It's important to consider the total cost of ownership of the products and services provided to clients. In respect to services, this relates to the cost of advice. From a costing perspective, per your client segments, what actually is the total cost?
This is the cost of the advice plus the underlying product, platform or whatever it is that you're utilising for the client investment solution. It is important to consider that in totality.
From a value perspective, a value assessment is in respect of the different target client markets identified and the products and services delivered. We need to balance that, with the value being provided over the lifetime of the ownership.
It's important to understand this does not imply cost is the sole factor to consider. We've heard this many a time, ‘cost is only important in the absence of value’. Value for money needs to be demonstrated. To highlight again, consider your client segments, the services you're delivering i.e., the value you're delivering from those services you're providing for your clients as well, also think about the product and the value they're delivering. Some of that information you can get from the provider, but think of it more broadly, as well, about the value being provided.
The amount a consumer pays for a product or service must be reasonable compared with the benefits provided. It's also important to demonstrate fair value on an ongoing basis. This is a slight variation in that it's an ongoing basis which has been referenced several times here by the FCA, so they expect it to be on the continuation of the service being provided or the product or platform or investment solution.
It's important to review your business plan at this point and consider with it, a cost analysis of your services. Really drill down and think about what it is I'm going to provide for the underlying client segments I'm working with.
As the FCA mentioned in their further guidance the importance of clients receiving services that were of value to them and not paying for services they do not need. Therefore, it's important to understand what services you're going to provide for the different client segments you have. For example, a client in decumulation, where you are providing an ongoing income for them, will require quite different services to a young saver.
In terms of pricing across your client segments and how these have been set, considering the view from the FCA, homogenous probably doesn't work moving forward from a Consumer Duty perspective, or even from a PROD perspective. So, give that consideration about how you’re going to charge and, the value and the benefit being received by the various client segments you're working with.
This is not a justification of your current charges, but a demonstration of how you arrived at your current charging model. Just think about your current charges, and how did you arrive at them and document that accordingly.
ASHL support is on hand to our member firms of Sense and Lyncombe networks. There are templates to assist with cost and value assessments, also from a business plan perspective.
Remember, the business plan template isn't to replace what you may already have in place. It's just a bit of a checklist to say, have you considered all these various areas within your business plan? What we have found with some firms that we've already started to look at this with in great detail, is that for some client segments, they may be undercharging, so they're providing great value for money but at a loss to their business. The FCA fully understand that businesses must be profitable as well, to operate as a going concern.
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Find out more
To find out more, we have an Advice Proposition Masterclass hub, which is freely available to subscribers of Sense and Lyncombe Networks. Here you can find a suite of webinars with helpful support on the various aspects of advice proposition development, including a dedicated episode on ensuring that you are prepared for Consumer Duty.
If you are interested in finding out more about the suite of support services available to you as members of the ASHL Group networks Sense and Lyncombe, get in touch today.
