Bridging the value gap for prospective clients

Two experts explore how financial advisers can transform the way they communicate the value of their services to potential clients.

Speaking on a recent webinar hosted by Netwealth, in partnership with The Lab, two behavioural science experts unpacked how advisers can enhance their client acquisition strategy by better conveying the value of advice.

To do so, they first explained the psychological barriers that prevent more Australians from seeking advice and how these obstacles create a value gap.

“What we found through our research is that despite the expertise of financial advisers, prospects are significantly undervaluing financial advice,” said Neale Cotton, co-founder and chief executive of The Lab.

The Lab’s research conducted with Netwealth found a notable disconnect between what potential clients are willing to pay for advice and the actual market value. Prospects’ willingness to pay for a comprehensive financial plan can be up to 20 per cent less than current costs.

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According to Netwealth, value for money is the “single most important aspect” that clients consider when deciding on an adviser and their service offering. Consumers say they are willing to pay $911 on average for receiving advice, presenting a clear divergence from the median fee of $3,960 being charged by their advice firm, Adviser Ratings discovered.

“There is an extraordinary undervaluation and it is creating a value gap that we must bridge to shift prospects into clients,” Cotton added.

The webinar identified five key barriers to adoption deterring consumers from engaging with an adviser:

1. Feeling their financial needs are not “complex enough”.
2. Feeling overconfident in their own financial abilities.
3. The disconnect between the cost of advice and prospects’ willingness to pay.
4. Being too focused on immediate needs over long-term planning.
5. Being too loss-averse and worried about potential risks.

To overcome these barriers, Jonny Hanratty, group strategy director at The Lab, explained how advisers can utilise a behavioural science approach in shifting value perceptions.

Firstly, he pinpointed trust and transparency as two key factors to foster strong client relationships and effectively express the value of advice.

“Clients want to get a sense of professionalism from their adviser, of course. But there’s a really interesting undercurrent of authenticity here. They want to feel a level of relatability to the adviser,” Hanratty remarked.

This can include client testimonials and case studies on the firm’s website, or “meet the team” videos, he suggested.

“The other really important thing about conveying trust and transparency is communicating fees very clearly.”

Showing full transparency with advice costs, such as breaking down the fee with each individual service provided, is crucial, Hanratty said. Moreover, he encouraged advisers to communicate the tangible financial benefits of advice where possible, such as the following statement: “We typically see our clients receive an average upside of $70,000 a year from working with us.”

Framing outcomes in terms of the emotional benefits is also critical to bridging the value gap, rather than keeping investment performance as the focal point. This means reassuring prospects of the future long-term benefits, such as financial security and peace of mind.

Hanratty continued: “It’s very much about assurance over the long-term that the adviser is going to stick with the client and help them execute and adapt the financial plan.”

With the median annual fee for advice up nearly 60 per cent over the past five years from $2,510 in 2018 to $3,960 in 2023, Business Health expects the issue of value to come under increasing scrutiny as more clients begin to question if current fees reflect the desired value.

The organisation provided similar recommendations earlier this month for advisers looking to improve their value proposition, such as reassessing how the business articulates value to clients.