Will the commission debate affect advisor business valuations?

The commission debate is gaining momentum, which could make your practice hard to sell if you don’t make your value clear. Here’s how to convince buyers – and clients – of your worth.

Read: Compensation concerns limit advice: CAILBA

Determine your professional value

Your professional value isn’t average commission divided by average hours worked. By the same token, you shouldn’t price your house based on how much money you owe, but rather how much it’s worth to the buyer.

Read: Keep embedded commissions, says Invesco president

To figure out your worth, list all services and benefits you provide to clients? Remove those that are product related.

These could include:

• Tax advice
• Tax planning
• Tax prep
• Risk tolerance review
• Risk capacity assessment
• Written retirement plan
• Written retirement income plan
• Financial plan
• Review of cash flow
• Written cash flow plan
• Debt management advice
• Financial coaching
• Consulting on major business decisions

Now research what clients pay separately for these non-product services. Got some numbers? Decide if you’d be willing to do that particular work for that amount. If not, come up with ways to enhance the value of the advice or service so that a client would be willing to pay more for it.

State your professional value

Don’t wait for the commission tide to turn to start showing your worth. Don’t put off discussing the dollar value of what you are offering until you have to. Get your clients accustomed now to what your services or advice are really worth. Attach a price tag and ask for feedback. This doesn’t mean you need to charge a fee, but you should start explaining to clients exactly what each item is worth.

If they think all those things you listed are free, then they’ll treat them as such.

Read: Show me the money: Compensation in focus

Start using the word “included” when describing the work you do: if you offer tax planning, tell them that service is “included.” Don’t neglect to show that it is indeed an extra benefit.

What if everything you do is product related?

If all you do is sell product, you may have great difficulty explaining your value.

Read: Switching to fee? Better plan ahead

Author Daniel Pink talks about problem finding versus problem solving in his book To Sell is Human. He says people place less value on problem solving. If your client knows her problem and just needs to pick a financial solution, she can probably find it on her own. Alternatively, if you can help clients find problems they didn’t realize were going to affect them, then they still need you, your advice, your services, and in many cases, your products.