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Value Pricing Fiduciary Trust Wealth Management American Bankers Association Simon Kucher Trust Regulatory News Bank A.M. Publishing Bernard Garbo Changing Times—Value Pricing in the Trust Industry

(Jan. 17, 2013 --Chicago, IL) -- The biggest contributor or impediment to profit is pricing. While that may seem obvious, industry consultants and insiders say trust management is not sufficiently focused on value pricing. According to Fiduciary Earnings & Expenses, the majority of trust institutions are under valuing their services, when compared to independent trust companies.

Too many trust institutions “give away” their services, according to James Marion, Managing Director, National Fiduciary Advisor, U.S. Trust/Bank of America Wealth Management. “They’re afraid to price their services fairly.”

The primary reason for this, say industry consultants, is that financial institutions are notorious for not developing price strategies. Additionally, many bank executives still think of trust services as a “loss leader.”

“Bank managers don’t recognize that the number one driver of profits is not cost, but price,” according to Georg Wübker, a partner with the consulting firm of Simon-Kucher & Partners. The firm specializes in price management. The term is defined as the melding of price theory with practical implementation.

Wübker will be discussing pricing at the American Bankers Association’s Wealth Management & Trust Conference in March. Pricing and profits will be covered in various sessions at the conference.

Value Pricing

The biggest pricing fears that bankers have, according to Wübker, are “how will the customer react, how will their employees react, and how will the media react?”

To calm these fears, he says, institutions need to establish an “explicit” price strategy. This includes developing a comprehensive database of fees paid by clients , including discounts, and then reviewing different pricing structures. Successful implementation, he stresses, requires senior bank and trust management to buy into and sell the idea. To achieve that, management and staff have to understand the value of their services to the client.

“A business must understand the worth of it’s product to the client before it can price it,” notes Hermann Simon, founding partner of Simon-Kucher. “Pricing is often driven by sales people and outside factors, but if management doesn't understand the worth of the product to the client then they won't be able to set the best price.”

James Marion terms it up as value pricing: “Trust institutions need to focus their clients on what they're really receiving.”

“There’s a qualitative difference between the services a client is getting from a trust institution versus from a broker,” he emphasizes. When the client understands that, Marion and others insist, trust institutions can charge a fair price for their service.

Roy Adams, a trust law specialist, is fond of telling trust bankers that the way to emphasize value is to hit the client with fees first. He says he first tell trust clients how much his services will cost them, then he tells them how much he will be saving them. A fee of $100,000 is more palatable, he notes, when clients hear they will be saving $1 million in taxes.

ABA’s Wealth Management & Trust Conference

For more on pricing and profit sessions at the ABA’s conference, click here. The 2013 conference, held March 3 -5, focuses on pricing and profiting as well as social media in the digital age and risk management.

For more on this topic, see the upcoming issue of Trust Regulatory News.

No statement in this issue is offered as or should be construed as legal opinion or advice or as an indicator of future performance.
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