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Are You Charging Enough for Your Services? Use This Tool to Find Out

By Gil Weinreich

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Too many advisors are inadequately charging for their services. That is one key finding of an industry consultant offering a simple way for advisors to visualize their pricing integrity.

Pusateri Consulting and Training’s new white paper—part of a series called Pricing Your Value Unapologetically—asks advisors, simply, “How Big is Your Triangle?” With one axis each for an advisor’s value, the perception of that value and the price charged, high-scoring advisors will have a larger triangle, and similarly their triangles will appear balanced.

The whitepaper is a sequel to the first in the series, which focused on the reasons advisors undermined themselves by underselling their services and discounting fees. While that earlier paper by Pusateri managing director Giles Kavanagh defined concepts of pricing integrity, the new paper offers a tool advisors can use to picture their pricing integrity.

Charting what your triangle looks like is supposed to yield an “Aha” moment, Kavanagh writes, such as: “I do provide a lot of value to my clients. I just do a bad job of articulating it, so clients have no idea.” That would be for a tripod, one of whose axes extends into the “high” range on value, but the “low” range in perception (and, likely, low or medium on price).

Another possible “Aha,” the author adds, would be: “I rate high on Value and Perception, so the real reason I am mispriced is my own insecurity regarding my real value.”

The whitepaper emphasizes that the real driver of pricing is perception of value, so that advisors who do provide high value need to make consistent efforts to articulating that value to clients.

Advisors should not assume that clients are appreciating high-value services for merely average prices. “Buyers are not philosophers” who would parse these mismatching relationships, Kavanaugh writes. They might simply assume you are overstating your value.

The white paper examines each axis in detail. Starting with value delivered, the Pusateri paper says that, in the firm’s experience working with more than 2,000 advisors on this concept, most rate themselves above average.

The firm recommends that advisors take the trouble to produce a one- to two-page inventory of the total value they provide, which is valuable not merely as a pricing tool, but as a sales tool as well. Similarly, they need to define their service model, and be sure they are touching clients throughout the relationship and in an anticipatory way. They should also ask what they offer that is different than or better than their competitors.

On the pricing axis, advisors are lost without “accurate and rigorous competitive pricing data.” The typical cluelessness about industry pricing is matched by that of clients, only 5% of whom, according to one brokerage firm study cited, can accurately identify what they pay. Many advisors also seem to limit their fees to 1% of assets under management, an approach that “does violence to the facts,” Kavanagh writes. That is because data for North America suggest that top-quartile advisors charge 2.08% on investment balances in the $250,000 to $500,000 range, and 1.3% for accounts worth $20 million to $25 million.

The white paper offers ideas to justify higher pricing, such as the notion that the wealth accumulation phase should include prepayment for retirement income clients who need more intensive services but have declining assets with which to pay for them.

Kavanagh argues that lack of clarity on pricing impels clients to request discounts as a hedge against the uncertainty of knowing what they’re paying for. “Challenges to prices should be seen as requests to validate value, not as demands to discount,” he writes.

On the third axis, that of perception, the white paper offers ideas on reinforcing the client’s perception of value through a “relationship time-out” that seeks to inventory value, by showcasing other client successes (without violating confidentiality) and by quantifying value. For example, “did you cause your clients to stay invested in equities at the bottom of the markets in 2009?”

Declares the Pusateri white paper: “Each time an FA adds value, what we call a value inflection point, an opportunity to reinforce client perception occurs.”

The paper goes on to discuss the shapes of different triangles and what they imply about that advisor, for example the meager triangle of “The Philanthropist,” high on value but low on perception and price, or the “Social Butterfly,” high on perception, but weak in value and price.

A key strategy in all of this, the white paper concludes is for advisors to “be honest with themselves as to where they are and where they should be.”

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Check out the first part of this two-part series, Are You Charging Enough for Your Services? Most Likely, No, on AdvisorOne.