In the first part of this blog series, “To Justify the Value of Financial Planning to Clients, Consider Saliency,” I defined the concept of saliency in the context of financial planning and the fees we charge clients.
In recent years saliency has become a tool that planners use to help direct client focus towards—and to make clients more cognizant of—certain services and benefits the planner provides. For instance, it has become increasingly popular to charge separate fees for financial planning on the basis that “clients value [more] what they pay for.” The concept is relatively straightforward: if people are required to pay for the financial planning, they’ll pay more attention to it, and value it more.
Yet the research on saliency suggests that in truth, the causal factors may not be so straightforward. Paying for financial planning doesn’t necessarily make people value it more, it simply makes the cost of the planning services more salient, which may in turn lead people to consider more carefully the value they’re getting for their cost.
In other words, charging more for financial planning actually makes clients question it more (just as they question cash spending over credit card spending and cash tolls over E-Z Pass tolls). To the extent that they question the value they receive for the cost and decide that the value is good, making the cost more salient ultimately makes the value more salient to clients as well. That’s the case, however, not because the client literally values more what they pay for; instead it’s simply that making the payment more salient and forcing them to think about what they’re getting ultimately might make them decide to recognize the value more, too.
Although this may seem like a finely sliced nuance, it’s an extremely important one. After all, while charging (more or separately) for planning services may force clients to consider its value, which makes the benefits more salient for those who have positive outcomes, in some cases it may reveal to clients that the benefits they’re getting just aren’t worth the cost.
In other words, making the costs more salient really ups the ante to ensure that maximum value is delivered; otherwise, charging separately for financial planning may actually make clients try to ‘opt out’ of it and not pay for it, leading fewer clients to get financial planning, and ultimately making it less valuable for them. Therefore, making the price of financial planning salient when the value proposition is good may be unnecessary, and making it salient when the value is not good enough may make clients utilize it less (just as clients spend less with cash and are more resistant to the cost of cash tolls).
This can also lead to a dangerous spiral. If clients don’t value the planning (because there’s really not enough value for the cost, or they just don’t properly perceive the value, or some other problem), then under the ‘clients value what they pay for approach’ the planner might try to increase the cost to try to change the perceived value, when in reality what needs to be done is to lower the cost or deliver more value to bring the cost/benefit equation better in line.
Otherwise, the more planners charge for planning, the less clients utilize it, which means they don’t value it at all, and the client experience becomes even more focused on the portfolio, since it may be all that’s left at that point.
Yet in the end, if charging directly for financial planning is really only helpful in situations where there really is material value being provided, and even then may be an inhibitor (as some clients may second guess the price they’re paying even if the value is good), it raises the question: Are there other, and perhaps better, ways to make the value of financial planning more salient than just highlighting the cost?
So what are the alternatives to make the value of financial planning more salient, if not via making the way that clients pay for it more salient?