How to Create a Pricing Policy

In this post I want to share some ideas on how to create a pricing policy in the new regulatory world. This follows on from my previous article ‘Every Financial Planning Business Needs a Pricing Policy.’ It’s my intent with this post to do something that’s never been done before – provide some thoughts on how to create a pricing policy, given FASEA. If you have additional thoughts or suggestions please share them in the comments and together we’ll build an even stronger process.

This approach covers 5 steps:

  1.  Outline your pricing objectives and audience
  2.  Outline your pricing strategy
  3.  Outline your pricing approach in a framework
  4.  Guidance and feedback
  5.  Pricing policy review
Step 1. Outline your pricing objectives and audience

In creating a pricing policy, it should be really clear to everyone what the objectives of your pricing policy are and who in your business it applies to.

Business objectives might include:

  • Business survival – meeting all costs?
  • Business profitability – meeting a profit objective?
  • Return on investment – meeting a goal to provide a return to shareholders?
  • Competitor considerations – what are they doing? Do you want to acquire more clients or hold the status quo or perhaps even reduce your client base?
  • Buyer perceptions – how is your pricing viewed by existing clients and more widely in market place
  • Marketing objectives – how you want your business to be seen in the market place?
  • And of course meeting the legal requirements including the FASEA Standards.

So what are the FASEA requirements?

This area is a little grey right now, but broadly, in reading the values, policy and explanatory statement, a pricing policy should:

  • Reflecting the values of trustworthiness, competence, honesty, fairness, and diligence.
  • Give consideration to all standards and specifically:

Standard 1 – You must act in accordance with all applicable laws, including this Code, and not try to circumvent their intent. This implies reference to state/territory and federal consumer, competition and other laws which affect all businesses.

Standard 3 – You must not advise, refer or act in any other many where you have a conflict of interest duty. Refer to the guidance  (p17-22) for more information on what constitutes a breach and what does not.

Standard 7 – The client must give free and informed consent to all benefits you and your principal will receive in connection with acting for the client, including any fees for services that may be charged. If required in the case of an existing client, the consent should be obtained as soon as practicable after this Code commences.

Except where expressly permitted by the Corporations Act 2001, you may not receive any benefits, in connection with action for a client, that derive from a third party other than your principal.

You must satisfy yourself that any fees and charges that the current client must pay to you or your principal receive, in connection with acting for the client are fair and reasonable and represent value for money for the client.”

In reading the guidance on Standard 7 simplistic examples are made to explaining the client’s fees and not identifying the fees to the client. The former meets the standard, the latter does not. What’s not clear here is a reference to the grey area ‘fair and reasonable and represent value for money for the client.’ What is value to one person might not represent value to another and the wording of Standard 7 might be improved over time given this.

Here’s some questions to help resolve what’s not covered in the explanatory notes:

  • Does what you charge put them in a better position and ultimately help them meet their goal(s)?
  • How does the price you charge compare to the financial or insurance benefit gained?
  • How does the price you charge compare to a negative financial or insurance outcome avoided?
  • Does the price you charge them represent value to them, for their peace of mind?

It’s also important to remember that the client may reject the pricing offered and may not use your services. Each year consumers make thousands of purchase decisions as to what they buy and what they don’t buy. Sometimes not buying advice is the right outcome for a client, especially if they’re not willing to follow the advice that’s being provided and make the most of what’s on offer.

Step 2 – Outline your pricing strategy

The pricing strategy seeks to identify and outline how you will charge clients. It seeks to answer: What is the thinking behind what you charge? There might be one or more strategies in play, depending on your business requirements.

Examples of pricing strategies include:

  • Cost Plus pricing strategy – the most basic pricing strategy which is underpinned by your costs. The plus becomes the margin seek.
  • Hourly rate pricing strategy – this is commonly used by professional advisers of all kinds. The provider charges an hourly rate for time spent.
  • Project-Based pricing strategy – this approach charges a flat fee per project, rather than money for time.
  • Price Lining strategy or an Unbundled strategy – this approach is like a project based pricing, but it creates guidelines for pricing for different kinds of activities/service lines, perhaps within one client relationship. Not all activities/lines are priced the same, some are high, medium and lower priced, depending on what’s involved.
  • Competitor pricing or a penetration pricing strategy – this seeks to under-cut your competition to increase your market share.
  • Premium pricing or a luxury pricing strategy – this seeks to increase the cost compared to your competition, appealing to an emotional need to be with the best, of which price is a factor.
  • Skimming pricing strategy – this is where the highest possible price is charged initially and then is lowered overtime. This often occurs with technology and innovation. Remember the cost of a new DVD back in the day?
  • Demand pricing strategy – this occurs that during peak times, more is charged. It’s one way to try and slow demand. An example is Uber charging more on New Year’s Eve.
  • Discounting strategy – this occurs often during non-peak times. When demand is low, less is charged in an effort to stimulate demand during that period.
  • Pro-bono strategy – many financial planners also do some work free from time to time and this strategy outlines how this approach works.

You might put your approach to fees into a table, and it might be sorted by service type/segment or by your activity. As previously stated, this will of course depend on the strategies you use.

The approach section of your pricing strategy should also outline how much room there is for movement in fees and what’s the basis for making that decision.

Step 3 – Outline your pricing approach in a framework

To this point, we’ve set our pricing objectives and set out our pricing strategies. The next step is about outlining the practical approach, that is what are the steps a person should consider when working out what to charge a client. You might outline your approach in a framework or table, with guidelines and examples.

The approach you take will of course depend in your pricing strategy and should identify practically how to apply it. Here are some examples.

  •  A cost plus strategy might charge fees based on what it will cost to look after the client and then outlining what margin should be applied – the plus.
  • A hourly strategy will see you work out how many hours are involved in the work, and multiply that by your hourly rate.
  • A pricing lining strategy or unbundled strategy for example might charge fees for different activities such as a statement of advice, implementation fee, ongoing management and advice or portfolio review fees.
  • A competitor strategy might see you undercut the fees of what the competition are doing, and if so, by how much.
  • A premium strategy might see you lift your fees to position your advice and service at the higher end.

To cover off FASEA requirements, explicit references should be made to how to apply the standards. What you must and must not do when it comes to charging fees with regard to FASEA? Clearly showing and explain the fees to clients, so they understand them is mandatory as is gaining client authorisation to proceed.

Step 4 – Guidance and feedback

The next step is a guidance and feedback loop. As an employee, if I have a question, concern or perhaps even ethical dilemma, how do I go about solving it and who can assist me with that? It might be the business principals, the AFSL holder or a specialist third party.

When it comes to FASEA, planners cannot outsource their obligations, but they can seek assistance. A guidance and feedback loop benefits all parties, including the client.

Step 5 – Pricing policy review

The final step should be to make some statement about who is involved in reviewing the pricing policy and when it’s next going to occur. Business is dynamic, things change and so will the pricing policy.

The Wrap Up

When you stop and think about it, there’s a great deal to consider when establishing and communicating pricing for your business. We’re all consumers and none of us like to think we’re not getting value for the money we choose to spend. The same can be said for all advice clients.

A pricing policy is an important marketing consideration for your business. A pricing policy will also help those giving advice meet business objectives and regulatory requirements, charge appropriately and seek guidance where they need to. I hope this strawman provides a starting point for your own pricing policy.

For additional reading on Federal Government Legislation (outside of FASEA) see Section 4 Legislation and Regulation on

If you have additional thoughts or ideas, please share them in the comments. This blog is moderated to stop spam comments.


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