On the latest Tim Ferriss podcast, we get a glimpse into the mind of Marc Andreessen, Silicon Valley visionary and all around super-bright guy. It’s a solid hour of discussion about the future, the past, the way the Valley really works and the ideas he is most bullish about. It’s an absolute pleasure to listen in and learn about how Marc thinks and what makes him tick. Thanks to Kris in my office for bullying me into making the time for it this week.
Anyway, one of the big issues my industry is now struggling with is what to price our services at. ETF firms, mutual fund companies, financial advisory shops – everyone is trying to figure this out. I have a lot of thoughts on this, but they can be summed up by the following:
Good advice is worth multiples of what a client pays for it. Mediocre advice is not worth a little less, it’s worth nothing because it won’t be adhered to.
Also, the value of advice is not measured in basis points, which is what asset management is measured in. This is because investing mistakes don’t cost basis points to the investor making them – they cost hundreds of thousands of dollars, and in some cases, millions. A real advisor prices his advice at a level where value is being added (as opposed to siphoned off) and clients are getting a fair deal for the attention and expertise they’re looking for.
I know of some advisors who assume they need to compete with the lowest cost for advice out there, which is now approaching zero (well not really, because there’s a catch, but I digress). The problem with this is that these advisors literally bring nothing to the table because they aren’t running sustainable practices. They can’t invest in performance reporting software, they can’t invest in cybersecurity to protect their clients’ personal data, they can’t do compliance right, they have no budget to do nice things for their people or visit those who live far away, they can’t hire quality support and operations help, or spend on research tools or CRM or any of the things that make the client experience a worthwhile relationship.
But back to the podcast…Marc is asked a very interesting question toward the tail-end of his discussion with Tim Ferriss, I’ve transcribed this nugget for you below because it’s so important…
Tim Ferriss: If you could have one billboard, anywhere with anything on it, what would you put on it? If you wanted to convey a short message to as many people as possible.
Marc Andreessen: I’ve got one, I’ve actually thought about hiring a skywriter to do this one. Right in the heart of San Francisco would be a billboard with just two words on it: Raise Prices.
TF: Raise prices?
MA: Yes. The number one thing – just the theme and we see it everywhere – the number one theme with our companies have when they get really struggling is they are not charging enough for their product. It has become absolutely conventional wisdom in Silicon Valley that the way to succeed is to price your product as low as possible under the theory that if it’s low-priced everybody can buy it and that’s how you get the volume. And we just see over and over and over again people failing with that because they get in the problem we call too hungry to eat. They don’t charge enough for their product to be able to afford the sales and marketing required to actually get anybody to buy it. And so they can’t afford to hire the sales rep to go sell the product. They can’t afford to buy the TV commercial, whatever it is. They cannot afford to go acquire the customers.
TF: Too hungry to eat.
MA: Too hungry to eat. And then they sit there and they don’t sell anything and then they get nervous and then they cut their prices.
TF: And then it’s a race to the bottom.
MA: It just makes the problem worse. And so, probably the single number one thing we try to get our companies to do is raise prices. By the way, it’s like, “Is your product any good if people won’t pay more for it?”
Josh here – If you’re not charging anything and your entire value-add is “lack of cost”, then by definition you are announcing to the world that all that matters is lack of cost. And you will never win this battle. I don’t know of any sophisticated investors who are looking for a lackluster client experience with a wealth management firm in exchange for paying the cheapest price. No one wants discount sushi either, for obvious reasons.
There’s a lot of room between, “Here, this shit is almost free” and an egregiously costly service that doesn’t deliver. Advisors need to think in terms of “Here, this is a good value in terms of what you’re getting for your money. And we continually invest in the practice to make it better for you every chance we get.”
Now please find the time to listen to the whole interview. It’s so good you won’t believe it.
If you think you should be getting more out of your financial advisory relationship and want to see what else is out there, we would love to chat with you. Get in touch here: