How Should You Price Your Services
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Home How Should You Price Your Services

 

How Should You Price Your Services

 

 

Advisors constantly struggle with the question of how to price their services. Rarely do you go to an attorney or physician who offers to discount their fees; so why should advisors? The answer is quite simple – they shouldn’t. But underlying this answer is the assumption that the advisor has clearly articulated his/her value added from the beginning of the relationship and follows through as the relationship develops.

 

This concept is often referred to as pricing your value. For example, should fee-based business be priced differently than commission business (for “hybrid” clients) that utilize both services? The answer depends on what services you are providing. If commission clients are getting many of the same services – such as asset allocation advice and quarterly reporting – on that portion of their business, the answer is yes; if they are not, the answer is no.

 

PriceMetrix, a leading industry pricing service and think tank know for the quality and depth of their research, recently released a study on whether or not advisors price the fee-based and commission portions of their hybrids differently – is one discounted as a loss leader for the other? The results showed that the answer is basically no – most advisors show consistency in pricing – either higher or lower than average; only 21% of advisors seemed to price the two kinds of services differently.

 

(The study included data from hybrid households with investment assets between $500,000 and $1 million and come from the PriceMetrix database that includes nearly 500 million transactions and over $3.5 trillion in assets.)

 

These results are encouraging in that they hopefully reflect that advisors are consciously deciding that they are worth their fee, regardless of the type of transaction. In the event that these results are just a coincidence, it’s worth mentioning a few golden rules of pricing:

 

Advisors should clearly articulate to new clients their value added proposition and casually remind them of their commitment and follow through on an on-going basis;

Fees and how they are earned and charged should be discussed upfront – if clients have to bring up fees before you do, you are probably going to be on the defensive for the duration of the relationship; and

The type of investment – fee-based v. commission – should be irrelevant in pricing because you want to be seen as a solution provider rather than simply an order taker.

 

More info: http://www.forbes.com/sites/advisor/2013/10/10/how-should-you-price-your-services/

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