The What | IFAA

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The biggest opportunity in financial planning in over 30 years is upon us. Is your AFSL helping you take full advantage…or slowing you down?

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Part 1: The Why

Part 2: The What

Part 3: The How

Part 4: The When

Part 2: The What

There are actually 10 simple choices you make about how you interact with the world as an independent financial adviser which – in combination – determine your unique signature as an IFA, and how you come across to your clients. These binary decisions – are your ‘IFA DNA’. And your individual choices determine your unique fingerprint. It’s distinctly YOU.

This will shape everything about your practice — what you do, how you do it, what you charge, and the value your clients get.

These considerations give rise to 10 key ‘chromosomes’ of your IFA DNA.

The Service You Offer

1. Technician or adviser

2. Bespoke or low end

3. Transactional or relationship

4. Comprehensive or limited

5. Selling or advising

6. ‘Fix it’ advice or ‘outcomes-based’ advice

7. Heavy infrastructure or light infrastructure

The Client you offer it to

8. No profile (random)

9. Clear profile (clear)

What they pay for it

10. Charging structure options

Your IFA DNA

Technician or adviser

Do you want to be respected as a technical expert with deep knowledge in a narrow field? Or do you want to be admired as a trustworthy advisor with impressive people and communication skills? Which one is more important to you? Choose only one — either be the expert in some technical area like tax or investment, or be the trusted ‘go-to guy’ who knows people and communicates with great effect.

Bespoke or low-end

Do you want to earn a premium for a highly valuable service to a small number of clients with whom you have a deep relationship, or do you want to roll out a low-fee, lesser value service to lots of people you don’t have that sort of relationship with?

Transactional or relationship

Do you want to roll out advice as one-off transactions or do you want an enduring relationship which pays fees that renew each year in exchange for an ongoing service?

Comprehensive or limited

Do you want to deliver holistic, comprehensive financial services or limit your work to one area like wealth management or insurance or SMSF, for example? In our case we found you can charge more legitimately with a more comprehensive offering.

Selling or advising

Is your role going to be about you or about them? Will you be cajoling customers into a product or service that they think they want whether or not they need it, or will you be about advising them what is in their interests, come what may? Do you want a authentic relationship based on honesty and mutual trust, or do you want a superficial relationship based on expedience?

‘Fix-it’ advice or ‘outcomes-based’ advice

Are you helping your clients get to their destination or are you just giving directions? Is your advice going to be focussed on improving an existing client scenario or will it be starting with the end in mind, and working backwards to what they need to do today (and tomorrow) to give themselves the highest probability of achieving their objectives?

Heavy infrastructure or light infrastructure

Do you want a corner office in the CBD with lots of in-house employed staff or are you comfortable versus getting client results produced through contracted associates on a fee-on-delivery basis?

No profile (random)

Life with no client profile means everyone’s a prospect — anyone who can pay the fee is acceptable as a client.

This gives you a much broader market but also means it will be difficult to systemise your business. You run the risk of responding to whatever the client needs and run the risk of having as many sub-businesses as you do clients.

Clear profile (targeted)

Life with a clear client profile means learning how to say ‘no’. It means …

There will be lots of people who ‘get it’. They see the value, they want to hire you, but they don’t have the money. These are not clients.

– There will be lots of people who ‘sort of get it’. They want to hire you but sort of adapt what you do to suit what they think their needs are. These are not clients.

– And there will be those who ‘totally get it’. They see the value, they want to hire you, they have the money, and the service was ‘made’ for them. These are clients – Ideal Clients – and it’s your job is to find these folks, and only these folks.

Charging structure options

Although everyone presumes that as an IFA you charge by the hour, this doesn’t have to be so. We have experimented with every charging option available and they boil down to five types:

Hourly Rate

This is simple – you clock your time and invoice accordingly, either when the job is done, or in instalments (particularly if it’s a long or big project). Particularly useful if each job is scoped based on the circumstances of the particular client, which lends itself well to the circumstance where you have no target client profile. The advantage of this option is that it’s transparent, easy to measure, and evidence that work was done; the disadvantage is that often you’ll be writing time off.

