Executive Summary
As consumers increasingly use the internet to research potential products and services, a financial planning firm's website is often the prospective client's first impression. Yet unfortunately, the reality is that most financial planning firms fail to answer the three basic questions any consumer has when visiting the website for a potential professional to hire: 1) What services do you provide? (i.e., what is your value); 2) Do you work with people like me? (i.e., what are your minimums and am I in your firm's target niche?); and most important, 3) How much will this cost?
The last issue in particular is often a sticking point for financial planners, who fear that if costs and fees can't be discussed in person, the client may misunderstand or not properly evaluate the value the firm provides. Yet the reality is that avoiding the issue on your website doesn't help; instead, it simply drives away prospective clients and referrers who move on to the next website/professional who does clearly disclose cost! Transparency is a fundamental factor in building trust... which means being opaque about the cost of your services is not exactly the best way to start a trusting relationship!
The solution, instead, is to clearly communicate the pricing of your financial planning fees on your website; and if you're concerned that clients will not evaluate the costs properly, then provide them "proper" comparisons on the spot! Transparency is crucial to establishing trust, but it doesn't have to exist in a vacuum!
The inspiration for today's blog post is a recent experience I had trying to refer a friend to a financial planner. The situation started out simple enough; my friend wanted a suggestion on another planner to work with in the major metropolitan area where he lived, noting that he was concerned his current advisor was charging him too much for the value he received. Accordingly, I looked to the websites of some colleagues I knew in his area, with a plan to direct him there for further information about what they did, who they worked with, and what they charged.
The problem, however, quickly became apparent. Although most of the sites talked about what they did, few talked about who they work with (making it unclear whether he ever had enough assets to meet their minimums), and even worse - not a single firm provided clear information on their website about how much it costs to work with them! Notably, 3 of the 4 firms were RIAs, which means I could have tried to look up their Form ADV Part II to see the fee schedule - so it wasn't exactly private information. Nonetheless, none of the firms made this easily accessible information, either by detailing their fees, or even by just making a public copy of their Form ADV Part II easily accessible on the website. Even worse, the fourth firm was fee-only and charges clients by the hour... but didn't even state what the hourly cost would be!
Why Aren't Planners More Transparent About Fees?
The sad reality is that the lack of public detail about the fees that financial planners charge was not unique to these firms; it seems to be endemic in the industry, regardless of the compensation model. While some firms are better than others at describing their fees and providing full disclosure in a meeting with a prospective client (which, notably, should always be done to be in compliance with CFP Practice Standard 100-1), virtually no planners provide this information up front on their website!
When pressed about the issue, it seems that most planners indicate that they prefer to discuss fees and costs in person with a client, to explain in detail the services and value provided, and to ensure that the fee is not misconstrued or misunderstood. By delaying the discussion about compensation until it is in person, the planner "ensures" that he/she can control the conversation around cost, ostensibly to put the pricing in the best possible light relative to the value delivered. By contrast, the fear is that if cost information is provided up front on the website, clients may not realize all the value they will receive, or will make a poor apples-to-oranges comparison to alternatives, and the planner will lose potential business.
The Problem With Not Providing Pricing Information Up Front
Unfortunately, there's a significant problem with the approach of trying to wait until an in-person meeting to discuss fees and costs: most people simply don't want to take the time for an introductory meeting, when they have no idea what the service will cost and whether they can afford it in the first place! After all, think about it from your own perspective - as a busy professional, would you really want to take an hour or few out of your day to travel to a meeting where you didn't even know if you could afford to work with the professional you were meeting with in the first place?
Or even worse - would you refer a friend or family member to a professional if you had no idea whether he/she could afford the professional's services in the first place? Doubtful, as referrers imagine the social awkwardness of sending a prospective client to work with you, only to find out that you rejected the friend or family member because he/she couldn't afford you!
In addition, the reality is that being opaque about cost can be damaging to trust as well. Transparency about cost is not something that should be reserved until a client has already taken several steps towards hiring you. In fact, businesses that are evasive about their pricing are usually businesses that consumers run away from (unless it happens to already have a spectacular brand). This is especially true in the digital age, when consumers routinely use the internet to evaluate and compare prices on any number of goods and services. When there are so many providers available, easily researched online, consumers simply don't bother with businesses that hide their prices! It's no coincidence that Amazon - the epitome of clear, transparent pricing - is now the most trusted brand in America!
Discuss Pricing Properly By Providing Appropriate Comparisons
So what should you do if you want to provide transparent information to prospective clients up front, but are still concerned that they will not evaluate your costs properly without the context you can provide in a conversation? Provide the context for them when you deliver your pricing information on your website!
As I've written previously on this website, the reality is that when most clients look at the cost of your services, they intuitively begin to compare to other things that have a similar cost... despite how illogical the comparison may be. In point of fact, asking "...compared to what?" can be a powerful way to help clients find clarity about the value of the services you provide; when a client indicates that your services seem "too expensive" it's entirely possible that it's simply because they're making an inappropriate comparison.
For instance, imagine a client considering a disability insurance policy with a $5,000/year premium, thinking "Wow, my wife and I could take an exotic vacation every year with that money! Is this insurance really worth giving up a chance to see the world every year?" A common response from a planner might be "Yes, but this is only 3% of your annual income; isn't it worth paying 3% to protect your family from financial distress if something happened to you, and still ensure that your kids can go to college and your wife can retire happily?" Put into a different context, the cost suddenly doesn't seem quite so bad.
