Deriving Product Specifications for Investment Advisory Services as a First Step Towards Pricing

This paper presents an approach to derive product specifications for investment advisory services. The aim is to make investment advisory services independent products, providing a service model that can be priced. The study resulted in an object-oriented framework for a catalogue of service specifications, called service modules. The approach combines the investment process with general elements of advisory services. This combination allows one to distinguish the advisory aspect, which describes the distribution of the roles between customer and advisor, independently from a standardized approach to asset management, as represented by the investment process. Service Modules enable the standardization, differentiation and a modular specification of advisory services without constraining individual customization. Although the focus of this paper is on the product specification, it gives an outlook on how service modules could be used for pricing. 1. The need to make investment advisory a product Traditional brick-and-mortar banks are challenged by several developments: The internet enabled e-brokers and direct banks to offer brokerage transactions on the basis of very low costs per transaction, thereby causing the deterioration of the commissions [1 p. 37]. Independent asset managers increased the competition in the area of asset management and investment advisory. These two competitive threads unveiled the disadvantages of inadequate pricing models. If the remuneration of the investment advisors is not linked to the added-value of their advisory services, it will soon be impossible to justify their services and realize the necessary revenue in the market.1 The aim is to make advisory services an independent product, but an approach to product specification is missing, which would: •