In this episode, host Rob is joined by Phil Little, a pricing expert and consultant from Slipstream Group, to discuss one of the most pivotal levers for business growth: pricing. Whether you’re rethinking outdated pricing models or seeking to ensure fairness and profitability across your client base, this episode is packed with actionable strategies and expert insights to transform your business.
LISTEN
SHOW NOTES
Key takeaways
- Why Pricing Matters
- The three critical levers for business growth.
- How pricing impacts profitability and sustainability.
- Common Pricing Challenges
- The “sedimentary rock effect” of inconsistent practice management initiatives.
- Warning signs that your pricing model needs a review.
- Key Pricing Methodologies
- Pros and cons of percentage-based, fixed-fee, and tiered pricing models.
- Strategies to mitigate risks from fluctuating market conditions.
- Achieving Consistency in Pricing
- Why pricing inconsistencies across clients are a common pitfall.
- The importance of applying a fair and transparent methodology to all clients.
- Tools and Resources for Effective Pricing
- How to use fee calculators and CRM-integrated pricing tools.
- Tracking client fees and forecasting revenue for better business planning.
- Addressing Client Discount Requests
- Strategies to communicate value and maintain pricing integrity.
- The importance of a pre-agreed methodology for special cases.
- Real-Life Insights from Successful Practices
- How a Melbourne firm implemented a pricing uplift with no client attrition.
- The confidence boost advisors experience when adopting a clear methodology.
Episode quotes
- “Fairness isn’t just about what you charge—it’s about consistency and transparency with your clients.”
- “The real power of pricing is that it can transform your business without making dramatic structural changes.”
- “Most fee uplifts aren’t about charging more; they’re about applying your existing methodology consistently across the board.”
Resources and links
- Slipstream Group
- Kitces and Carl Podcast, Episode 152
- Episode 2 of The Trusted Adviser podcast – Financial Planning Business Valuation with Tim Lane
TRANSCRIPT
Welcome to The Trusted Adviser Podcast, where you get a deep dive into the world of financial planning with industry leaders who shared their stories of winning and learning as they charted their path to success. This podcast is for the curious, those of you who like to dig into the details; if that sounds like you, get ready to listen and learn.
Rob Pyne:
Welcome to The Trusted Adviser Podcast. Today’s episode is a masterclass on one of the most pivotal levers for business growth pricing. I’m joined by Phil Little from Slipstream Group, who is an expert consultant with a deep understanding of what makes a pricing strategy not just effective, but transformative. We take all the big questions. Why do so many businesses wait until they’ve had enough in inverted comm to address outdated pricing models? How can firms avoid the sedimentary rock effect of layering inconsistent fee methodologies over time? And what tools can you use to ensure every client is priced fairly? Phil shares actionable steps to evaluate your pricing, bring consistency across legacy and new clients, and empower your team with fee confidence. Whether you’re navigating client discount requests, setting benchmarks for profitability, or wondering how often to adjust your pricing model, this episode will equip you with practical tools and valuable perspective. If you’re ready to stop leaving money on the table and start building a more profitable, sustainable business, you’re in the right place. Let’s go. Welcome Phil Little to the Trusted Adviser podcast.
Phil Little:
Thanks, Rob. Great to be here.
Rob Pyne:
I’m really looking forward to this chat, Phil, because it was three years ago that we sat down together and you were about to head off on some holidays and you said, I can probably squeeze you in for a consulting engagement for a couple of months. And we did that and you called that Project Uplift, and it was really about reviewing our pricing methodology, how we’d arrived at what we had and where perhaps there were gaps that you could identify for us to say, perhaps you could do a little bit better here. Guys. We knew that we weren’t perfect, and I don’t think anyone thinks their pricing’s perfect, but we really were keen to get a third party oversight of that. And with your experience as an adviser, as a business owner and the coaching clients that you see, we thought you were well placed to give us that really deep insight into what we could do better on our own pricing. So I’m looking forward to having a bit of a deep dive on pricing with you today, Phil.
Phil Little:
Nice. Yeah, looking forward to it.
Rob Pyne:
So let’s start off with, I think the inevitable question that everyone approaches thinking on pricing. Why is it important for financial planning businesses to periodically review and adjust their pricing methodology?
Phil Little:
I’ve got a view about this, and it’s not just financial planning businesses, it’s really any business. And I think about this as I’ll probably return to this point lots of times. As an owner of the business, you’ve only got three big levers to pull. You’ve got what is this product or service that I’m delivering? So the design of the product or service, what does it look like, how many times I do it? So that’s one lever I can pull. What is this product or service? The second lever I can pull is, who are the people I’ve got working for me? But the third lever, and there’s only three, is how much does this thing cost? And so the question you ask is, why is it important? Well, it’s as important as each one of those three levers. In other words, it’s critically important.
