The facilitation of ongoing advice fees is back in the news. The usual pundits say facilitation results in higher charges, a lack of transparency and the overcharging of clients with larger portfolios. I cannot rule that out but in my experience wealthier individuals tend not to be fools.
Firms charging the same percentages for £5m, £1.5m and £150,000 will sooner or later lose clients to firms like ours.
So let’s talk about charges. In June 2015, I chaired the Leeds round of Money Marketing’s Retirement Planning Invitational, where charges were much discussed.
I mapped out what we charge but not one member of the audience would take up my invitation to do likewise.
For investment and pension business, we normally charge a £695 basic advice fee and a 1 per cent implementation fee. Our standard ongoing charges are 1 per cent per annum for non-pension and 0.5 per cent pa for pension portfolios.
Why the difference? It is a commercial decision based on experience. For one thing, there tends to be more ongoing maintenance with non-pension business such “bed and Isa” arrangements, and the pension pots we run tend to be larger. Where we can afford to pare fees down, we do.
Normally our fees are all-inclusive. We do not charge for “bed and Isa” work or for cross-funding between pensions and Isas, for example. If a client wants to come out of drawdown and move into an annuity we do that free of charge, even though it means saying goodbye to the ongoing fee. We want clients to make the retirement income decision right for them without a cost deterrent.
For larger investments we may reduce our annual fees depending on what the client wants and expects. Often we throw in things such as children’s stakeholder pensions and Junior Isas arranged free of charge where parents are investing significant sums.
Our basic principle is one initial fee on one tranche of money once, no matter how large it grows, and we give a specific no-churn guarantee trademarked as “FairFees”. Unsurprisingly it is very popular. Every compliance consultant we have ever had has told us we under-charge. But our clients make money and we all get to sleep at night. We make a living, not a killing, and that suits us fine.
Offering clean, transparent and great value charging means we have complete confidence in our proposition. It follows, therefore, that any reductions are given at our sole initiative. If we can afford to take less, we do, without being asked.
“Our basic principle is one initial fee on one tranche of money once, no matter how large it grows.”
Real world charging
But anyone pushing for more will not get it – and if they persist we will not take them on. The meanest tight-wads are always the worst clients to deal with and, in any case, I have an inbuilt dislike of the sharp-elbowed types who think they can bully their way to a better deal.
Returning to facilitation, hopefully the regulators and politicians are smart enough to understand that, in reality, it is about efficiency, credit control and cost-containment. Keeping charges down, not up.
If the pundits who pontificate actually ran businesses with overheads, employees and clients, they would know that, of course.
Neil Liversidge is managing director of West Riding Personal Financial Solutions