Wealth managers should stop worrying about losing affluent clients if they don't offer discounts, according to the Boston Consulting Group's latest Global Wealth Report.
Approximately 90% of clients with more than $250,000 in assets "are not fully aware of what they pay," according to research cited in the 2018 report. What's more, on average advisors charge about one-third of their clients "at rates below the target pricing level," the report states.
"There is rampant discounting for no logical reason," says Brent Beardsley, BCG managing partner who heads the firm's U.S. practice. "Relationship managers want to do the right thing for clients, but they often negotiate against themselves and end up leaving money on the table. Whenever we ask clients the most important criteria for choosing a wealth manger, price is never a factor. Trust is much more important."
As the report puts it, while clients "appreciate discounts as a gesture, they often do not remember details such as the specific amount in question."
Ultimately, the report states, most clients focus on whether they are satisfied with the overall experience.
Advisory firms have a "misperceived risk of client attrition," according to the report. "By and large, wealth management clients are not especially price sensitive; they tend to have a fairly low awareness of the fees that the wealth manager charges."
Pricing will be especially important when the bull market ends and firms need to prevent deterioration of profit margins as they seek to maximize revenues, the report notes.
QuoteClients tend to have a fairly low awareness of the fees that the wealth manager charges.
Indeed, wealth management firms can boost revenue from 8% to 12% by adjusting price levels, correcting unnecessary discounts and simplifying their pricing structure, according to the report.
Price measures are "easy to quantify and require little investment," the report states. "When blended with new data and analytics tools, they become truly powerful."
So how can advisory firms optimize their pricing?
- Examine the data and ask the right questions.
Key questions, according to BCG, should include: How large is the gap between actual and target revenue margins?
Are advisors applying discounts when appropriate and removing them when no longer necessary?
Are prices consistent across similar types of clients?
Does the firm have pricing guidelines?
Is there an approval process for granting initial discounts and reviews of existing discounts?
Are fee increases applied to existing clients?
- Define your pricing structure.
Define minimum prices for clients, establish prices for different client segments, advice and portfolio management. Set charges for ancillary services.
Make sure your prices reflect your value and are competitive in local markets and don't let allow pricing systems to become complex and opaque.
- Bundle products and services.
"Product and service bundling can help maximize revenue if properly linked to the overall pricing architecture and to the value proposition for each client segment," the report states.