In a very thoughtful—and lengthy—comment to my Sept. 7 blog (If You Can Commoditize Asset Management, Will Advisors Be Next?), Ron Rhoades recounts this Pablo Picasso story:
“Legend has it that Picasso was sketching in the park when a bold woman approached him.
“It’s you — Picasso, the great artist! Oh, you must sketch my portrait! I insist.”
“So Picasso agreed to sketch her. After studying her for a moment, he used a single pencil stroke to create her portrait. He handed the women his work of art. “It’s perfect!” she gushed. “You managed to capture my essence with one stroke, in one moment. Thank you! How much do I owe you?”
“Five thousand francs,” the artist replied.
“B-b-but, what?” the woman sputtered. “How could you want so much money for this picture? It only took you a second to draw it!”
To which Picasso responded, “Madame, it took me my entire life.”
As my blog was about the value of financial advice and the effects of technology on that value, picture me slapping my forehead for not using that story as the lead in. In part, I was responding to the notion that “It doesn’t cost any more to manage a million dollar account than it does a hundred thousand dollar account. It didn’t seem fair or logical that larger accounts would pay more than smaller accounts.” And Rhoades’ story is much better than my analogy about the value of a doctor taking five minutes to determine that you have allergies rather than the lung cancer that was diagnosed in urgent care.
Ron goes on to make a number of touching points about the value of advice, and the best ways for advisors to charge for it. For starters, he points out that as a former estate and tax attorney, he learned the flaw in hourly fees for professionals: “As you get more experience, you don’t have to spend much time doing research. You can often provide an answer to a client that may save hundreds of thousands of dollars, or millions, or more, in a short period of time. You don’t get compensated for the expertise you have developed.”