By Kirk Hulett
Tough economic times may have clients hesitant about paying financial planning and other fees. The reality is that they, like you, are trying to find ways to reduce their expenses. Just as you are negotiating better pricing with your vendors, so too are your clients. The question is: how do you defend your fees and justify your value to clients in tough economic times? You would be well served by preparing yourself to answer these questions before you're faced with the pricing challenge from clients.
Here are some things you can do to respond from a position of strength:
Define your business model. First, determine the type of client you want to serve. Then, construct your value proposition, i.e., the actions you take and services you provide to meet the specific needs of your identified client niche. Make a list of all the value points you offer, remembering to include everything from the basics (a monthly newsletter) to the more specialized (a complex financial plan).
Differentiate your service through execution and branding. Provide a great service experience and become known as the premier provider for that target client. Have a stated menu of services with prices. This could be hourly pricing, retainer pricing, asset management fees, commissions, or a combination of all of these.
Consider price points. Offer packages of value for a certain price, such as a basic level and a premier level of pricing. The premier level is priced higher, but also delivers significantly more value. Then, let the client choose their level. When a person affirmatively picks from among a set of choices, they have greater commitment to their choice.
Provide transparency in pricing. Price objections are less likely when pricing is transparent; your value will be well understood by the client and he or she agrees to this pricing up-front in the relationship.
Be confident in your value. Provide and communicate your value continually. You have to re-sell yourself to your client in every interaction. You cannot convince a client to pay for your value if you cannot confidently and clearly describe that value. Communicate both features (what you do) and benefits (the emotional or real-world impact of your services).
Apply the Golden Rule! Always put clients' interests first and treat people fairly. However, this does not mean you do not run a profitable and sustainable business for the long term. You should do pro bono work for people who need but cannot afford or do not have access to quality financial advice. But all of your clients can't be pro bono clients.
It's essential that you have a handle on your costs and your profitability.
Determine the real cost of what you are doing. For every item in your value proposition determine direct costs (those incurred while working with a specific client; usually passed through to the client); and indirect costs (overhead such as rent, taxes, insurance, professional services, offices supplies, utilities). Does your pricing cover these expenses plus a profit margin?
Consider opportunity costs. Time is limited and everything you choose to do has a cost because it means you are not doing something else. Are there higher value activities with greater client benefit-and for which you can charge a higher price-that you can do instead? Don't forget psychic costs; the things you hate to do or cause emotional distress (an unpleasant client, for example). They have a higher cost to you because of the stress. Price accordingly.
Know the real costs of the value you offer. This will help you make the right decisions to ensure the greatest profitability. When you can deliver the absolute right value to a given client at the right time, then you can charge a premium price. If you can't justify value and price to a client, then you have the option of reducing your price, but if you do that, you must also reduce value.
Offer additional or complimentary services. Another way to ensure you maintain a profitable business in tough times is to earn a greater share of your clients' wallet by expanding the services you provide. Always remember: financial advice is more valuable in tough times.
Hopefully, this analysis will lead you to the things that provide the greatest value to clients and will help you identify some things you can give up because they don't contribute to your value proposition.
Kirk J. Hulett is senior vice president of strategy and practice management for Securities America Inc., an independent broker-dealer based in Omaha, Neb., where he leads an internal consulting firm that assists financial advisers on practice management issues. He also serves on the editorial advisory board of Practice Management Solutions.
Tools To Use
For a free worksheet to Create a Client Script to Explain Your Fees, go to www.securitiesamerica.com/fees.html