Properly Valuing Your Advice
Financial Advice & Financial Planning & Professional Services & Value Proposition

Properly Valuing Your Advice

August 22, 2016

by Tony Vidler  CFP logo   CLU logo  ChFC logo

properly valuing adviceI am really poor at valuing the advice I give.


Always have been I think.


But then, that isn’t unusual for financial advisers is it?


In my experience most financial advisers are poor at valuing the advice they give.  This is despite a number of excellent studies highlighting the difference an adviser can make to a consumers wellbeing and net worth, as well as the experience of the advisers themselves over the course of their careers.  It is worth noting that I am not referring to being poor at expressing the value – which we usually are – but we are poor at actually putting the proper value on the advice itself.


And there is clearly value for consumers in being advised. One of my favourite pieces of research was done not that many years ago in Canada:

valuing financial advice

This graph is just one snapshot from the report of course, and the research indicated that the longer that the consumers were advised the greater the impact on the consumers net worth in comparison to the non-advised.  It made the point very well that much of the difference can be attributable to the creation of a plan, bringing in good disciplines and habits, providing accountability, and reviewing and amending plans.


If the impact of advice on a typical consumer is that their net worth grows at 2.7 x that of the non-advised over a 15 year plus period, then what value should we place on the advice?


valuing adviceLet’s say a typical planning client first takes advice from us when their net worth is perhaps only $250,000 (and we ignore inflation, etc, etc) then the research suggests that there is a very real possibility of the client’s net worth being over $400,000 higher than it otherwise would have been in 15 years time.


So what value should we place upon the advice we provide?


My feeling is that perhaps it is not a bad thing for an adviser today to use such research in their marketing and initial client meetings to highlight the value of preparing a plan and working with an adviser to follow it.


At the very least it should put any initial planning fees into their proper perspective.  After all, who cares if it cost $5,000 to create an extra $400,000 or more in value?


Link the value of advice to the outcome that the client will experience rather than to the fee they pay today, because the value is in the end result not the initial planning.


You might also be interested in this related article:

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