To say ethical has become a sexy word when it comes to advice is to ignore the fact that the focus on ethics in all sorts of areas of finance hasn’t been an overnight sensation, as much as something that has been consistently evolving for many years.
Saying it’s a good thing almost seems like stating the obvious, but I’ll state it nonetheless.
Engaging with the financial world, for consumers, can sometimes be a leap into a place where mistakes may only become apparent many years later when they are often irreversible. People deserve to be able to trust that the basis behind what they are being told to do is backed by ethical consideration and behaviour.
What they get charged for that advice is just as much a part of that equation.
In the scope of what I do in advising and working with practice owners to improve their businesses, there are probably 50 or so projects I can draw upon to drive transformation. Within those, there are probably 10 that are most powerful, one of which is pricing.
The Power of Pricing
I often refer to pricing as a “gateway” project.
It’s a topic that shines an analytical spotlight on everything from new client engagement, onboarding, client servicing, process design, systems, and technology – in truth there is very little it won’t expose as needing to be addressed if it does.
Applied to a specific type of practice with specific forces at work, it can add six figures to its revenue in less than 12 months. Even more impressively, 100% of that uplift will also be profit, adding exactly zero additional workload to the existing capacity of the firm.
Pricing is often laden with revelations, as practice owners come to grips with the fact that their beliefs about cost, value, and price might not only be unvalidated but could also be misplaced, often completely baseless and commonly dangerously unhelpful.
It’s also a process of the phrase, “One of the problems with the world today is that good people doubt themselves whilst fools carry on regardless”.
I’ve observed a trend that it’s often Practices with the best intentions who most commonly underprice their advice.
Meanwhile, there’s the other mindset – “Charge whatever you can get away with”
*Shudder*
Setting prices should never be an exercise in seeing what one can get away with. Some of the worst advice I’ve ever been asked to comment on has also often been the most expensive, and it’s not always a coincidence.
Two Forces
Pricing is about two forces. In the red corner, there is what a practice needs to charge to be sustainable. In the black corner is the value the client will receive in return for paying for it.
It’s as much an ethical requirement to consider the interplay between the two as it is to give advice that will likely result in the right client outcome.
If your practice isn’t going to be around to deliver the outcome because of a flawed profit model, then both parties lose.
Saying No
In truth, sometimes getting this balance right involves saying no. Being selective about the work you’ll do with certain types of people.
It’s an important part of being a successful business owner. It’s an important part of being able to work with people who value what you do most. It’s an important part of being productive instead of always just busy.
One of the most insightful realisations many practice owners have when going through this process is how much price sensitivity is overstated.
If consumers were as vigilant with their spending as is commonly believed, many of the cashflow issues many financial advisers assist with would be non-existent.
Humans are more likely to pay for things they don’t need simply because they want it. In truth, price sensitivity doesn’t exist. Only value sensitivity is real.
When they say ‘yes”
Some clients will say yes to your fees even when they shouldn’t. It’s a key part of any pricing project and something that’s important to consider from an ethical perspective before it happens.
The true peril in pricing arises when clients agree to fees without a realistic prospect of achieving their goals while shouldering the costs. This is when not saying no becomes an ethical issue.
At its core pricing is about what it costs to deliver value. As professionals, we must be accountable not only for the advice we give but also for the way we value our services and provide the financial foundation to run great practices.
In doing so, we uphold the integrity of our industry and foster trust with those we serve, ethically and profitably.
Related: From Intentions to Outcomes: Why Plans Alone Don't Guarantee Results