Rob Pyne:
So who have I got to work with me on this business that we are working together on? What service do we deliver and then how do we price it? And essentially, some would argue that the one that has the most impact if can be actually executed in a reasonably short period of time is pricing. It’s the one that actually can have direct impact on the bottom line of the business and allow it to grow without having to make dramatic changes. Albeit it is a significant change and advisers that have to go through that process naturally approach it with some level of hesitancy. So what common challenges do businesses face when they are approaching this question perhaps with an outdated or ineffective pricing strategy?
Phil Little:
So there’s a couple of angles for that question. The first is, if I’ve got an outdated or inefficient pricing strategy or methodology, how does that play itself out? Well, plays itself out in a couple of ways. As coaches, we’ll come in and we’ll do a diagnosis on a new firm that we see, and that goes across the whole of their business. Each of those levers I described the whole lot, and there’s some always telltale signs. So for example, if a firm is chronically, we’re talking about financial planning firms here because we deal with accounting and FP firm, definite firm is doing a margin under 30% or certainly under 20%. There is a serious problem there in a profitability right now that might be a reason. They might be sort of set sailing for high growth or whatever. But if they’re a mature business and they’re 80 or 90% of the revenues coming from ongoing revenue and their margin, their EBIT is below 30 and certainly below 20, there’s a high chance there’s a pricing problem in there.
Now you asked the question about, well, why is there a problem? Well, it’s really not the pricing that’s the problem. It’s the lack of margin that then creates a problem. If I’m running a financial planning firm, it’s running at a 15% margin or 20% margin. The lower down I go that scale the worst, the problems get the lower down the scale. I’ve now got a cashflow problem. If I’m low down the scale in terms of margin, then I probably don’t have enough profit to invest into the future. I’m probably having trouble holding onto my team, et cetera, et cetera, et cetera. So I’m continually on the defence. So to me, the way pricings are really critical, one of those two or three really critical base line foundational things that if you get right, allow you to get on the front foot. And that’s why it’s important project, I think.
Rob Pyne:
Yeah, and so it’s really that margin, as you say, operating margin, profit margin, that is the perhaps key warning sign that maybe the pricing formula the business is operating with is no longer working in your coaching experience. Are there other things that you identify? Pricing’s a key one and obviously can be really addressed quite directly. What else can you see when you see businesses to say, well, perhaps there’s other issues here. Pricing is one of them clearly, but there’s other things here that are key warning signs.
Phil Little:
Look, it can play out the number of ways. Remember I said those three pillars as a coach, we’re going to withhold judgement for quite a while to work out what the problem is. For example, I might have a service offering, and I can give you examples of all of this where the first thing I’m going to look at is what is the percentage of your revenue that is transactional or one, one-off. Now, if that is a high number, if the percentage of your revenue that is on one-off work or transactional work pounds to peanut, you’re going to have a pretty ordinary margin. So straight away, I know that that’s almost certainly that’s going to be the case. Secondly, if I’ve got a big long tail of small clients, it’s going to be very hard for me to run at a reasonable margin. So one of the first things I’m going to do is how many clients do you have? What’s the breakdown? Et cetera, et cetera, et cetera. So they’re the sort of things when we’re trying to work out where the problem is, we’re cruising around and looking at what is it that you do? How much of that is transactional? Are you dragging along a big tail behind you that’s just making it really hard to make a margin? And pricing is intertwined in all of those issues.
Rob Pyne:
I spoke to our mutual friend, Tim Lane from Fin Connect advisery episode too, and he talked about this tail, and I asked him, what is the threshold now in his view for, because when he’s valuing a business, he looks at that tail and says, well, we can’t value that client. His view was at least three and a half thousand dollars minimum recurring fee on a client before you would begin to value that client. Does that consistent with your view, Phil?
Phil Little:
I think roughly speaking that’s true. Although we have clients across Australia, and if I’m dealing in Rockham or in Grafton, that number might be different to if I’m dealing in Martin Place now, that’s fine. So if I’m in ROCKHAM and the average is four grand, that’s fine. I can work with that, but I need to then have a service proposition that is really quick, really efficient. I can still make a margin out of that four grand. I don’t have a lot of room to move,
Rob Pyne:
So you can’t offer the best service and the lowest price,
Phil Little:
Those two things can’t go. So I can actually make money out of an average of four grand, ongoing average, but that might manifest itself in, we do one review a year. We’re using really index funds. We’ve got a system that allows us to get the review paperwork out really quickly and efficiently, and I can still make money out of that. If my average ongoing is 12 grand and I’m in Sydney or in Melbourne in CBD, I’ve got more room to play with there. But if I’m inefficient, my margin’s still going to get smashed
Rob Pyne:
For sure. So when is the right time for a business, a financial planning business or an accounting business, if you like, but in this case, we’re thinking about financial planning. When is it the right time to review the pricing methodology?
