Expert: Dave Mason, CEO, Solve Facilitator: Mark Elliott
Headlines:
- The industry's expectations of pricing changes, offering innovative pricing structures beyond the traditional percentage of assets under management (AUM)
- The challenges of serving different client segments profitably, and the potential impact of the next generation's preferences on pricing
Discussion:
Participants shared their experiences, concerns, and ideas around performance-based fees, hourly rates, separating planning and advice fees, modular pricing, and the need for greater transparency in costs and charges. The discussion also highlighted the complexities involved in aligning pricing with the value proposition, cost to serve, and evolving client needs while maintaining profitability and competitiveness.
Pricing expectations post-consumer duty
Following the introduction of the Consumer Duty regulations, many financial providers and wealth managers anticipated that their pricing would change, either increasing or decreasing, to better match clients and propositions with appropriate segments.
There was an emphasis on ensuring clients only pay for the services they need and addressing the advice gap, particularly for lower net worth clients where actively managed accounts may no longer be profitable.
Current pricing trends and challenges
The discussion then turned to current pricing trends and challenges in the industry. Data from surveys and research were presented, showing a general downward trend in pricing for services like discretionary fund management (DFM) and a compression of margins. Investment management was seen as becoming increasingly commoditised, with pricing pressure, while advice remained more resilient. However, there was a wide range in initial advice fees charged by different firms.
The challenges of serving different client segments profitably and the potential impact of the next generation's preferences on pricing were also highlighted.
Innovative pricing structures
This discussion explored the potential for offering more innovative pricing structures beyond the traditional percentage of AUM model. Suggestions included performance-based fees, hourly rates based on the time spent providing services, separating planning and advice fees, and modular pricing based on the specific services consumed. The pros and cons of each approach were discussed, with considerations around client preferences, transparency, and operational complexity.
Aligning pricing with value and cost to serve
The discussion emphasized the need to align pricing with the value proposition and cost to serve different client segments. Participants acknowledged the challenges of quantifying the value of advice and relationships, as well as the varying needs and preferences of different generations of clients.
The importance of understanding business models, services, target markets, and remuneration models was also highlighted, as well as the potential limitations of existing systems and operational models in supporting more precise pricing structures.
Key takeaways:
- Evaluate the potential for offering performance-based fees, particularly for institutional and ultra-high-net-worth clients
- Explore the feasibility of implementing hourly rates or time-based pricing models for specific services or client segments
- Assess the viability of separating planning and advice fees to better align pricing with the different cost profiles of these services
- Investigate the possibility of modular pricing based on the specific services consumed by clients, such as face-to-face time or digital-only access
- Conduct a comprehensive review of business models, services, target markets, and remuneration models to identify opportunities for more precise and value-aligned pricing
- Evaluate the limitations of existing systems and operational models in supporting innovative pricing structures and consider potential upgrades or enhancements
- Engage with clients, particularly younger generations, to better understand their preferences, values, and willingness to pay for different services and delivery models
- Enhance transparency and clarity around costs and charges, including ancillary fees and hidden costs, to improve client understanding and trust
- Develop a segmentation strategy to align pricing models and service offerings with the specific needs and preferences of different client segments
