Whether it is a free sample in the grocery store (where the store hopes the sample convinces the shopper to purchase the item), or ‘Freemium’ software (where the developer hopes that consumers using a more basic version of their software will lead them to purchase an enhanced version), consumers are used to being offered free goods as part a company’s marketing process. But offering free financial plans remains controversial in the financial advisory community. Even if some prospects could become clients as a result of receiving the free plan, some advisors ask, might offering plans for free reduce the perceived value of financial planning in consumers’ minds?

A research study conducted by Kitces.com Lead Researcher Derek Tharp suggests that offering an initial financial plan for free doesn’t reduce the value of the plan in consumers’ minds. Furthermore, not only may it be the case that free financial plans don’t diminish the perceived value of financial plan, but offering paid one-time plans at typical fees charged by advisors could actually decrease the perceived value of ongoing planning relative to offering free initial plans! In an experimental study, participants were given a scenario in which they received a $1 million windfall inheritance and were seeking out an advisor to help them manage it. The participants were divided into four treatment groups based on the cost of their initial financial plan: either free, $1,000, $2,000, or $3,000. They were told that the advisor’s planning strategies would save them more than $500,000 in taxes during the next 30 years, and were then asked what they thought a reasonable annual fee would be to pay for ongoing services from the advisor.

While some observers might expect that participants in the experiment who were told the initial plan was free would pay less for ongoing services, those who were told they would receive a free plan suggested the highest price of all treatment groups! One possible explanation for this effect is that the price of the initial standalone plan set expectations for the participants of the value of ongoing services. In the case of the experiment, those who were assigned a non-free price for the initial plans perhaps used their respective prices as ‘anchors’ when estimating the value of ongoing planning, using those prices as reference points when considering what ongoing fees would be reasonable, whereas those who were to be given the free plan did not have any such reference points to work from (and perhaps were compelled to focus more on other details, such as the given amount of projected tax savings).

Ultimately, the key point is that goods or services that are ‘free’ are not necessarily perceived as having lesser value; on the contrary, research suggests that clients might be more willing to accept higher annual fees if they are provided with a free initial plan rather than one with a price significantly less than the advisor’s ongoing fees. Which means that advisors may want to consider either increasing their fees for initial plans (raising client expectations of the cost of ongoing planning), or using a model with a free initial plan that helps the client better understand the value of the advisor’s services and, at the same time, avoids an ‘anchor’ price that weighs down their expectations of the advisor’s fees!

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Self-worth can be an important component of an individual’s well-being, but people often base their own sense of self-worth on how they compare with others around them. And because finances are often a part of that comparison, the financial situation of the people we interact with on a regular basis can have a significant effect on how we perceive our own self-worth. For financial advisors, this could mean that comparing themselves to their own clients (who tend to have high incomes and net worth) can have negative effects on how they view their self-worth, especially when they believe that their level of success or income does not measure up to that of their clients.

According to Kitces Research on Advisor Wellbeing, advisors on average do tend to have a high sense of self-worth. But despite being high overall, there is a small but clear pattern in which advisors’ self-worth declines as the net worth of their clients grow, with a steep drop-off coming as clients surpass $2.5M in net worth. Which suggests that being around high-net-worth clients can cause financial advisors to be constantly reminded of those clients’ affluence, and how their own financial status compares.

The effects of social comparison on advisors’ self-worth can also be felt when advisors move ‘upmarket’, serving more affluent clients as they gain experience in their careers. Doing so can cause the advisor to move out of their financial comfort zone, because if they originally served clients who were closer to the advisor’s own peer group and upbringing, moving to serve clients of a different socioeconomic status can cause tension between the advisor’s own values and attitudes toward money and that of the clients they serve. Which can in turn cause the advisor to feel as if they are inadequate to serve their (more affluent) clients’ needs, or unable to relate to those clients’ goals and desires – either of which might cause the advisor to feel dissatisfied with their place in life and consequently lower their sense of self-worth.

It is important, therefore, for advisors to avoid the traps that could cause their self-worth to suffer from over-comparison to their high-net-worth clients (since serving these types of clients is, for many advisors, the hallmark of a successful career). One method is for advisors to mark their own progress over time, not only in terms of income and net worth but also in terms of skills and overall life satisfaction. Comparing our progress and improvement over time by benchmarking against our own past performance can help us feel (just as we often help our clients feel) the satisfaction of making progress toward our goals.

Another way to improve self-worth is for advisors to use their knowledge to help those who are less affluent, such as providing pro-bono financial planning to those who cannot otherwise afford professional advice. Aside from the intrinsic benefits of helping those who are less well-off, this can also serve to balance out the feeling of having only highly affluent clients and can help the advisor feel more confident and useful in their ability to provide valuable, impactful advice.

Ultimately, maintaining a healthy sense of self-worth is key for financial advisors to stay focused on themselves and the positive impact they are providing through their advice. While social comparisons are inevitable – being hard-wired into most of our brains – it is possible to reshape and augment those perceptions by deciding who to compare ourselves to, which gives us the power to determine (and improve) our own self-worth!

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