Value for money: Justifying rising fees to clients
With the median annual fee for advice up 58 per cent from 2018, financial advisers are being encouraged to ensure clients confidently see value in the price they pay.
It comes as no surprise that the fee to see an adviser is only trending upwards, as escalating business costs and regulatory pressures drive fees higher.
The median adviser fee has risen by nearly 60 per cent over the past five years, up from $2,510 in 2018 to $3,960 in 2023, Adviser Ratings’ research indicates.
As a result, it has become imperative for advisers to effectively communicate the worth and value of their service offering to clients. Research by Netwealth earlier this year found value for money is one of the biggest drivers of client satisfaction.
The issue of value is set to come under increasing scrutiny, according to Business Health, as operating costs grow, new competitors enter the market, and more clients begin to question if current fees reflect the desired value.
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. When it comes to why they seek advice and what they value from a potential advice, consumers have detailed financial security and confidence as being a benefit of financial advice, indicating they see value beyond financial performance.
It is then up to the financial adviser to demonstrate the monetary value of those benefits to the client to justify the fees.
“Advisers should be confident that clients see value in the fee they’re paying, as well as provide an acceptable return on investment (ROI) for the business,” the organisation stated.
Business Health posed the following considerations for advisers looking to improve their value proposition:
How has your service offer evolved to reflect the changing needs of your clients?
For example, over 40 per cent of advice practices now offer estate planning services and 35 per cent provide aged care advice, the firm wrote. Advice businesses are increasingly turning to other professionals, such as accountants and lawyers, to better support clients’ needs as they seek to offer specialist help for clients.
When did you last review your ‘cost to deliver’?
With nearly three-quarters of advice firms reviewing their pricing model in the last 12 months, Business Health encouraged advisers to evaluate any avenues to contain or reduce business costs.
What is your profitability target for 2024–25?
Setting a profit target for the new financial year and factoring this figure into the 2024 fee schedule is also crucial. The average advice practice generates more than $500,000 in yearly revenue with a 21 per cent profit margin, while the most optimal advice firms report profit margins of 40 per cent or higher. To achieve such profitability, these practices need to bring in a six-figure revenue above $1 million.
How do you articulate and reinforce your ‘value’?
Reassessing how the value of advice is communicated and quantified to each individual client is also vital, ultimately ensuring clients truly understand how the adviser is helping them achieve their goals.
Money Management spoke with an adviser who recognised the difficulties of communicating higher fees to clients. Ronald Pratap, senior financial planner at RP Wealth Management, said being able to show upfront value to new clients is a key challenge.
“[It’s about] spending more time with that initial client to show value and justify the fee, because no advisers are charging under $3,300 to $4,400 in fees due to the amount of time spent on putting plans together. You need to cover all those costs because everything is just taking longer,” he described.
Justifying a high fee when clients often will not reap the rewards or see the investment return until the long-term is a difficult balance, the senior financial planner added.
“You can’t really show too much value until you do the statement of advice (SOA), but you are getting them to commit to a fee for this SOA. If you’re then charging a $5,000–$6,000 fee, there needs to be a lot of value shown for them to commit to that because they’re not receiving the advice until a few weeks down the track,” Pratap said.
Last month, Money Management spoke to five advisers as to whether they charge for an initial meeting with the results divided between those who felt it was a way to entice new clients and those who felt they should be paid for their time.
AUTHOR
Jasmine Siljic
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