Fixed/flat fee

This is pretty much a defined output for a defined input, for instance “hiring me costs $XXX and we cover the following deliverables”. Sometimes you’re behind and sometimes you’re in front but basically your business still works. This requires knowing in advance what the service is and usually means having an ideal client profile.

Modular

This works a bit like a Chinese menu. It requires that you have systems for delivering each type of dish but is very workable. The disadvantage often is that the client’s main goal will be to eat as much as possible for the lowest cost, and it requires you’re being pretty clear about what the client should be choosing off the menu.

Tiered

This is a fee that increases based on some metric, such as complexity or funds under management. Although it’s not true that someone with twice the money requires twice the time and attention, there can be some method to this madness. For instance, higher net worth clients stand to lose more and can run the risk of having the capacity to sue your pants off if you get something wrong. So you would be wise to consider what the issues are going to be around achieving a profitable set of tiers.

Hybrid

This is often a ‘back office’ calculation so its method of calculation is cover to the client. There are consultants around who recommend you charge a flat fee as a foundation fee, plus a project fee, plus some sort of ‘uplift’ based on a particular variable. For instance, the base fee you charge to be retained for someone is $XXX, plus there’s a particular project the client needs done this year which will cost an additional $YYY and these add together to be $ZZZ. However you also reserve the discretion to apply a premium in this particular client’s case because they’re a notorious ‘financial bed-wetter’, so it’s going to be $AAA.

HThe biggest issue to be aware of when you are considering your options is not price so much as value. Most people are reasonable and reasonable people don’t mind paying for a service that is clearly explained and that they want or realise they need. Where things come unstuck is when the price of the service exceeds its perceived value.

And wherever a disparity exists between price and value, your options are pretty simple:

Reduce the price
Add more value
Educate the customer

Assuming the price has been arrived at intelligently and fairly, we recommend against option 1. Option 2 is an always nice but it’s entirely likely that you’ve already added in all the value to make the original offer as compelling as possible so it’s probably not likely a realistic option. And that leaves option number 3.

In the marketing world, it’s the ‘go-to’ option.

So whatever you do, make sure that your preferred charging structure is easily explainable in terms of the results you obtain for the client, not the effort you expend in achieving it. That’s the cardinal rule when you’re offering an intangible service like planning for someone’s future.

A final consideration in putting together a bottom-line price, regardless of your chosen charging structure, has to do with the all-important distinction between cost and value. In coming up with a number, the ‘cost’ approach is to ask what your competitors charge and consider your fee in that context. What are your client’s other options, what do those options cost, and how effective are they?

While entirely business-like, most marketing and advertising executives would have a ‘pink fit’ about this approach.

The alternative is to think about what the value is to your client of achieving the results that you promise.

How much time do they save?
What’s their time worth?
What potential risks does it avoid?

If one of those avoided risks actually happened what would it cost the client in financial and non-financial terms? If you extrapolate that saving or cost into the future, what’s the compound value, in aggregate?

Coming Tomorrow: Part Three: The how …

The Roadmap

Part One: the why …

• What is an IFA?
• Why become an IFA?
• Exploding the myths around becoming an IFA.

Part Two: the what …

• What will your independent practice look like?
• What service do I do as an IFA?
• How do I articulate the value I provide?
• How do I price that service?

Part three: the how …

• There are three pathways – which is right for you?
• How your AFSL can help you or hinder you

Part Four: the when …

• Getting started – first steps
• Getting support from people who believe what you believe

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Contact us and explain where you’re at. We’ll tell you what you can do and give you a run down on what we see as your options. Have you had enough anxiety about being dragged into scandals you had nothing to do with? The next step is yours …

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