Nick Bamford: Does it really matter how we charge for advice?

Nick Bamford

The adage that someone knows “the price of everything and the value of nothing” is so true when it comes to intermediary charging. Dennis Hall put the cat amongst the pigeons when he wrote asked: “What right do others have to tell us how to charge?”

Measured by the number of responses and the attack and defence arguments put forward by contributors, this really did strike a nerve.

I suspect the vast majority of advisers today have been through more than one iteration of their pricing policy over time. It would surprise me greatly if anyone had at some point not charged on a percentage basis.

I recall being “chewed out” once by industry colleagues for admitting that we as a firm had got our pricing policy wrong. Almost as if commentators felt there was something wrong about admitting a business mistake. I would argue the opposite is true.

I don’t know what the cost of running your business is. I don’t know what it is that you do that is different to what my firm does. How then can I judge whether you are more or less expensive than I am?

The challenge with the different pricing methods is less I feel down to flat rate versus percentage and more about the regulatory view of “dealing bias”. I don’t think that subject has really gone away.

I can’t evidence it but I suspect the regulator is still not on board with pricing that is contingent upon a product being sold. Personally I see no problem with that.

There is after all a massive need for consumers to save and invest and a proposition that delivers that seems to me to be one that might fill the “advice gap”. Perhaps it should be called a “product gap”?

Reading the arguments for and against percentage-based charging and indeed for and against flat-rate charging, I found myself agreeing with a lot of what was said. We operate a flat-rate charge for advice, planning and implementation and a percentage-based charge for ongoing services.

This has massively evolved over time and I see no problem with changing it in the future based on what we are doing for our clients and what we need to do to remain profitable as a business.

Dennis is right though, no one should be telling us how to charge. That said I think we operate in a very forward thinking profession when debate about charging is so open. What is often missed is the amount of sharing that goes on behind the scenes in respect of all aspects of business management, pricing being just one of those things.

What matters is less about how we charge and more about what it is we charge for. Price in isolation as flat-rate or a percentage is pretty irrelevant.

If my client is paying me money they deserve to know exactly what it is they are going to get for that payment. Perhaps that is why I like the engagement letter so much. An opportunity to describe what it is we are going to do for the client and the pricing points for the delivery of that service.

From a consumer, and indeed regulatory, point of view though it is all about transparency. Does the client know what they are getting and what they are paying?

If the answer to that is “yes” then does it really matter if it’s paid for by a flat rate or percentage charge? I think not.

Nick Bamford is executive director at Informed Choice