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As a teen, I spent three hard hours shoveling 12 inches of snow from Mrs. Townsend’s lengthy driveway. Finally finished, I requested $15 for the work. She gave me $10, explaining that’s what someone with a plow offered to charge.
I learned a painful economic lesson about the value of labor. That lesson is still important today.
One challenge for advisors is communicating the value of our labors. Much discussion on this subject focuses on the time involved, or number of visits with the client, or the cost of technology to analyze or recommend.
In fact, the old sales commission model worked in earlier eras mainly because each transaction was large enough to offset the costs for both successful and unsuccessful efforts. The representative was responsible for prospecting, scheduling, qualifying, presenting, and closing each sale. That is a lot of speculative effort, and likely deserved the compensation.
That old pay system valued inputs.
Some of those inputs are still important factors today, but not necessarily to the client. Instead, those are key factors that determine profitability to the advisor. In a real sense, they are part of the manufacturing process, not the final product.
Our clients, however, value outcomes.
Decades after Mrs. Townsend’s driveway, I read a superb book that should be required reading for every advisor. Written by Harry Beckwith, it is called Selling the Invisible (Hachette Book Group, 2012). The focus is on customer service. Two illustrations caught my attention and helped refine my snowy lesson: Value is determined by the quality of output, not the quantity of input. Beckwith’s illustrations:
Three whacks
A squeaky floor provides the first lesson. The homeowner made several unsuccessful attempts to quiet the noise. A helpful neighbor recommended a local craftsman, known for quality work. The craftsman walked in, slowly paced the room, drew a hammer and nail and – with three swift whacks – solved the problem forever. Later, he submitted a bill for $45. But the itemization provides great insight:
Three minutes
The great painter Picasso made a related point. He was recognized one day sketching a street scene in a small café. An impressed tourist asked him to make a quick drawing of her, offering to pay an appropriate fee. The artist picked up a different tablet, penciled a brief drawing, and passed it – an original Picasso – to the woman. “That’ll be $5,000.00,” he proclaimed. Surprised, the woman reminded him that it took just three minutes. “No,” he explained,
“It took me all my life.”
Our advisory product isn’t rigid. It differs depending on each situation, client, and need. The value they seek is often different from what we think. To prosper, we must build and price a custom product for every client. They may be similar, but not identical and suitable for a common template. Every client gets to define the potential value we bring to their specific situation.
The do-it-yourself Investment industry muddies those waters. Many of those people can’t see the value that advisors provide. They include writers, influencers, professionals, and, of course, a certain segment of investors. Some are vocal to the point of obnoxiousness.
But their inability to see positive outcomes misses this key point: They don’t get to define value for others. Each person gets to decide – and volumes of people want an objective and knowledgeable coach. They appreciate helpful guidance when making important decisions, and/or a professional investment manager who watches their portfolio on a full-time basis. They value those outcomes and are willing to pay for them. Even if Mr. D-I-Y doesn’t!
Outcomes determine advisor value
Period. No one cares how hard we work. No one cares how many college degrees or years of experience we have. No one cares if we once made a touchdown or hit a game-winning home run. In business, value is determined daily by the service we provide to customers. People – all of us – seek solutions and results. That is what matters.
Dan Danford, CFP® is a NAPFA member in Kansas City, Missouri. He learned early ideas about money from his late father, Thad Danford, who charged rent on the family lawn mower while Dan cut neighborhood lawns. Danford is a practicing investment advisor and author of Stuck in the Middle: The Mistakes That Jeopardize Your Financial Success and How to Fix Them.
Read more articles by Dan Danford
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
