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