Advisors leaving money on the table

By Staff | September 20, 2013 | Last updated on September 20, 2013
2 min read

New research from PriceMetrix shows advisors who use the loss leader discount strategy are leaving money on the table.

“We hear advisors say all the time that they recoup revenue given up on their fee-based business through their transactional business, as well as the reverse,” notes Doug Trott, president and CEO of PriceMetrix. “This could be an effective strategy, if that’s what advisors really did.”

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PriceMetrix assessed the loss leader claim by looking at households with both fee-based and transactional accounts, and with investment assets between $500,000 and $1 million.

Advisors were categorized as low or high on their transactional pricing, and low or high on their fee-based pricing. Consequently, advisors’ pricing behavior could be grouped into one of the following four categories: trade off non-fee for fee revenue, trade off fee for non-fee revenue, premium pricing and habitual discounting.

PriceMetrix found 21% of advisors trade off fee for transactional revenue and another 21% trade off transactional for fee revenue. More frequently, though, advisors price the same for both types of business, either at a premium, 29%, or at a discount, 29%.

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“Our main finding is that the claim of a loss leader pricing strategy, while not implausible, is far from the prevailing pattern of behavior in the market,” commented Trott. “We find that advisors are more likely to be consistent in their pricing, either high or low, across both fee and transactional business, although, to be sure, a wide range of pricing behaviors is also evident.”

The question of what strategy to pursue in pricing fee and transactional business is ultimately one for an individual advisor to decide but it is critical to adopt a strategy and consistently execute it. Advisors can choose to price consistently across product lines or they can make a conscious choice to forego revenue in one place and recoup it elsewhere.

Advisors who choose a loss leader strategy need to be certain their pricing on the other half of their business truly makes up for their losses.

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The staff of have been covering news for financial advisors since 1998.