32 – Courses for horses: scoping your client engagement

Throughout this guide we have stressed the need for the pricing strategy to match the needs of the practice’s clients. If clients insist on any one of the pricing models, then that is usually the model that should be implemented.

In a related way, the amount of work that the practice does for a client should be tailored to the needs of each client. The basic idea is this: only do for clients what you need to do for clients. This is especially the case for the two pricing models that do not use time-based fees (FUM-based pricing and project pricing). Under both of these forms of pricing the faster an adviser can get work done, the more profitable will be the practice.

So, get the client to do as much of the work as possible. Remember, the implementation of a financial plan involves two stages: the development of the plan, and the implementation of the plan. We can call these stages ‘advice’ and ‘administration.’ Of these, it is the advice component that requires the specialty service of the adviser. Quite often, the administration can be left to the client to do for themselves.

For example, consider share investing. Dover has an aversion to financial advisers placing buy and sell orders or otherwise being involved in the administration of direct share investments. Clients for whom buying and holding direct equities is a good option should, at a minimum, be able to buy and sell those shares on their own behalf. If they cannot, then direct shares are probably not the right option anyway. We explain this principle further in our guide to direct share investment.

By delegating the administrative work to the client, the adviser frees up his or her professional time to allow them to give more advice. Let’s look at an example.

Imagine that it will take ten hours to develop and implement a financial strategy. Three of these hours are the establishment of the strategy (including writing the SOA). The remaining seven are its implementation (filling forms, etc). Now let’s say that an adviser makes the following offer to her client: “I will charge you $3,000 plus GST to develop and implement your strategy. Alternatively, I will charge you $2,000 to develop the strategy and show you how to implement it. You can then implement it yourself.”

Most clients will accept the discount, especially when it is couched in this way. Showing the client what to do takes an extra hour. This brings to four the adviser’s time contribution. Four hours’ work for $2,000. If she can find another client with the same needs, the adviser will now spend eight hours and earn $4,000. And so on. This is far better than ten hours for $3,000. 

This is a common situation. It arises because the value added by the adviser’s time typically diminishes with hours spent. Most of the benefit of the adviser’s time comes in the relatively few initial hours spent on the client file. This is the higher-end, strategic, contribution. The following legwork is necessary, but of less value on a per hour basis. Very often, this work can be done by the client themselves.

The Dover Group