Introduction

The purpose of this module is to encourage you to think about how much your firm should charge for advice. The aim is to ensure that you take full advantage of the opportunities created by pension freedoms without overcommitting, which can make it impossible to provide the level of service that your firm and your clients want to see.

The pension freedoms have not only greatly increased the demand for one-off advice; they have also created a need for ongoing advice. So whilst this was also true of pension drawdown, many more clients will want to explore their options around drawing income from their invested pension rather than buying an annuity.

To deliver the best service, you will need to take all the client’s accumulated assets into account as pension freedoms brought new opportunities and complexity around developing tax efficient income and legacy options within and outside the pension. To meet those demands successfully, advisers need to address a fundamental challenge for any business: to find a price that clients will accept which also creates a sustainable level of profit.

You need to understand what value means to your clients and how they define satisfaction.

Value is an emotional experience as well as a monetary one – it is the feeling that you are getting a good service at a reasonable price. The problem for an advisory business is that because service is often intangible, when clients make decisions they often revert to something tangible: price. The Centralised Retirement Proposition (CRP) framework is useful here: the tax, investment and withdrawal policies show clients exactly where your advice is adding value and, in some cases, how much this could save them.

Businesses sometimes price their services too low and then struggle to service the demands of their clients. Clients usually then become unhappy, when in fact they would have been prepared to pay more. The key is to focus on value, not price.

The ‘ball park’ theory

The nature of the relationship is by far the most important factor in client satisfaction. You need to meet the emotional needs of your clients by creating and delivering a client proposition based around relationship and advice, rather than simply price. As long as the price you charge is in the client’s ‘ball park’, then they will feel that they are getting good value. However, even if the price is out of the ‘ball park’, emotion will still determine the client’s decision.

It’s worth remembering that clients in retirement will be looking for different services than those saving for retirement. Their values will also be different, for example they may be looking for financial stability rather than you delivering them the top investment return.

The following steps will help to determine the cost of service delivery.