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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)

  • @ Steve - you are right, they need advice, but not complex advice where they would need to pay a fee.

    That's why what the Bamfords are doing for that segment of the market is great - both for their business and the public.

    When we get enquiries for advice, a quick 5 minute phone conversation will tell us whether someone needs our advice or can DIY through a flowchart system. We need not waste their time or ours by opening a file.

    And no, it isn't based on "how much money do you have in investments or pensions so we can charge you a percentage of it..."

    eg. recent online enquiry where client had over £400k in fully crystalised drawdown through sippdeal. angry that the annual payment has gone down suddenly, has no appitite for risk as this is all they have in addition to a mortgage free house. So the polite answer was to annuitise - look online and find out. This after they gasped at paying £750 +VAT for suitability on the drawdown...

    There's little point, or time, in trying to educate such clients. What is best for them is probably the MAS!

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  • I am finding it difficult understanding all these statements that client’s won’t pay fees which brings me to question both how many clients you have asked and how you asked them? I have been in the industry 22 years and 16 months ago decided to go fully fee based – no exceptions – I refuse to take commission on pension and investment business.

    I set me fee intitially at 3% and 0.5% trail and last year had my best year ever, with issued business about 3x the previous best. This year I have amended the fee to 2.6% and 1% trail and so far had a better January that I did last year. In fact if a client doesn’t want to pay the trail I have threatened to walk away – this has occurred 3 times and each time the client relented and I wrote the business.

    Sure I only get about half of the Engagement Letters that I send out returned signed but that is probably just as well because if they all returned them I wouldn’t be able to deal with them all.

    I also think that I am losing some business to advisers who are delivering on a commission basis but I am not too worried by that because after December 2012 they won’t have a choice – the adviser or the client.

    Make no mistake, clients will pay a fee if you ask them and advise them of the value added for the advice. Above all clients want someone to hold their hand and to call when things get a bit tricky in the markets.

    So tell the clients how much you are going to charge them and the value that they will receive and you will have a good long term client.

    Gone are the days when I would go out on a cold wet dark Friday night to see a ‘client’ with a pension plan report that has taken me two or three hours to put together only to be told’ thanks very much I will read it and get back to you’. I charge a fee for the initial Report - now, no pay, no play as far as I am concerned.

    When I started with Legal & General in 1990 there used to be loads of blokes telling each other around the coffee machine about how and what they were going to do while the rest of us went out and did it. This was the Pareto principal at play – 80% telling everyone else how it can’t be done and the other 20% going out and doing it.

    Wise up? Red Rum won three Grand Nationals as an outsider and the problem was nobody told him he couldn’t do it because he wasn’t the favourite!

    Go out and tell your clients the value that you are going to give them – in 10 months they won’t have a choice anyway and if you don’t tell them you will lose them to someone like the 20% who will and they will take them off you as clients! Don’t be a coffee machine waster.

    It’s really as simple and as easy as that!

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