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Adviser charging: seven steps to convince clients

Advisers should put in place this seven-part strategy that will demonstrate to clients why the adviser charging model is worth their continuing custom after the RDR, writes Chris Davies of Engage Partnership.

The final straight

Advisers are now running down the final straight toward the retail distribution review (RDR), and many are facing the stark reality of explaining to clients how adviser charging affects them and the ongoing worth of their services.

A clear and transparent adviser charging model should be reflected in client agreements that are easy to understand. The challenge is in disclosing what the customer can expect in terms of service and advice, and how much each element will cost.

There are seven key areas on which advisers can now focus to ensure charging transparency and value are conveyed, understood and accepted by the customer.

The final straight

Advisers are now running down the final straight toward the retail distribution review (RDR), and many are facing the stark reality of explaining to clients how adviser charging affects them and the ongoing worth of their services.

A clear and transparent adviser charging model should be reflected in client agreements that are easy to understand. The challenge is in disclosing what the customer can expect in terms of service and advice, and how much each element will cost.

There are seven key areas on which advisers can now focus to ensure charging transparency and value are conveyed, understood and accepted by the customer.

1. Create a meaningful experience

The Customer Experience Board (CEB) 2010 survey of buyer behaviour found customers valued the advised sales experience far more compared with the value-to-price ratio, company and brand impact, and product and service delivery.

Take brands such as Virgin or Apple; they create a cool or hip experience that attracts a certain clientele. This is cleverly positioned on perception.

2. Make it easy

All too often businesses are tempted to add a bells-and-whistles service to attract and retain customers. It is a natural tendency to try to go the extra mile for customers so they come back and buy more, or refer their friends and family.

The CEB found that, by developing a ‘customer effort score’, firms that offered simple services that removed obstacles, handled the emotional side of customer interactions and facilitated a quality service for a reasonable level of investment, were the most successful in creating satisfied customers and retaining their custom.

3. Know your relationships

Segmentation is key to understanding which customers are most profitable for the firm to deal with. A perennial problem, though, has been that segmentation has been assessed by financial capital, that is, the monetary worth of the customer to the business. This means the cash is the customer, not the individual.

Value existing clients more. Understand what type of relationships the business has with its customers. This will help you strengthen bonds and create service propositions tailored to each style of relationship. For instance, by identifying ad hoc, social, technical and partnership customer relationships, you will be able to understand what type of service proposition is profitable and meaningful to each relationship type.

4. Market positioning

Knowing where the firm sits in the scheme of things is important. If you have developed a niche, stick with it. Just because the rules are changing, it does not mean you have to change your service proposition.

If you have developed your customer value proposition, then only a little fine-tuning is needed to ensure customers will stay with you and new custom will come. This means you create the desired image and identity that the customer finds appealing.

5. Work on your meeting skills

A focus on customer behaviour will allow you to develop advice strategies that are tailored to their needs and manage the relational risk. With the rise of behavioural economics and behavioural finance, this means being able to handle the emotional response as well as the tactical asset allocation or product advice.

With a focus on managing cognitive biases and irrational investor behaviour, customers will thank you for adding value. You become a mentor as well as an adviser and you gain informed consent at all times.

6. Clarify and confirm

Verbal summaries during meetings should be reinforced by a written summary. This clarifies the shared understanding and confirms the next steps. If sent later than one day after your meetings, you will lose a good 40% of the value because information is forgotten.

This technique will aid customer understanding for adviser charging.

7. Understand your numbers

If you know your bottom-line profit margins, you can set the price for advice. You will then understand where your customer value proposition sits, that is, ensuring you are in the value zone.

You need to understand how to calculate the costs (cost of sale, revenue, overheads and operating profits) that your business produces. Once you have this figure you need to assess how you will charge your fees and how much.

This can be done by assessing the advice cost, which is calculated by adding the overheads to cost of sale divided by number of meetings held. For example:

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Advisers’ profitability varies but many firms might want to add a profit of 10% to this equation. Once you have calculated the advice cost, you can decide in which way it is to be met: time- or task-based, ad valorem, retainer, performance or contingency fees.

If you believe in your business and the value it offers, customers will pay and stay.

Chris Davies is director of Engage Partnership.

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