Phil Little:
So there’s two answers to that. When’s the right time and when do people actually usually do it? When people actually usually do it is when enough’s enough, they’ve just had a gut full, I’ve had enough of having 20% profitability. I’ve had enough, I’ve lost three staff in a clump, something’s got to change, I’ve had enough, et cetera, et cetera, et cetera. So the answer to that question really is when does it usually take place? It usually takes place when people have said, I’ve had enough. So that’s the truth of it. It is interesting when we go along and do a diagnosis. When I do a diagnosis about pricing methodologies, reviewing it too often can be a problem as well, like sedimentary rock, the idea of sedimentary rock where they go down over a million years and they see sandstone and granite and blah, blah, blah, blah, blah, blah.
Rob Pyne:
Yeah, I know what you’re talking about. I like the analogy.
Phil Little:
Sometimes I’ll meet a financial planning firm and I’ll go through their fee methodology and a sedimentary rock. Oh, five years ago you went to a conference where they were talking about that. Oh, three years ago you went to a conference. They were doing that seven years ago and I can follow it. And so in other words, what they end up with in 2024 is six different pricing methodologies running at the same time through the firm that were all things that they implemented in a burst of enthusiasm after going to a conference and then they ran out of puff.
So I suppose what I’m saying is that reviewing a pricing methodology is really critical. It usually takes place when there’s an event or I’ve had enough, but in redesigning pricing methodology, you need to make sure that it’s got enough design features in it. That means you won’t have to change the methodology for 5, 6, 7 years. You might change the inputs, you might change this scale or you might change this. You might warn your clients you’re going to CPI ’em every year, but the fundamental methodology doesn’t need to be changed.
Rob Pyne:
That’s a really important insight actually, as you were saying that, I was thinking exactly the same thing, that the methodology should be robust such that you can change some of the variables. You might say, well, we’re going to increase a slight margin on this piece, but essentially the method stays constant. Totally. So how often would people then be reviewing the inputs, if not the
Phil Little:
Methodology? Yearly? Definitely annually. So I’ve got a really strong view about this. So we’re used to in the financial planning world of having templates, SOA template version 1.3, then 1.4, then 1.5, and at any point in time, I am using the template SOA template 1.5. There’s ifs, buts, maybes. I’m using template 1.5, and on this day I use 1.4 on the following day I use 1.5. We’re so used to that and there’s ramifications if we get those templates wrong. I’ve got a very similar view on pricing at the core of every firm, both accounting and FP that we deal with. The design of the pricing methodology then makes its presence felt in the design of a pricing calculator. The pricing calculator is a template, and at the moment we’d be working the HPH 2024 fee calculator, and that might run all the way through to the 28th of February 25. And on the 1st of March, it’s the 2025 HPH pricing calculator. Simple as that. Those inputs change on that date.
Rob Pyne:
That makes a tonne of sense because essentially costs are going up, people get, salaries are increasing each year. So essentially the inputs must reflect those increased costs over time. If the methodology is sound, there’s no need to alter that process, but the inputs must alter.
Phil Little:
You give your clients pre-warning that this is our fee methodology, we will adjust it for CPI every year. Now, there’s just one other additional make to that, and this probably will come up later on. We are really agnostic about what fee methodology someone uses, and there’s a range of them and a common methodology that’s in place at the moment that we do a lot of where you might have someone pays an amount, which is the core retainer if you like. The core monthly fee might be, let’s call it 600 bucks a month. And that just gets you the basics, and that includes the two reviews a year or whatever, whatever. But then what a lot of firms will do is they’ll have a series of menu items if you like, for extra complexity. I’ve got multiple entities, I’ve got gearing, I’ve got employee share schemes, whatever, whatever, whatever. And so you might have someone that’s got the standard offering of 600 bucks a month, but because they’ve got two or three of those other complexities that might blow it out to 800 bucks a month. Does that make sense?
Rob Pyne:
Yeah, it does.
Phil Little:
Right. So the fee calculator stays the same, but every year we run that client through the fee calculator because that client this year may be more or less complicated than they were last year. In other words, no, no, they’ve retired. They don’t have a family trust anymore. They don’t have SMSF, so they’d become less complicated or the reverse is true. So the actual calculator itself needs to be adjusted for inflation every year, but the individual client needs to be assessed about whether they are using more or less of those services than they did last year.
Particularly For accounting firms, the terminology we use is mission creep. So the client that’s paying 500 bucks a month this year as their business gets more complicated and they have more entities and all the rest of it should actually be paying 800 next year, but the accountant just does a CPI on them, and that’s a real trap.
Rob Pyne:
So really what you’re saying is it should be part of the client review process. You should be running it every year. You’ve read my
Phil Little:
Mind. That’s 100%. It’s just an integral part of producing those review documents is running the client through the fee calculator.
