Uncovering the Iceberg of Financial Advice

We are all aware that the costs of providing financial advice have risen significantly over recent years.

I have seen many practices going through the exercise of re-evaluating their cost-to-serve, factoring in current overheads and a reasonable profit margin, with considerable gaps often found between current fees charged and what should be charged after the cost-to-serve analysis.

For mature businesses with long term clients, this seems to be a common problem, especially when presenting fee increases to these long term clients. The issue has, however, also arisen when looking at making acquisitions involving clients with annual fees. 

The issue of value in ongoing advice should be addressed as part of the overall fee review project. And this is where the illustration of the iceberg comes in.

The Iceberg Principle (or Iceberg Theory) suggests that we cannot see or detect most of a situation’s data. The theory applies to systems and problems too. As with an iceberg, only its tip is visible, while the bulk is below the water’s surface, invisible.

It is interesting to look at the cost-to-serve analysis and see the small number of client-facing hours during a year versus the overall hours spent providing services to clients.

In examples I have recently viewed, only 10% of the total hours served on a client’s work were face-to-face. It is clear there are many tasks that clients do not see over a year, yet that are still providing value. 

The list of items below the Iceberg waterline is quite extensive, including: 

  • Review of goals and implications;
  • Record of Advice;
  • Supporting documentation and facilitating the implementation of any additional advice provided; 
  • Review portfolio management;
  • Review debt and insurance;
  • Centrelink;
  • Effect of legislation changes; and
  • Administration.

When presented with all the information, clients can make their own decision regarding the price they are prepared to pay for ongoing advice and the peace of mind it brings. I have many stories where clients have surprised their financial planner with determination to maintain an ongoing relationship at a higher price. 

I believe some of the cost-to-serve issues lie with financial planners underestimating their value and unable to position their fees appropriately.

Cost-to-serve analysis like this requires help from a financial business specialist, who has seen what works in many different practices.

If this story resonates with you, why not give me a call? I help financial planners improve their business life.

Email me at bblurton@yourgeneralmanager.com.au 

or call 0488 403 139.

Bob Blurton

Virtual General Manager | Your General Manager