In this brief, but important article, well-known WA adviser, Mark Rando says there’s a misconception that people won’t pay for risk advice and uses his own business experience as an example of how it can be done…
An article in the West Australian in November last year, citing a report by Investment Trends, stated that there was a big gap between what Australians are willing to pay for advice and what it costs advisers.
According to Investment Trends, $750 was what people would pay, while the average adviser quoted a cost of $2,500.
I’d consider that conservative, to be honest! I find it’s more in the realm of $3,500 on average, and up to $5,500 for very complex advice.
there is a misconception that people won’t pay for advice
I have written previously on the importance of making advice more affordable for people and while I think that government strategies that increase equity of access is important, there is a misconception that people won’t pay for advice.
I should know! When we looked at moving too a fee for service model in 2012, I spent a number of sleepless nights saying the same thing to myself.
But in the wake of legislative changes, I was also worried that a business model heavily reliant on ever declining commissions wasn’t going to work either. The reforms forced us to price every aspect of our service and become more business-like.
This shift was essential to developing a sustainable business model. The increase in the compliance burden required the hiring of two extra staff in our business and as a result our fees have increased by 40% over the last six years. Our doors wouldn’t have stayed open if we hadn’t made the change.
The fee we charge for our Statement of Advice service now ranges anywhere between $1,500 – $5,500.
You might think this deters people from agreeing to become our clients, but 95% of our clients remain average Australian families; not those of high net worth. And in the last five years we’ve experienced a steady growth of 5% per annum.
I’ve learnt not to assume what people are prepared to pay. They will – depending on what is most important to them.
I won’t tell you charging fees hasn’t been more difficult at times. Just recently I met with a new client who was hesitant about signing – it related to the implementation fee (about $5,500 in her case).
As a result of claw back, we now charge people the balance of the cost of implementing advice if they abandon their policies within two years. Previously, we didn’t recoup this cost. Even writing that these days surprises me!
While getting people over the line as clients has been harder at times, it’s not impossible. In the case of this client, she did go ahead and opted to pay the implementation fee on signing.
I’ve learnt not to assume what people are prepared to pay
Overall, the outcome wasn’t surprising, given her age. As an aside, I find younger clients expect to pay for advice up front, as they would any other professional service. They don’t have the generational legacy of a ‘free advice’ mentality.
So, reforms aside, your business will have a bottom line. Know what it is and work your way back from there. Don’t be driven by the fear of what people will and won’t pay. If your service is where it needs to be, people will.
Mark Rando is the Senior Adviser and Managing Director of Rando and Associates (www.rando.com.au) based in Bunbury WA. He is a finalist of the AFA Adviser of the Year 2011, 2012 and 2013, a finalist in the 2016 Telstra Business Awards and is a former State Chair of the MDRT. He was recognised at the 2017 M3 National Conference, where he won a practice award for Outstanding Performance. Mark currently mentors other advisers in Australia and overseas. He can be contacted on (08) 9792 4800 or firstname.lastname@example.org
The views expressed in this publication are solely those of the author; they are not reflective or indicative of Millennium3 Financial Service’s position, and are not to be attributed to Millennium3. They cannot be reproduced in any form without the express written consent of the author.
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Rancol Pty Ltd as Trustee for The Rando Family Trust T/as Rando & Associates is a Corporate Authorised Representative of Millennium3 Financial Services Pty Ltd. ABN 61 094 529 987. Australian Financial Services Licensee, Licence No: 244252.