Rob Pyne:
So you’re doing it a business level review of the inputs separately, annually, and you’re doing individual review of each client at the review process of how the fee calculator is applied to their circumstance, their scenario.
Phil Little:
Exactly right. Philosophically my view, we are used to the idea that pricing is the smartest person in the room, applies the pricing to each client, and that’s a really, really, really bad mistake. When firms get in a muddled with pricing, it’s usually the smartest person in the room concept. I’ve got the view that the most junior person in the firm should be able to run that client through the calculator, and the end result that they pump out is the same as the most experienced person in the firm
Rob Pyne:
Because it’s a formulaic method, it doesn’t require some finger in the wind approach. It’s really there’s a method agreed upon in advance. Everyone knows the method and follows it.
Phil Little:
So the thought process and the design work goes in the design of the methodology. I understand that, but the application of it, no, the person that’s doing my review paperwork should be able to run the fee calculator.
Rob Pyne:
So when a business is looking at reviewing their methodology, back to that sort of bigger question of do we have the right approach here? Forgetting about the inputs first, but just the right approach, who should be involved in that pricing review methodology?
Phil Little:
Right. That’s a really, really good question. And the most simple answer to it is at a minimum, any person that is going to be involved in a one-on-one conversation with a client about your fee is going from 500 bucks a month to 700. Anyone who’s involved in that conversation needs to be involved in the design as a minimum. So in the case, Rob, when we did that project with yourself from memory, we had about half a dozen of your team plus yourself. Now, when you have bigger firms that have got multiple advisers, that makes the process go longer, and that’s okay because the person needs to be able to get that fee increase over the line with conviction. There’s no point having them bludgeoned into a position where they don’t really believe in. There’s no point in that and provided your patient, you’ll get to an outcome where we can all sign up to that. But if you have multiple advisers, you just need to be impatient and it will certainly take longer. There’s just more moving parts.
Rob Pyne:
Yeah, that makes absolute sense because you’ve got to bring the people that are going to be communicating that price to clients along for the ride. They need to understand, they need to be providing input and their own thoughts and really develop their own level of what I’ve just heard recently called fee confidence. They have to have a level of confidence in their fee and without being involved in the process and just being, just deliver this without any context necessarily as part of that process of review, it can be a challenging.
Phil Little:
I’ll give you an example. This is a really big firm in Melbourne. They’re accounting, NFP. We did a big uplift and it was in the high hundreds of thousands of dollars, like a big one. There was seven accountants involved, and there are accountants too. So they’re totally out of their comfort zone. They thought they would lose 30% of their client base. They lost none, not a single one.
And what was interesting and list a podcast, people would listen to this and say, oh, this is just bullshit. But I’m telling you the truth and I’m telling you their feedback from two weeks ago was that we were in a room, we had seven of them, myself and the gm, and to a person, they said, do you know what’s interesting? I was so terrified out of this process. I just feel so much more confident as an adviser out of this process. And I think it’s actually strengthened the relationship with the client. They knew I was out of my comfort zone, but I was determined to follow through. And I think that’s not an uncommon reaction that happens all the time.
Rob Pyne:
Yeah, wow. I would’ve been super impressed with that outcome. Just to expand on that point, just for a moment and reference it where I heard it, the Kiters and Carl podcast was episode 1 5 2 where they were talking about how do some firms develop fee confidence and others don’t have it, and perhaps underpricing is a function of that lack of confidence. And one of the suggestions that Carl Richards put forward in that episode was the fact that he used to keep what he called a stoke file, which is when anyone ever says, you’ve been amazing life-changing the impact you’ve had on lives. He used to keep that as a reference just in case whenever he started to have doubts, he could refer to that file and say, this is the impact we’re having. And so it would reinforce his conviction over the way he was delivering advice and the service that the clients were experiencing.
Phil Little:
Totally agree. And look, Rob, we did this with you and your team, and people want this like a hole in the head. I understand it. But we work with firms, we help them design a script and we do role plays. And whoever’s listening to this podcast, I can see them just going, oh my God. They’re holding their chest saying, that’s a nightmare. I promise you I would stop doing it except that it works, which is why we keep doing it.
Rob Pyne:
And we did that with you, and we do have that script. I actually dug it up and had a look at it. Again, we obviously go through that process with clients, and I remember coming through that and really feeling everyone really bought into the way in which we were going to communicate it. What were the things that sat behind that? I’ll take a minute now just to reflect on a couple of those. I think it’d be really worthwhile without giving away all of your secrets, Phil, but just to say some of the things that we came up with. We said things like, well, Mr. And Mrs. Client change had happened in the financial planning space over the past 10 years. There’s been increased training and study and costs. There’s been a wholesale departure by the banks and super funds, and it’s a big deal. Industry has gone through dramatic change.
