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Categories:Advisers

Simon Webster: Clients will pay fees if you demonstrate your worth

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Last week, an adviser told me: “A client will not pay me £500 to tell him to put £500 a month into a pension.” I am sure the adviser is correct but with many advisers already successfully charging a fee for recommendations to make monthly payments into investment products, why do others find it so challenging?

For much of my 30-year career I have been remunerated on commission only. But over the last 10 years as commission rates have steadily fallen, particularly in the pension arena, we started charging fees.

From 2013, there will be no commission on investment business so devising a systematic fee-charging model is a priority. Moving from ad hoc fee-charging to a full-blown system requires serious thought, however.

We have made a number of informal attempts to market-test different fee structures and have started to recognise some trends.

Our clients have no objection to paying us properly for decent advice and service but good service is essential. It is vital that we make sure our definition of good service and the client’s coincide upfront.

The principal product we sell is advice and our principal cost is time. We add value for the client but, in doing so, we take on liability. What we charge must cover time and liability but should also reflect the full value we add.

I recently received a liquidator’s report from PwC where the senior partner was charged at £460 per hour and junior accountants at £230 or more, all plus VAT. On that basis, my starting point of £195 per hour not subject to VAT looks pretty reasonable, based on wages cost, overhead, liability allocation and an element of value. I charge my admin team at £75 per hour on much the same basis.

We then need a route to market, so it is important to think about positioning. Once we understand why solving a particular problem is important to the client we can try to make sure we really do solve the problem and we can also make sure we demonstrate that in solving that problem we have really added value. This underpins the justification for our fee.

When we offer our fee proposal, we can couch it in terms that relate to the client’s problem and to the value we create in fully identifying the problem then planning for and implementing the solution.

These are three discrete tasks. Sometimes the client will know the problem but have no idea how to plan or implement and sometimes he will not even know the problem. But each of these three key adviser roles has a value and each ought to command a price.

I quite like the idea of being able to charge every client that walks through the door.

Simon Webster is managing director of Facts & Figures

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Readers' comments (22)

  • I'm glad it works for you Simon, but for many many of us, it won't! The people we deal with, rich and poor, in the main, will not pay fees. They will end up taking no advice or going to their bank.

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  • Very laudable and well-worded Simon and fair play to you for achieving this. However, there are not many who will be able to achieve what you have and unfortunately businesses like yours alone will not feed such a greedy industry, so we need to look at the majority and not a minority, as we all help to help each other, like it or not!

    As you know, your strategy takes many years to implement and that is not time that the majority will now have, as the industry’s overhead has burgeoned to the extent where many of us work until Wednesday for everyone else’s benefit already!

    There seems to me to be an obvious solution (and please tell me otherwise if I am wrong!), which should satisfy IFAs’ and clients/customers alike and that is that, for IFAs’ that do not feel that client fees are a workable proposition for certain circumstances, then, if a product sale is deemed appropriate for a client/customer, then, assuming that certain investment products are allocated at, say 102% (sounds familiar?) then under a ‘product’ adviser fee basis, the adviser can still receive remuneration of 2% of the sale, whilst ensuring that the client receives 100% investment allocation.. Absurd? Why? The provider imposes an early surrender penalty to recoup its outlay, if the product is surrendered in the early years (sounds familiar again) and the client receives fair value, so all parties are satisfied.

    After all, what business is able to put its product into market without paying a distribution channel for so doing ?

    Any product provider that thinks they will be able to market their products without a distribution cost under RDR, is either being very naïve, or completely deluded. IFAs‘ would find their time better spent in terms of challenging this position, rather than seemingly accepting it, because I have questioned the matter and my understanding thus far, has been that there is no problem with providers structuring their offering on a commercially competitive basis, as long as they don‘t seek to pay ‘commission.’

    The solution may be there, we just need to stop arguing amongst ourselves as to whom is better. There is a need for all of us!

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  • Simon you are talking nonsense.

    If you for one moment think that Clients on an average of £25k a year or less (£13 an hour or so) are going to pay you (or any adviser outside the London / Leafy suburbs) £195 per hour - you have your head up your a**.

    It's a bit like the Banker's Bonus's - contractually & knowledge / outgoings wise - might be acceptable - but morally & while families are trying to keep a roof over their head & food on the table (for more & more of middle Britain anyway) it stinks!

    That's why RDR is designed to drive everyone with I suggest less than about £100k a year to the banks! THIS WILL THEN INCREASE PROFITABILITY REGARDING TAXPAYERS OWNING THE BANKS SO THAT GOVT CAN SELL THERE SHAREHOLDING AT A VAST PROFIT READY FOR THE NEXT ELECTION!

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  • I agree absolutely with the above post. A small minority of the public will pay fees but the vast majority simply won't, however skillfully I present my proposition.

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  • A conundrum.

    Are fees charged or are they offset against funds invested -taken off the top line?

    many who say they charge fees really don't.

    Oddly enough I too am dealing with PWC as the Trustee in bankruptcy and they stick it on alright. Similarly with a pensions lawyer dealing with a small final salary scheme trying to wind up - work for works sake to increase the fees is the order of the day.

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  • Simon, this article reads well and seems to make sense, but..... in the real world, average income clients won't just buy the story and whip out their cheque books. Whatever the real truth behind RDR is, the result is that a fee charged full IFA planning proposition is only viable for HNW clients. The banks will take the rest, although I am sure a few IFA firms will hang on for a year or two until the penny finally drops that the game is up. The saddest thing about all this is that I speak to many other advisers that used to care a lot about their jobs who have lost interest in the whole thing - but intend to keep muddling along in a depressed, irritated state. That isn't good for the adviser or the client.

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  • Excellent article, Simon.
    Probably a good job you didn't invest too much time in telling us how you add value, as many of the people who have commented, have stopped listening

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  • Dermot..Engage your brain and stop being so patronising.Without the rest of the adviser sector, in whatever form and whatever client profile we may have, you will struggle.Like it or not!

    I will refer you to my earlier comment, for ease of reading, as obviously your time is very valuable...'The solution may be there, we just need to stop arguing amongst ourselves as to whom is better. There is a need for all of us!'

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  • You are right there Dermot, lots of people have stopped listening, quite some time ago. The ones with sense put their effort and money into commercial propositions that make money, rather than pursuing a business model forced upon them by the Regulator, who, pretty plainly, wants you to go out of business and has the means to make sure that is exactly what happens.

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  • We have clients, adults with children on £8 per hour, how can we possibly charge them?

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