm not suggesting you simply pump up your prices willy-nilly; I do, however, suggest that you communicate clearly the value of your services to potential clients to make certain they understand the value they will realize for their fee. One tool to do this with is pricing.

Transformation to a fee-based business is an effective way to improve pricing practices. Fundamental to this process are three steps: Mindset, Market Strategy and Methodology. Incorporating each step into your practice will help you redefine your vision — and eventually your personal portfolio, too.

Mindset: How do you envision your business?

As a fee-based planner, you will no longer be a salesperson gathering assets with an eye to the short-term sales transaction; instead, you will be an advisor who gathers clients and focuses on long-term relationships.

Think about your ideal business model. On one end of the spectrum is an independent boutique with a small business, local-marketing identity. On the other end is employment with an international brokerage or insurance company. The middle might be a planning group that's affiliated with a big, national firm — it is a group that combines the independence of an entrepreneur with access to billion-dollar resources.

Next, rethink your pricing. You will be offering value to your clients not just by implementing investment strategy but by executing investor services on four different levels: diagnosing your clients' financial situations, planning unique approaches for them, implementing their plans and then monitoring performance. Sophisticated brokers often do all of this but get paid only for implementation of investment strategy via commissions. These reps deserve to be paid more for executing their valuable services.

Plan to spend more time on a client's planning objectives than on your services and products. This can make your fee almost a foregone conclusion: The more time you spend learning about your client, the more likely he is to accept your fee — after all, you know his needs and can offer a fee that makes sense for your services. Brokers are often too quick to jump into selling products. I won't do that until I understand what the client likes and what he is looking for from me and my services.

Market Strategy: Who are your target clients?

Imagine that you could take only one existing client with you into the future; whom would you pick and why? Next, widen the group to 10 clients. What characteristics and needs do the clients you have selected have in common? What significant life events are coming up for them? Assess their problems and the solutions you can offer to determine which services and products these clients value most. For example, if they are business owners, you need to know about buy-sell agreements and executive compensation. If your clients, however, each possess $30 million in net worth, you don't need a lot of retirement software.

After a few years of your practice, you'll have developed a specialty, whether it's business owners or parents paying for college — and you'll possess the solutions those clients need. You can't be all things to all people. New clients will have more confidence in you if your other clients are similar to them.

Methodology: How do you make the switch?

When you transfer existing clients to a fee-based model, present the potentially scary move in a positive light: “We're changing our business to provide you with more services.” If necessary, offer important clients discounts to show how much you value your relationships with them.

Use your planning fee to create your target market — but don't charge too much or too little, like my Dallas client's broker did. You should be charging fees your clients would typically expect to pay for the services you render. For some perspective, according to the ICFP the median fee charged by U.S. advisors is $1,450.

Reposition yourself so clients understand the value of investing a recurring fee in you and your services. Explain that your comprehensive new services include regular checkups — just like with a doctor or dentist — to keep their financial health on track. The clients who will pay you ongoing fees for years to come will soon become your bread and butter — just like you and your services will become to them.

Writer's BIO:
Amy Leavitt is the principal of Leavitt Associates, affiliated with Sagemark Consulting/Lincoln Financial Advisors.
[email protected]

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