We’ve been around for 20 plus years, and to survive and thrive over the next 20, we need to adapt. And rather than winging it, we’ve got expert advice on our, our organisation and how we charge as an award-winning firm. We’re determined to remain among the best in the business and continue providing you with a high level of service. We have good people, we need to pay them well. We need to keep attracting good people. And then we say here at the end, we’ve sprung this out of the blue on you, here’s the fee agreement. We’re doing this across the business and the fact that we’ve been charging isn’t your fault, but we’re going to take our time to get to this point with you, and we just give them the chance to review it, take it away. It’s up to them. And building that sort of case, that story behind why we had to make adjustments.
There was more points here, and I won’t labour all of them, but there were a number of things that you helped us sort of just bring to the fore in that conversation, in the role playing that we felt, okay, this is how we’re going to go about this and give everyone the confidence of how they were going to communicate it to clients. And how did it go? It went exceedingly well. I mean, I was at a practise management symposium at Dimensional Hosts earlier this year, and I was asked to sit on a panel again to talk about this exact issue because it’s something that has made a tremendous difference for our business. We got some attrition, but there was certainly a significant net uplift and it created capacity for what has been the highest level of growth we’ve seen as a business, not just in terms of pricing, but in terms of new client work as well. So yeah, I’m very pleased with the results. So that’s why I’m sitting here talking to you again, Phil, because it worked.
Phil Little:
Yeah, it works. Yeah, it works.
Rob Pyne:
So you talked about this different pricing models used in the financial planning profession. From your perspective, you see you’re agnostic. Which one have you seen to be perhaps the most effective just from your experience, if you would put your finger on one way of doing things that seems to be the most effective?
Phil Little:
There’s a continuum, and if you can think about the most simple and the easiest to implement is I charge everyone 1% of funds under advice. And I still have a couple of firms, in fact, I have a growing number of firms that are actually doing that. And look, that’s a brutal tool. So there’ll be tier on that. It might be 1.2 for the first 400 grand and then 0.8 for the next million and all that sort of stuff that’s super efficient, super quick, et cetera, et cetera, et cetera. But that has downsides to it, particularly for firms that have borrowed money to buy businesses. So let’s say I’ve got a million of ongoings or 1.5 ongoings, but I’ve got a fair sort of debt. I’ve got a couple of million in debt with Macquarie or NAB or something. And let’s say I’ve got that system where it’s 70 basis points coded into the platform. In the case of a falling market, you can see a market for 20, 30% in two months, and so suddenly a firm can go underwater in the case of three months, they can go from making margin of 20% to actually losing money. So there’s ways to mitigate that issue on that end of the scale. So in other words, I can stick with a purely percentage based system. It’s just that at the beginning of each year, I cut the fee based on their funds under advice, I convert that to a dollar amount and I charge that dollar amount every month for the next 12 months. So do you see where I’m going here?
Rob Pyne:
I do. I do. Yeah. You want fee certainty, even if you’re using an asset fund management model to get there.
Phil Little:
Correct. So I’m using a percentage of funds under advice to calculate the fee, but I am not allowing the vagaries of the market to hurt my cashflow each month. So that’s that. That’s an upside and downside of that. Way down. The other end of the spectrum is where you have people say, well, listen, we have gold, silver, and bronze. Bronze pays five grand a year. Silver pays eight grand a year, and gold pays 12 grand a year. Now that’s also really simple, really easy to administer, et cetera, et cetera, et cetera. And in theory, what should happen is that I just CPI the gold, silver, bronze bit, and yeah, we’ve talked about sedimentary rock there before.
Someone who’s had that system in place for five or six years, I don’t even need to see their fee breakup. I already know what it’s going to look like. I know what it’s going to look like because there’s going to be a great big bulge in the middle of people in the silver where they actually well and truly should be moved up to gold. But the adviser goes, gulp, I don’t want to move them from seven grand to 12 grand in one hit, and they never do. And so it just is a non-functioning way to do it. If I’m going to have a component of effectively fixed cost, a fixed fee, I need some design feature in that methodology to bring in incrementalism. So in other words, the five grand a year becomes 5,500, then becomes 6,600, then becomes seven grand, and then by the time we get to the Gold Service, they’re already paying 12 grand a year anyway.
And the easiest way to have that incrementalism is to have some form of funds under advice or risk factor in there, which might be 15 basis points or 20 basis points or something like that. Because the reality of life is that let’s say I have a fixed fee and it’s five grand a year, and the next one is eight grand a year, two things problems with that. If I just go one big hit five to eight, it’s going to really annoy the client. Secondly, if I do that every three or four years, it means I’ve left all of that value on the table for all of those three or four years. I never get that back.
