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Nic Cicutti: Selling the concept of charging fees

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Whenever I speak to IFAs about what it will be like to enter the new post-commission world after 2012, they either exude great confidence about the prospect or they tell me it will never work.

The key stumbling block is one of persuading clients who, in almost any other circumstance, would have no objection whatsoever to paying a fee for someone’s services that they should do so for an IFA’s advice.

Part of the problem is that, in some instances at least, clients have become so used to the idea of advice being “free” that they are unable to accept it is not.
In other cases, even though they understand full well there is a charge for the advice they receive, they prefer the cosy fiction of not having to pay for it up front, relying instead on the adviser receiving payment by means of commission.

For some IFAs, persuading clients that a fee-paying relationship is the only game in town feels a bit like trying to talk a heroin addict into giving up smack - moreover, using cold turkey rather than gradually easing the process through over time.

It all depends on your ability to explain the new scenario to clients in a way they will understand and appreciate.

Here, I am somewhat surprised by the way some advisers - including many who in recent weeks have lectured me that they are perfectly happy to consider themselves as salespeople and that “selling” is simply the art of persuading people to do what is necessary for them - are unable to “sell” the idea of fees to their clients.

In some cases, their attempt to tell a would-be client why charging a fee is necessary comes over as so devoid of persuasive qualities that even I would want to walk away from that adviser.

A perfect example of such an experience was given by fellow Money Marketing columnist Alan Lakey the other day. Writing in MM, he told of two clients who came to see him to discuss the potential investment of a £110,00 lump sum for longer-term retirement purposes.

By the way, lest anyone believes that I have a problem with Alan as an adviser, think again. I have relied on his insights for articles I have written in the consumer press and his knowledge in many financial matters is unsurpassed.

Yet, in this instance, his “selling skills” somehow deserted him and the two clients walked away once they realised they would be liable to a £750 fee for his advice, a fee that would almost certainly have been mostly or completely offset by the rebated commission from the investments they made. They chose instead to go to Nationwide Building Society for their investment products.

Alan’s conclusion is simple: “The problem was neither trust nor lack of confidence that I could provide the solution, it was the fee. These clients, like the majority of consumers, had not previously paid or even discussed payment of a fee. Despite working for a solicitor and understanding the fee structure, Mrs B did not feel comfortable with the idea. Of course, it might be that it was because she worked for a solicitor that she did not feel comfortable.”

Now, I was not there and perhaps these two people were so opposed to a fee-based remuneration option that they remained totally oblivious to one of the greatest selling performances Alan has ever laid on in his professional life but I cannot help wondering if that really was the case.

Could it also be that, because he did not believe in it himself, Alan’s subliminal message was the opposite of what he was attempting to convey? Might it have been the case that there were other aspects of the meeting that they were unpersuaded by? Might they have been won over by a different approach?

My own experience of talking to people my own age and with some knowledge of advisers is that none has a problem with fees as opposed to commission. Where they will, however, draw a deep breath is over the requirement that they hand over several hundred or sometimes thousands of pounds in cash in one go, especially as they have never had to do so before. The other problem is they often do not have that amount of cash handy and see commission as a means of amortising their payments to the adviser.

I am sure these are both major issues that need addressing but I suspect plenty of other IFAs have found ways round them and there are many who have added their own helpful comments to Alan’s piece.

Ironically, as someone also pointed out, after 2012, it will be far more difficult for a Nationwide salesperson to pretend there is no fee attached to their advice.
By then, perhaps Alan and his supporters will have improved their selling skills - the ones they often tell me are so important when dealing with their clients. We can but hope.

Nic Cicutti can be contacted via nic@inspiredmoney.co.uk

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Readers' comments (35)

  • I don't think the issue here is that Alan told the clients that they'd be liable for a fee. Rather, the problem was that they weren't prepared to accept the idea that commission is not a zero cost option.

    I encountered the very same problem just last week with a young woman who'd been told by a colleague who'd recommended my services that my report fee would be "probably no more than £100". (He shouldn't, of course, have mentioned any figure at all, but that's something on which I'll have to educate him). The mention of a specific figure basically scotched the whole proposition because she just couldn't get to grips with the fact that whatever we'd be paid for our services beyond the initial report, i.e. implementation, wouldn't cost her nothing.

    I posed the question of where did she think commission comes from and, although she didn't have an answer, she just could not accept the idea that the only place it can come from is out of the sum she was proposing to invest. How could £100 possibly cover the cost of the whole exercise from start to finish and beyond? She was simply in blank denial of the commercial realities of running a business and providing advice as opposed merely to getting her to sign an application form and write a cheque.

    I'm all in favour of CAR but I think we just have to accept that one of the central challenges it poses is to wean Joe Public off the quite illogical assumption that commission is met from some nebulous benevolent fund that has nothing to do with them. Some clients will listen to reason and others simply won't.

