| Invisible Discounts
by Bob Veres, publisher, Inside InformationAfter spending a lot of years around financial planners, I've noticed that most of you spend pretty much all your work time thinking about how to improve the lives of your clients. This schedule leave zero space on your daily calendar for brain-storming how to make your practice (and worklife) better.
There's something noble about giving up all your time and energy to the people who depend on you, but this also causes too many planners to lead quietly dysfunctional lives and operate dysfunctional practices. Think about how much of your time is spent doing the kind of work that clerical employees could be doing. Is your marketing plan composed mainly of waiting for the phone to ring, and on days when you've got openings in your schedule, does your marketing plan call for you to wait harder?
And most importantly, I'll bet you've never been bold enough to fully charge what you're worth. Last year, when I did a survey through my newsletter, I discovered that more than half of all planning professionals fit into a business model that I call "starving idealists"--people who make a huge difference in the lives of their clients, and have to battle cash flow shortages in their own practices.
The strange nature of planner pricing came home to me not long ago when a member of my Inside Information community did a quick survey of his competition, and discovered that the annual fees that ten different firms would charge, based on a particular (real) client situation, ranged from $7,000 a year to $30,500. Adam Smith’s invisible hand is clearly not working as effectively for planners in the free market as it is for (to pick a random example) everything else. In retail products and consumer durables, in commodities, in plumbing, bricklaying, internet connectivity and any other consumer service you can think of--pricing anomalies like these are wiped out faster than you can say “comparison shopping.” | 
| Is there any way to explain why doctors, lawyers and accountants all charge relatively similar prices for their services, while the financial planning profession has fees that are literally all over the map?
After a couple of rounds of discussion within the community, my audience of advisors proposed a few possible causes for this strange effect.
1) Nondisclosure. Some of the most efficient pricing in the planning world is set by the large brokerage firms, who have teams of marketing professionals who can monitor different pricing models and various sales/revenue statistics in order to place themselves on the cutting edge of what the market will bear. Unfortunately, some of the money they charge for planning and investment services is not fully disclosed to the consumer in a way that the consumer can understand it.
Nondisclosure makes it hard to comparison shop.
2) The "psychic gratification" discount. Many planners enjoy their work so much that they can't bring themselves to charge appropriately for it. Some told me that they get so much personal satisfaction out of what they do that, if they had to, they would do it for free. Others said that they’re afraid that people will see how much fun they’re having and demand a discount on their prices. “It is hard to charge full bore for work you love,” is how one advisor put it.
No, this isn't logical. But it seems to be very common. And this drives down the fees for everybody else.
3) The "choosiness" factor. While doctors, lawyers and members of other professions work with any mirror-fogging body that walks in the door, many planners drastically cut down on their potential market, by only working with people who are "right for their practice." By some estimates, there are 600 people who can af-ford planning services for every financial planner in the U.S. market. But most ad-visors intentionally reduce that number to those who they like to work with.
Reduce the potential demand, and you reduce the fees you can charge.
4) The "leap of faith" factor. Financial planning has one peculiarity; it is paid for in advance, but the benefits are not always clearly visible until some time (often years) in the future, when the client is able to retire comfortably and looks back at the powerful impact your advice had on his life. The consumer doesn’t get to experience the value of your advice right there at the time of purchase, the way she would at the checkout line at WalMart.
Alas, few planners are exceptionally good at communicating, up front, the “deliv-erable” that they offer their clients.
5) The inattention factor. Chances are, you're too busy working for your clients to figure out the packaging and positioning strategies that manufacturers of TV sets or kitchen appliances employ to charge premium prices.
I'm sure you know that I'm not advocating a standard price for planning services, or inviting any of you to collude on pricing--a practice which is rightly forbidden by law. The point here is that most advisors set their fees in a basically dysfunctional way, and few if any of you charge what you're really worth.
How might you determine that magic figure? My newsletter audience actually came up with some pretty good ideas, but we're out of space, so that will have to be a separate discussion. For now, the point is that you should set aside time on your schedule, at least once a week, to think through some of these basic issues. You deserve your time as much as your clients do.
Bob Veres is publisher of Inside Information, a service that helps planners achieve the same results for themselves that they offer to their clients. You can reach him at bob@bobveres.com or the Inside Information web site: www.bobveres.com. |
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