Accordingly, you can do the same thing on your website! Just because you provide up front pricing information transparently doesn't mean you have to present that information in a vacuum! A 1%/year fee doesn't have to just be 1%; it can be 1%, compared to an industry average cost of X%, where the average cost of an actively managed mutual fund is Y%. Similarly, it doesn't have to be a retainer fee of $1,000/year; it can be a retainer fee for less than the cost of your monthly cable bill! A financial plan doesn't cost $2,500; it costs 15 hours of time for myself and my staff to craft extensive, customized solutions for your needs; imagine what you could do with the 2 full working days I've saved you!? If your services have a range of potential prices, provide the range and some insight into the factors that impact the price.
The fundamental point: you have the ability to ensure that your clients anchor your cost to an appropriate comparison point by simply providing it to them on the spot! Fearing that clients will not view your pricing in proper context should not be an excuse to avoid transparency; it should be a reason to provide more information and context about your pricing!
Give Prospective Clients The Information They Want And Need
The bottom line is that when a prospective client - or a potential referral source - shows up on your website, there are some fundamental questions that any reasonable consumer will ask:
1) What services do you provide? (i.e., what is your value)
2) Do you work with people like me? (i.e., what are your minimums and am I in your firm's target niche?)
3) How much will this cost?
Providing this information clearly, quickly, and transparently, helps to engender trust and move the prospective client or referral source forward. And if you're concerned about whether prospective clients will make "appropriate" comparisons to evaluate your pricing and value, then help paint the picture for them!
But remember, failing to provide the information clearly doesn't avoid the issue. Your firm's website is likely your client's first impression, and you don't want to start off on a bad foot! At best, not clearly answering the three questions above makes the prospective client do extra work just to get the necessary information - which is not a good way to start a relationship! - and at worst, simply encourages the client to move on and research another financial planner for services instead!
Another very thought provoking article, Michael. I’m not a financial advisor. I coach financial advisors and I do not put my fees on my website. Mostly because I been advised that a prospect has to thoroughly understand the value I provide first. Demonstrating the value I provide cannot be done in writing. It comes only after an in-depth interview and understanding of the prospect’s situation.
good point, I don’t show price on website, instead, I offer two hours’ interview to let them understand what is financial planning and the cost, free of charge
I feel like some consideration needs to be given to the type of services a planner is trying to provide. Neil Rackham’s book “SPIN Selling” explores many of the differences between high-value and low-value sales processes. A product sold on Amazon is highly commoditized (you often have no clue who the seller is, but you don’t care because the product is seen as homogeneous). There is a tremendous amount of heterogeneity among financial planners though. Even planners within the same firm will differ in specialties, life experiences, hobbies, demeanor, etc. From this standpoint, it is reasonable to expect that consumer search behavior may differ among sales categories. For instance, the more commoditized a consumer views a service (perhaps online financial planning, investment advice, etc.) the more applicable the “Amazon strategy” may be; while a more specialized or high-end service offering might be better suited for a more price discreet marketing strategy (as is common among high-end consultants, attorneys, country clubs, apparel, etc).
This idea will become the future, I look forward to seeing this unfold
Michael, in a perfect world your proposal might work. But, the world’s not perfect and your proposal can’t work.
Your comment, “Accordingly, you can do the same thing on your website! Just because you provide up front pricing information transparently doesn’t mean you have to present that information in a vacuum! A 1%/year fee doesn’t have to just be 1%; it can be 1%, compared to an industry average cost of X%, where the average cost of an actively managed mutual fund is Y%.” is problematic.
How do I determine:
1. The industry average cost of planning services (and what all is included for that cost).
2. What is the average cost of an actively managed mutual fund (this is probably simpler to determine).
3. What exactly what is provided by those firms (and are we to include pro bono time and services that many/most of us provide)?
Most importantly, though, is the sources of information being used in this comparison. Try posting on your website erroneous information about “average costs” and you darn well better be able to back your claim because the regulators will surely require you to back your claims.
I work in the financial services industry (time with institutions and regulators) and tried to find a financial advisor for my parents. I thought it would be easy because of my background, but it was really tough. I must have looked at more than 20 websites for wirehouses, IBDs, and RIAs. I couldn’t find #’s 2 & 3 for well more than half of them, including some well-known names in each space. For those that didn’t provide the information or I couldn’t find after clicking on every tab and link, I just ignored. Why hide it? I eventually compiled a list of several firms, with a range of pricing. That’s the art of shopping and finding the so-called value proposition. I certainly wasn’t going to drag my parents to a firm (they were already reluctant shoppers) just to find out they didn’t meet a minimum or the fees were clouded in smoke. Great article!!
Why don’t you state your price on your company website? Have you changed your mind?
Boris,
No, haven’t changed our minds at all. We just took it down temporarily while we’re working on some updates to how we communicate pricing information, and sort out how best to do so given that we now work directly with clients and also offer outsourced services to other advisory firms and just want to minimize any perceived conflict from prospective clients on either side.
Notably, we could see an almost immediate decline in the frequency of web-based prospect inquiries when we took the pricing information down. It definitely matters!
– Michael
Very helpful thanks!