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  • Business must be slow this week Nic if you feel you need to have a bitch at Alan. Alan is one of the few members of the IFA 'community' who isn't afraid to air sensitive issues in a very honest way. I have never even met or spoken to the man but I am glad he's around to make these points and I very much doubt his 'sales skills' are the issue here. Keep it up Alan.

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  • It is incredible the amount of clients who visit our IFA practice who have visited the banks first and our told by the banks adviser don't use an IFA because they charge a fee and we don't.

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  • I have no problem with commission & think its removal is unnecessarily stupid BUT I have always told my clients in words of one syllable that the commission is funded from the charges on the product i.e. from their money so over the last couple of years I have been saying same cost, different route, same result. with the only rationale for change being regulatary incompetence and I can't remember a problem...

    I am always reminded of Tony Gordon's comments when challenged by a client over perceived high commission on a plan. "Only £5,000 for looking after the financial affairs of a miserable bugger like you - I shall have to charge you a fee. " To which the client replied "OK Tony you keep the commission that's fine."

    So on this one, and with all due respect to Alan, I am with Nic. If you believe you are worth it, the chances are so will your clients....

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  • If I say to someone my fee for doing work for you is £500 which you can pay by cheque if they are HNW they realise they have to earn nearl a £1000 to cover it. If I tell them that an insurance company will pay me £500 but will charge them a little extra each yeay on their amc then they rightly will feel they are getting a cheap loan. That is why Nationwide got the business. We should be allowed to let our clients decide how they pay us not be told by idiots

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  • I should like to check out the colour of the sky on Mr Cicutti's planet

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  • Nationwide's Investment products (OEICs from Jupiter, L&G etc) have initial charges of up to 3% so if Alan's clients took those out they'd have paid a lot more in initial charges than his modest fee.

    However they were probably persuaded to take out Guaranteed Equity Bonds or somesuch - where it "appears" that there is no initial charge.or fee..

    As for commission : just substitute with the words "adviser charges" which are taken out at source.. You do not then have to worry clients who are afraid of fees

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  • Nic, you say that `people you know of the same age have no problem with fees but dont want to pay hundreds or thousands of pounds in one go`. This is how fees are paid! Dont you see what you are saying here. IFAs, solicititors, dentists etc dont get paid on the drip, the fee is payable in one go when the work is done. I dont think you see the problem staring us all in the face and that is the majority of the population (middle & lower England ) simply wont or, more realistically, cant afford to pay fees. The result of this on the economy will be catastrophic. It will also mean that the general public wont get advice from a decent adviser again. If the public have the choice at the moment of paying a fee or commission why take the choice away from them? Where`s the TCF in that?

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  • I have no problem with Alan as I have never met him but I thought his piece was used to try and prove his loudly proclaimed view that people will not pay for advice.
    In reality all Alan did was to present upfront commission in another format namely adviser charging.
    Who would agree to paying £750 to someone just for picking an investment and filling in a few forms.
    We are all going to have to learn what clients think is of value to them and how to deliver that at an acceptable cost.
    Just repackaging the old ways is not going to change anything.
    And the solution, at least to get started is not at all difficult.
    Just mimick the way the rest of our indutry works by providing an ongoing review service and charging an annual percentage of the fund you are looking after.
    of course there will be no upfront but once your snowball grows you will have an entirely diffrent and better form of income.
    No its not a perfect solution and you will have to constantly work at making sure your clients are happy to keep paying you but it sure beats the hell our of trying to justify silly large upfront sums that you cannot possibly justify.
    The providers and fund house, not to mention the new parasites such as Succession, or the hugely succesful HL all make a model based on amc's work and they do very well thank you.
    Before it is said yes you do have to compromise around stuff like protection and yes there will continue to be some cross subsidy.
    Oh and if Alan and everyone else manages to get out from under the yolk of commission then all of his very worthy lobbying stuff will become largely irrelevant as we and our clients will control the industry instead of the providers. .

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  • I imagine Alan Lakey does not mind being referred to as a salesman, as I don't, but that doesn't mean that he actually regards himself solely as a salesman (who doesn't give a toss about recommending the correct product for the client's needs) and it is very easy for people who do not have to 'sell' intangible products for a living to cirticise the difficulties some of us have in doing so. Alan Lakey is probably a very good adviser and maybe his selling technique is not so good. Should he be pillaried for that?

    I would dearly like to see Nic Cicutti trying to do this job for a year and maybe he would appreciate the difficulties involved. That's not going to happen, however.

    It is easy for a member of the public to speak to an IFA and get some level of advice, without paying a fee, and then for them to feel they can go direct to Hargreaves Lansdowne (or any similar type of outlet) and do it themselves for less commission or fees, even though they may make a complete cock up of it. This job is not perceived as being the same as paying a fee for having your car fixed or for legal advice or any other specialist occupation that deals with tangible goods or legal services. Every newspaper has tips for 'doing it yourself' and nobody is going to sue the public if they get it wrong are they?

    Having to sell the fee concept is just one more difficulty being heaped on those (like me) that are not good at selling, but not too bad at advising and good at not getting complaints (so far).

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