Rob Pyne:
Yeah. What I’m learning here, Phil, is you’re not just a business coach, you’re a practise management archaeologist or geologist. Looking at the sedimentary rock and the things that have influenced businesses over the years as they’ve tried to employ new strategies to improve their business, how do you then the process of evaluating a financial planning, business’s current pricing model? I remember doing this with you and there was a distinct method that you went about trying to say, well, how do we determine what is the right pricing model for your business? But how do you begin that process of evaluation?
Phil Little:
Okay, I actually find this stuff really fascinating. So first of all, I just need a really blunt tool to work out. We’ve got a problem. And so I’ll ask them to work out what their funds under advice is, and look, if it’s south of 70 basis points across the whole book, then I’m starting to sort of go, alright, there might be a problem in there. Now that’s not necessarily a problem, but anything sort of in the 60 or 50 basis points mark, we definitely are underpriced compared to our peers. If we’re south of 70 basis points, we might have a problem, although it might mean we’ve got a lot of high net worth clients. In other words, they’re at the top of that tier. So that could be the case, but that’s the first thing I’ve got to look at. The second thing that I’ve got to look at though is let’s break that down.
So it’s very rare that the pricing is wrong everywhere across the book. It’s often the case. There are pockets of the client base that are actually priced really well and appropriately, and often there’s pockets of it where we’re just plain wrong. So the first thing I’m going to use is a really broad thing to work out. Do we have a problem? 70 basis points is what I use. Then I’m going to sort of drill down and work out exactly where do I have a problem? And some firms are pricing really well at the top end. A lot of firms will bit all over the shop. So we just need to work out where there is now just on that, and can I just raise this point? And where we see a real problem is where people mix up what they’re doing. So this is obviously really basic, but if I’m a financial planning client, I’m paying three lots of fees. I I’m paying for strategic advice. Now that could be a set dollar fee or it could be a percentage or a combination of both. Whatever I’m paying someone for administrative support, which is a platform which always is a percentage base,
And then I’m paying someone for investment advice. Same thing, always a percentage. Now, that could be a fund manager, but it could be the firm itself. And so sometimes you’ll see where firms really get themselves in a model is where if they’ve got a managed account or something like that and someone is doing something other than their in-house investment solution, somehow they get that muddled up with, well, we can’t charge them as a normal fee for our strategic fee. Does that make sense?
Rob Pyne:
Yeah, I know where you’re coming from.
Phil Little:
So sometimes they’ve muddled it all up between when we do this, are we doing our fund manager hat on our investment adviser hat on? Have we got our admin hat on or do we have our strategic adviser hat on? So some of the biggest oopsies in pricing can be where that’s all got muddled up.
Rob Pyne:
Okay. I can relate to how you segment out the fees being charged, and really the adviser needs to know what they’re charging for, don’t they? So essentially they can discreetly understand what their fees are being applied to and make sure there’s a clear fee attributed to each of those components.
Phil Little:
Correct. And look, as I said, I had a big firm here last week, FP business. I did exactly what we just described then. And then we got down to the bottom end after that meeting, we worked out that 60% of their clients were representing 10% of their fees, something like that. So the business just made a collective decision. We don’t take on anyone under the age of 45 because all of their clients were a particular occupation. We don’t take anyone under the age of 45. So it wouldn’t matter what fee we charged, we can’t make any money down there. So the problem was in their case, wasn’t necessarily their fee methodology. Their problem was they had the wrong mix of clients,
Rob Pyne:
Right?
Phil Little:
Feed methodology, not too bad. It was the mix of clients they had wrong. And so you’d think it’s always the same diagnosis, that’s what you’d think, but that’s actually not the case.
Rob Pyne:
It’s clearly not. There’s a variety of different potential issues here that surface when you go digging. So when rolling out a new pricing model and you are determining if it’s effective or it’s privy to be effective, what are some of the key milestones as part of that rollout or benchmarks that you would tend to monitor there with clients, your adviser, clients that is,
Phil Little:
Yeah, so first things first that in terms of the methodology, this comes back to the question that we had there before about what are we unhappy with? This process is very different. If I’m a one man band or a two man band to six advisers, the starting point is always the same. And that is if I get them to just, can we just not concentrate on the legacy? Can we not concentrate on those a hundred or 200 or 400 clients that you’ve already got? Don’t worry about them. We do a lot of work with org charts with our clients in coaching, and the rule number one is we’re going to design an org chart with no one’s name on it. As soon as you put someone’s name on it, we’re out of the game. The emotions in the game, same thing with these. We’re going to design a theme methodology and we’re going to be just completely ignore the legacy clients. So that’s the first thing. Second thing I put to them, brand new client walks in the door and they look like that. You tell me how you want to charge them, what you think is right, what you think is wrong, what you think is fair, et cetera, et cetera, et cetera. And yeah, I use that word fair. I use that word a lot.
