The true cost of advice

The true cost of a client review is around $2,500, according to financial planning consulting firm Business Health.

Related News:

The consulting firm arrived at that figure based on a calculation incorporating average staff and overhead costs, profit margins and the time taken or actions required to deliver the service. Business Health said the $2,500 figure was “regularly validated” by its clients.

But it’s a figure many financial planners are yet to fully grasp.

Business Health said that both in Australia and in other offshore markets, many, if not the majority, of financial planning practices had “no clear idea” of what it cost them to deliver the services they offered.

The company said payments by commissions and business valuations based on revenue multiples had in fact been “an enemy — masking the need for them to come to grips with the real value of their operation”.

Regulatory changes prompted by community pressures mean that is now changing.

“Value propositions are being reviewed, client feedback is sought, service packages are being reconstructed and [practices’] capabilities are being reassessed,” the group said.

But underpinning any transition to fee-for-service must be a “realistic view” about the cost to deliver advice.

The group said the cost of a client review is perhaps the “single largest cost” borne by planning practices in delivering their service, and should therefore “only be offered to clients who have the desire and capability to pay for each review they receive”.

As such, advisers must determine which clients are willing to pay for which services, and whether those services can be delivered in a manner acceptable to the client, and financially viable for the practice.

With clients soon to have more control over price negotiations, advisers must also be able to communicate the value they are adding, with Business Health arguing that “price is only an issue in the absence of value as perceived by the client”.




Recommended for you

Author

Comments

Add new comment