April 22, 2019

Perceived Value Matters: Charging for Financial Plans

I recently read an industry article titled “How Much Does A (Comprehensive) Financial Plan Cost?” As the title suggests, the author is debating not only how much a plan should cost but also asks, how should payments be received or charged, i.e. “fee for service," hourly charge, monthly subscription and so on.

As I read the article it made me think back to my time with a past financial institution where the question was once asked of us in management, “How much should we charge our clients for financial plans?”

Through much discussion and debate, it was decided that we as a firm would not charge clients a fee for financial plans, rather, we would define it as a valued added feature of being a “special client” of the firm. The intended effect was to increase the amount of planning cases we had for the firm as well as potentially gather more of the client’s total assets. Our intention was to be the go-to professionals for future business and advice.

While good in theory, we soon came to realize that not charging, or being known as the cheap place for financial plans and financial guidance, many times worked against us in our efforts to do more for our clients and also hindered us from uncovering more business in the process.

Many believed that the “Value Add,” so to speak, of offering free/discounted financial planning would entice our best clients to work with us and leverage our financial guidance. The firm also believed that because our competitors were charging for financial plans and that not charging would set us apart from our peers and further strengthen our relationships with our best clients, an outlier, of sorts, from our competition.

Ironically it did, just not in the manner in which we were hoping to accomplish. As we eventually found out free, or the idea of discounting for that matter, is not always a good word to be associated with as a professional in your field.
Why’s that? I hope to answer with the following observations.

  • The Idea Of “Free” Or Even A Discounted Charge And What Comes Along For The Ride

Like many other things that are free or discounted, clients are inclined to perceive that the plan itself had little intrinsic value or that there may be a catch of some sort. And, if it does have some sort of value, will the quality of the plan and advice be sub-par, as opposed to their peers who are paying for plans at similar firms. When your peers are charging for financial planning, the question becomes, why aren’t you charging or why is it so cheap?

  • Value And Validation Of Your Services

Not charging or discounting also devalues the process and the time it takes to complete a plan. We are holding ourselves out to clients as professionals but we are not charging what our services are worth? Simply put, it promotes a client to think “if they don’t charge for their time and knowledge, then it’s probably not that good."

I relate this to the phrase “a court appointed attorney will be assigned to you if you cannot afford one." Good luck with that. As many of you probably know, a good attorney doesn’t come cheap but can potentially make all the difference in the world.

  • Lastly, Client Buy In

One of our biggest frustrations was the fact that clients would sign a commitment letter agreeing to do the financial plan. However, when it came time to gather info and start the process it became apparent that they were really not that serious about it. As many of you already know, the planning process takes a significant amount of time and commitment from both parties. Information has to be gathered, detailed discussions have to be had about wants, needs and goals, and finally the plan has to be reviewed and implemented.

Unfortunately, without enough of an investment in the process, the client has no “skin” in the game, so to speak. Without a retainer, there’s no sense of urgency and typically no real commitment to the process. This will have the side effect of you as the advisor typically having to “push” clients into the process, which is never the way you would want it to happen.

Finally, as the author of the article states, “‘What should a comprehensive financial plan cost’ truly is in the eyes of the beholder." As such, I agree with the author and believe that what you choose to do as an advisor is what works best for your model. Maybe your target market needs to have free or a discounted rate for plans. However, you will eventually find that doing so will probably never allow you to capture the type of client you really are looking for.

What I do know, is that most clients usually have a lot of “want” to do a financial plan and understand that it is important, but rarely have the “will” to truly participate and complete the process. Having the fee or charge in place helps bring the “will and want” together.
Charge what you feel is appropriate, but never sell your knowledge or services short. You’ll find that good clients are always willing to pay for quality and experience.

Link to Article: “How Much Should A (Comprehensive) Financial Plan Cost?”

For Representative Use Only