How Much!?

This weekend, I had the dubious pleasure of renewing my car insurance. If anyone else has done this recently you probably had a similar experience:

• Get email from existing provider to ‘butter me up’ for the incoming renewal price.
• Get renewal letter from existing provider with a renewal price 45% more than last year’s price.
• Immediately assume this is an inflated price and head for comparison sites to find a better deal.
• Stare aghast and shout profanities at the screen as every price giving is over 60% more than last year’s price.
• Reluctantly head to existing provider website to renew at aforementioned inflated price.

Once the pain subsided, I realised this stung so much because, not only was I quite clearly being ripped off by insurance companies, but more importantly I was suffering from the age-old problem of Cost versus Value.

The cost seemed so unacceptable because I couldn't perceive the value.

In 30+ years of driving I’ve never used my car insurance (touches wood). Now in my logical brain I know I need the protection, and obviously we’re obliged by law to have it, but my emotional brain can’t stop shouting ‘HOW MUCH!?’

This issue stems from human nature. As humans we inherently lean towards short-term thinking, especially when it comes to cost – a bias that subtly undermines our appreciation of long-term value. We see it every day in the decisions we make, the actions we take. ?

It’s because Cost is tangible and measurable; we can compare it easily. Whereas Value is often intangible and subjective and difficult to compare, therefore, cost is always easier to grasp.

‘Cost is only an issue in the absence of value’ - many wise people

I hear about the Cost versus Value struggle ever day in the conversations I have. The concept of value is something written a lot about in terms of advisers and planners valuing their time, expertise and services; balancing their costs with the fees they charge clients, and the value clients derive from those services. For me the expertise of a financial adviser – the ability to navigate the complex financial landscape and tailor advice to individual needs – is invaluable.

But figures I saw from VouchedFor last week support the notion that many advisers still undervalue their services. MI from their Elevation platform shows that 97% of clients would recommend their adviser with 60% of those being passionate advocates (people most likely to go on and recommend their adviser) but that only 25% of clients were actually solicited for referrals. We know referrals are the best source of new business so why are such huge opportunities being missed?

The concept of value is not just an adviser’s dilemma; it's a significant hurdle for clients as well. The advice gap in the UK is a stark reminder of this challenge. Many potential clients steer clear of financial advice, not because they don't need it, but because they fail to see its value. The gap isn't just about affordability; it's about perception.

“Value' does not exist. It's a perception we reach with expectations we meet” - Steven Bartlett

Cost versus Value is also an important discussion amongst my clients when it comes to technology investments. The value of tech is often more tangible than other areas of value, such as financial advice, but focusing on longer term value over short term cost remains a challenge for some.

That’s because Cost versus Value is interlinked across our profession. Clients don’t see value of advice, so focus on cost. This leads to advisers focusing on costs and not the value of their time and services. This leads to firms focusing on the cost of solutions and not the value in time and efficiency those solutions bring; leading to fintech’s squeezing prices which can lead to unsustainable business models. Which loops back to there being no innovation, which means inefficient businesses, meaning lower margins, higher costs to service, and less affordable advice available to clients. It's a vicious circle.

But if we change our nature and focus more on value than cost, it means advisers and planners can:

• Gain more new clients through referrals.
• Attract more clients who are willing to pay for their services.
• Retain existing clients who are satisfied with their services.
• Enhance efficiencies and lower the cost of advice.
• Increase revenue and profitability by charging a fair fee for their value.
• Enhance their reputation and credibility as a professional and trusted adviser.
• Help people achieve their financial goals.

And for clients, if we realise the value of financial advice, we can:

• Have higher levels of savings and investments.
• Have higher levels of income and wealth.
• Have higher levels of financial confidence and security.
• Have lower levels of financial stress and anxiety.

Our profession often grapples with a discernible disconnect between cost and perceived value. Many advisers still find it difficult to focus on value and often fixate on cost. Similarly, clients frequently assess financial advice through the narrow lens of cost, overlooking its intrinsic value. This gap can lead to an undeserved lack of trust, awareness and confidence in financial advice.

To close this gap, we all need to shift our mindsets and behaviour. We need to:

• Understand the difference between cost and value, and how to measure and compare them.
• Communicate the value of advice clearly and effectively, and how to demonstrate and deliver it.
• Appreciate the value of advice fully and realistically, and how to recognise and reward it.

Only then might we stop shouting ‘HOW MUCH!?’.