Who made the rule that advisers only get paid after the work has been done?
It’s likely a hangover from commission days. Here’s why you should consider changing.
- Lag. Ever since FSRA, the work required to onboard a client has sky rocketed. In many cases, there’s now 3-6 month lag between starting and getting paid. That’s a pretty big cashflow credit your firm has to bankroll.
- To rush or not to rush? No one needs the added challenge of rushing through advice to serve a commercial requirement. Anyway, why does holistic advice need to be given as one chunk? If there’s complexity, surely it makes more sense to stage the advice out?
- Skin in the game. There are two decisions a client needs to make. One is the moment they say yes, the second is when payment time arrives. The second is the real decision. Plus, clients can be more motivated if they know the meter is running.
In such cases, it makes sense to look at alternatives, and I’ve got five for you.
First though, let me address those out there with the view “It won’t work because clients want to see the value first”.
My message is: If you’re unable to show value in your first appointment without delivering advice, then you’re doing it the hard way. It’s not about the information.
In any case, advisers are already doing it this way. One adviser I know recently increased the price of his cashflow coaching offer from $200pm to $400pm and his new clients didn’t blink. He’s still getting amazing emails through talking about how happy they are to have finally got a handle on things.
It’s not about the price, it’s about the value. If you’ve uncovered the value and are starting work, why shouldn’t the client start paying?
Then you can be assured that they know that every time you ask for data, require them to come back to you or need them to engage, there’s a financial motivator too.
It’s as much about their requirement to partner with you as it is for you to deliver. Exactly as it should be.
So, if you’re looking for a way to charge from the outset, here are five ideas to reshape your pricing.
1. Flat monthly fee from day one
Start fees from the moment you start work, and forget about an upfront “spike” altogether. Work out your set amount, price it well and make a call whether to accept a lesser profit margin during the set-up period in favour of recouping in later years. The caveat here is you need to be confident your business has the ongoing service model to retain clients.
2. Upfront fee then flat monthly from day one
Same idea of monthly fees, with the additional big payment to become a client. This model is likely to work most effectively with clients with clear financial issues and complexity that needs to be dealt with. This is also a good way to ensure that once onboard, they’re unlikely to want to see that upfront investment go to waste.
3. Staggered payment
The midpoint between the two above is again a stable monthly payment from day one, but with the first 3-6 months payments loaded with an amount equivalent to your engagement fee. It’s a good way of getting the benefit of an upfront fee without the quantum presenting an issue. Again, it also provides an incentive to persist.
4. Flat monthly with plan fee at the time plan is delivered
The most promising model for those keen to deliver holistic advice, but aware that not all clients want to solve all problems at once. It enables a business to address each component of advice over time (e.g. insurance in the first three months, followed by cashflow, perhaps not even touching upon investments until year two or beyond).
5. Full payment
Of course, depending on the client’s circumstances, an option may be simply to invoice the client in one chunk for year one, spreading it over a few months if needed, before revisiting the arrangement at review for year two. A clear benefit of this arrangement of less than 12 months is it’s potentially exempt from FDS or Opt-in. Convenient, but you’d want to be sure of your ongoing value, as it’s essentially a very clear decision conversation each year.
Either way, in this time of digitally influenced procrastination and the many administration challenges faced by advice firms, debtor days and cash flow are an additional problem many don’t need.
Changing your thinking on collecting fees might just be one avenue to make life a little simpler.
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