Financial advisors are underselling their services, typically discounting their fees—and needlessly so, according to a new whitepaper by Pusateri Consulting and Training, which specializes in helping advisory firms price their value.
The paper, the first in a series, is titled “Pricing Your Value Unapologetically” and explains some of the difficulties advisors have in setting their price.
The report’s author, Pusateri managing director Giles Kavanagh, cites research by behavioral economist Amos Tversky that found consumers will pay a premium for certainty while discounting uncertainty.
Advisors run into trouble because investment advice is an intangible service with an uncertain outcome. Writes Kavanagh: “To counterbalance the uncertainty of investments, advisors need to be reminded that they can effectively promise a certain client experience—a rigorous process and service standards.”
The unique nature of each client relationship, with some clients wanting more attention than others; the lack of competitive pricing data; and a public barraged with a confusing array of advice offerings, some of which explicitly question the integrity and cost of their competitors’ offerings, all contribute to doubt about the advisor’s price.
As important as these factors are, the Pusateri paper argues that it is advisors themselves who sabotage their pricing integrity through behaviors such as discounting even in the absence of client requests; pricing at low levels as a means of preemptively avoiding contentious fee discussions; and varying fee arrangements with different clients.
Presenting data showing a 127 basis-point gap between the top and bottom quartile of advisor fees on $250,000 to $500,000 accounts, the Pusateri paper asks: “Are the top quartile advisors providing more than double the value as the bottom-quartile pricers?”