My experience in 99% of the cases is my planner, clients want to be fair. They want to be fair to the clients and they want to be fair to their staff. In other words, they want to pay the them and they don’t want to work ’em too hard, but they need to be fair to their family. In other words, the firm needs to make a decent return, otherwise it’s not fair to the family. So fair is a big deal. And I asked them, what do you think is fair for that brand new client that’s walked in? So I’ll give you an example. Often they’ll say, listen, that client who’s just a little old lady that’s got a million in super who’s really simple, she doesn’t do anything really, and we charge her 10 grand a year, but I’ve got another fella who is in everything. He’s got gearing happening, he’s got SM sfs, he’s got this and this and this, but because he’s got funds under revise of 500, we charge him five grand. I don’t think that’s fair. Now, as soon as I hear that, when we explored it further, that’s clearly a pricing methodology where they need a design feature that’s got menu items that adds fee for complexity. Does that make sense?
Rob Pyne:
It does, yep.
Phil Little:
So we spent a lot of time working out what you think is right, what you think is fair, and because that is intimately involved in that thing that you said before about fee confidence, right? So we work with the owners of the business and the advisers to work out what we think is fair and then design a theme methodology really based on that.
Rob Pyne:
I just want to take a second to talk a bit more about that concept of fairness because one of the things that no doubt you would encounter talking to adviser clients that you’re coaching is how do we deal with people that ask for a discount? Because naturally there’ll be some clients that’ll ask for a discount to what you’ve priced them at. And that concept of fairness comes up pretty strongly for us when we think about that. Because if you’ve got a methodology and there is a way to approach that for every client consistent with what they look like, so everyone’s getting a similar experience and therefore paying the same price if they are very similar, we strongly advocated for that internally to say that it wouldn’t be fair to someone else who’s paying that fee if they’re getting that service and you are paying less than they are. So it’s kind of the way we think about it’s to say, if we were to offer it and we almost said it internally before we just to be prepared for those questions, it wouldn’t be fair in our mind to deliver the same service for less. Just because someone asked the question,
Phil Little:
I’m a thousand percent in agreement. I can hear the words coming out of my mouth with clients, and those look fair enough to ask, I just can’t imagine how I’m going to be sitting in the next appointment two hours after this with someone. How do I justify that personally where they pay 10, you pay eight only because you’ve given me a hard time. So you are paying an extra two grand a year because you are a nice person. Said, I’m not going to do that. I dunno how I can’t. So I need to have a situation where I can look everyone in the eye and say, everyone pays the same. And I understand it’s not a religion, you don’t have to pay what I’m proposing, you pay, but I’m not going to be in that position. I don’t want to be in that position. Are there times when we give a discount?
Sure. If it’s a really big lump of money, if it’s clearly we’ve had this situation where you’ve had a family group, you might have husband and wife who separate, but there’s significant assets and they still both want to be with the firm. And would we still charge them together? Yeah, we would. But the issue is those wrinkles, those complications, we’ve set rules on all of those before the person asks. Do you know what I mean? So would’ve a set of rules. We know the rules when someone asks that question, we actually have an rate just for that purpose. We do. That’s a much stronger position.
Rob Pyne:
So as you say, the circumstance in advance, you’ve got an agreed approach to that question.
Phil Little:
Yeah, we’ve got a number of people in that circumstances what we do.
Rob Pyne:
And speaking of an agreed approach to that question, are you familiar with Dan Solan as a coach out of the US. We read something that he wrote once, and we kind of use that from time to time internally too. When someone asks for a discount or says they question the fee, questioning the fee we charge, I’ll just read this a little bit. I think it’s worth adding. So Phil, we understand your concern and we know that people don’t like to pay for something that doesn’t bring value. We’re very comfortable that what we do for our clients is highly valued because of the longevity of our relationships with our clients, and we get to see the end results and the difference that it makes to our clients’ lives. We take our professional relationship very seriously in helping our clients to bring them comfort and peace of mind so they can focus on what really matters in life to them. Ultimately though, it’s up to you as to whether you see value in our relationship and the difference it’ll make to you over your lifetime.
So I thought it was a pretty well captured way of kind of addressing that question. When people question the value of the fee, ultimately value is in the eye of the beholder. They need to make a judgement for themselves, but we can reference the fact that we’ve got, and back to that point, that Car Rich has made about the Stoke file, the relationships we have, we get to see the end results and the difference it makes in our client’s lives and the things they say to us about the difference we’ve made in their life. So there is a really strong reinforcement there when a client is asking for a discount or in fact just questioning the value of what we deliver for the fee.
