‘Anchoring’ clients can help avoid fees rejection
If you have read any psychology, particularly sales psychology, you will have, no doubt, come across the term ‘anchoring’.
Even if you have not read about it, I will wager you use anchoring techniques with your clients. And you will have almost certainly experienced anchoring used on you. A simple form of anchoring might be to ask what their accountant or solicitor’s hourly fees are, so that they have these rates in mind when discussing your fees.
I use a variety of anchors early on in meetings with prospective clients. Later, when discussing fees and charges, there is often an expectation of a higher figure than I actually arrive at. Although my fees are not cheap, they are perceived as good value – which they are. Interestingly, I was recently able to observe my reaction when a new client used anchoring techniques on me.
His opening approach was that he needed someone to help him get clarity about his finances, and to simplify his affairs. He then asked whether we could direct him to another accountant. He said that the City-based firm he used was now too expensive for what he needed. Bingo, he had anchored me to the fact that he thought City-based firms were too expensive, and that he was price conscious.
I was already on the back foot. We are a City firm, and our fixed costs mean we are not as low cost as an out-of-town adviser. “He’s not going to agree to our fees,” I said.
After outlining our service (and money back guarantee) he agreed to pay an initial financial planning fee. I had done some anchoring along the way, positioning it so that it became a ‘no-brainer’ – particularly with the money back guarantee. The financial planning process uncovered a large amount of money sitting in cash. It was earning very little, and balances were way above the Financial Services Compensation Scheme limits. He agreed that most of the money on deposit should really be invested to meet longer-term needs.
“I agree,” he said, “but I have a problem with fees”. He was anchoring me again. I was also becoming conditioned to the possibility we would complete our financial planning work, but probably that would be the end of it. There would be no ongoing investment work for this client.
I decided to do some anchoring of my own, while demonstrating similar philosophies regarding costs. Part of our firm’s investment philosophy is to make the portfolio as low cost as possible, (hence our passive bias) so we were on a similar wavelength. Admittedly he could possibly do it for less, but time was another important factor. By anchoring him to the relatively high costs of his existing discretionary fund manager, and how we would free his time, our fees started to sound reasonable to him.
By anchoring him to the relatively high costs of his existing DFM, and how we would free his time, our fees started to sound reasonable to him.
Of course there are other psychological factors in play, including conditioning (getting him used to our fees), commitment (he has already engaged us and paid a fee), and scarcity (we only take on a limited number of clients that fit our practice). He is now considering giving us his investment work.
Dennis Hall is managing director of Yellowtail Financial Planning