Flash back to college: Marketing 101 taught us the basics of business success via the 4Ps: product, price, place, and promotion. By offering the right products at the right prices to the right people using the right promotional vehicles, success was virtually guaranteed. Advisors can identify with this basic framework in examining their own business. In this issue of PracticeEdge, we’ll examine two of the four Ps-product and price.
The Price Is Right
Determining the right price point for services is often a key factor in the success of a business. Even if price is only one of many factors that clients consider when choosing or staying with an advisor, an advisor must ensure that their fees are appropriately priced for their target market.
In the market downturn of 2008, investment advisors responded by dramatically reducing their asset under management (AUM) fees nearly 20% from the average AUM fee of 1.11 in 2007. However, with the market growth in 2009, the industry’s financial parameters looked healthier and advisors were able to slightly increase the AUM fees from their historic lows–to 0.92% on median compared to 0.90% in 2008.
The average AUM fee increase was likely driven by medium- and large-size accounts. Advisor fees are based on account size, with fees decreasing as account size increases. Comparing how fees in 2009 stack up against fees in 2008, we see that the median AUM fee among advisors has decreased for all accounts except medium-size accounts ($250,000 to $999,000) and for large accounts ($1,000,000 to $2,999,999). Investment professionals kept fees flat in an effort to retain clients but charged higher fees for comprehensive services provided for larger clients.
Product: Know Your Strengths
Consider your product or service offering. In what areas do you excel? What types of services are more of a stretch? It’s important to lead with your strengths, so it’s worth taking some time to assess your strengths. Are you best at charitable giving services? Estate planning?
Advisors seem to be doing this same kind of self-introspection as they adjust their service offerings or even look at outsourcing certain functions. More advisors offered insurance planning in 2009–64% compared to 54% of RIAs in 2008, while fewer advisors offered retirement planning (77% vs. 83%). The reason for the decline in retirement planning may be that advisors do not consider themselves to be extremely knowledgeable in this area–34% of advisors surveyed named “knowledge of issues unique to retirees” as an area in which they need to improve. Also, beyond typical investment management services, more advisors indicated that they are providing charitable giving (60% vs. 42%), business advisory services (22% vs. 12%), and concierge services (14% vs. 6%). Nearly a fourth (22%) of advisors are offering investment management services to other advisors.