Phil Little:
Look, my version of that, and I had a similar version, was, look, we’ve got 120 clients here. We’ve been here for 25 years. We don’t have any stock, we don’t have any assets, we don’t have any stock, we don’t have all we have. The only thing that is worth of this business is the annual agreement that these people sign every year and they don’t have to sign. And so we’re pretty confident in what we do and we think we’ve done a good job for it, but I can’t make you sign that contract. I can’t make you sign that agreement. So it’s bulls in your court.
Rob Pyne:
No, it’s inevitable. In the world we’re in, people will occasionally question the value or just ask for that discount. So it’s good to be prepared in advance for how you would address that question. So you’ve given us a lot of really great insight, Phil, into how to address this question. And I want to finish with a question that I think many people will be thinking about now is what tools or resources would you recommend for businesses to track and evaluate or refine their pricing over time? Is it a sort of a spreadsheet? I mean, I’ll just give you just one thing to share with the listeners. We’ve just embedded, we’re about to embed our calculator into our CRM so that there’s actually going to be a calculated fee for every client, and it’s in the CRM. So we’ll be able to report on the calculated fee for each client, the actual fee received and the gap between those two, and with a section on notes so that if there is a distinct difference for a reason, there’s a reason there that the adviser can make a note there and we can understand what that reason is.
But the ability to be able to analyse at a macro level where the gaps are and why there’s gaps that exist, it’ll actually give us insight into how our fee is being applied by our advisers and what the gaps are. What resources or tools do you see people using? What do you recommend people use to try and track this over time?
Phil Little:
Yeah, look, Rob, there’s two instruments for me that are really critical instruments, and it comes about without sort of torturing the Titanic sort of references, but this picture in those great big boats there, they’re on the bridge, they’ve got levers to pull or whatever. I’ve got a view that if I change the feed calculator, in other words, I change one input that goes cascade through the whole business immediately. To me, that’s super powerful concept.
There’s two instruments for me that I recommend people have that are virtually open on your laptop pretty much all the time. They certainly were. For me, number one is the fee calculator. That’s just an absolutely integral tool that is run through for every client every year and has to be CPID every year. That’s a real just critical tool for the business. The second thing is this, is that if I have quoted you a thousand bucks a month, and here we are in December, and let’s say your start date is 1st of December. I know you’re a thousand bucks a month through to the end of November, but I also am estimating you are going to go to 1100 bucks in December of next year. And if I’ve got 120 clients, I actually know every month what my revenue is not close. I mean bang on. And so in other words, the tool that is critical for me is a spreadsheet that has every individual client, what their individual monthly fee is every month and goes out not just to the end of this financial year, but to the end of the next financial year. Now, for me with a different hat on as the GM of the business, that means I can budget my staffing, my expenses, my dividends with high, high degree of confidence. So that’s the big tool for me.
Rob Pyne:
Yeah, I love that. In fact, such an important point, isn’t it? It’s not just about today and this year, but in fact, when you’re sitting down and preparing your budget for next year, you’re otherwise making assumptions about what the fee will be, but without reference to the individual clients. And so if you’re doing that for both current year and next year, you get that ability to budget with high degree of certainty. And when you are planning out your growth in people, your salary increases. All of that is actually so powerful.
Phil Little:
So it’s a funny way, which this podcast is about fees, but getting it right and getting those tools right allows you with a different hat as the GM hat on to create a budget in today’s terminology to 25 26 budget. I already know what the revenue’s going to be in 25, 26. Super powerful. If you’re running a show
Rob Pyne:
As we finish here, then Phil, do you have any last comments or insights to share? I know you’re a man with many pithy pieces of wisdom. Anything that on the whole fee pricing question? There’s a question without notice, so if you’ve got nothing, it’s okay.
Phil Little:
The one thing that is the misconception that people have, and this is particularly accounting firms, but not only accounting firms, is everyone thinks that when we do Project Uplift, it’s about starting to charge more for your existing clients. And the reality of it is that that’s actually not true. The vast majority in my experience of when firms are undercharging is not because their fee scale or their fee methodology is wrong, it’s just the fact that it is inconsistently applied. In other words, they’ve got a fee methodology that they’re using with the brand new clients and it looks fine, but they’ve never gone back and cascaded it through their existing client base. Or I’ve got six advisers, one of them’s running the fee calculator, the others are running their own shop. So my closing comment is if people get the rights about their fee project or a fee uplift, in my experience, it’s mostly about applying a consistency through the firm, and that’s where the lion’s share of the uplift come from, the consistency.
Rob Pyne:
Yeah, that’s a brilliant way to finish it. It’s actually consistency. It’s not just about leveraging the opportunity to charge more, but actually just getting consistency across the board, old clients, new clients, everyone getting that fairness approach throughout. So that’s a great way to finish. Phil, thank you so much for taking the time to join me today and sharing your wisdom on pricing on the Trusted Adviser podcast. Good on you, Rob. I’ve really enjoyed it.