Lower fees quoted by firms with no target market

Advisers who service anyone who asks for advice quote fees significantly lower than advisers who have identified their market segment, according to research.

Speaking at a webinar hosted by the Association of Financial Advisers (AFA), Sue Viskovic, Elixir Consulting founder, said research by the firm found average earnings before interest and taxes (EBIT) was 20% lower for advisers who did failed to identify their target market.

“When we look at figures they’re generating and the hours they’re working… often this becomes a problem when we see firms are still taking on anybody they like,” Viskovic said.

“We found that targeted clientele was imperative when it came to pricing. When we did our pricing research we did a deep dive into all the firms that were achieving over 30% EBIT because there was a big difference between the average of what people were trying to achieve and what they were actually achieving.

Firms that failed to identify their market segment had an EBIT of 19% versus 23% for those who did, but Viskovic said the drastic difference was in the fees charged.

“This is the really scary thing: the firms that said they work with anyone who wanted advice, the average initial fee for comprehensive advice without insurance was $2,600 and ongoing was $2,700 per annum,” Viskovic said.

“These figures were collected at the beginning of 2020; these firms still had grandfathered revenue coming into the business.

“If those firms hadn’t done anything differently, that 19% might be a lot lower from an EBIT perspective.

“If you look at the firms that identified their market segment the averages were higher, the EBIT was still not fantastic at 23%, but average initial fee was over $4,100 and ongoing was about $4,500.

When it came to identifying the correct fee pricing, Viskovic said everybody looked for the “magic number” and it depended on each individual situation.