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Alistair Cunningham: Negotiating on fees is a mistake

Alistair Cunningham MM blog

My father, full-time accountant and part-time antiques dealer, was Kent’s answer to Arthur Daley and I learnt from a young age that any price was up for debate.

It may come as a surprise that when it comes to fees for professional services, I strongly recommend that the price is notup for negotiation.

Since Wingate Financial Planning’s inception we’ve offered clients a limited range of services, each with a discrete fee attached. A significant benefit of this is that certain clients, who know what they want, like the simplicity and can make an immediate decision. Others will see it as an invitation to negotiate.

We can’t blame the client. The most painful of these discussions, have normally occurred when I’ve not highlighted the value of what we do. This is compounded by the cacophony of confusing messages; ‘advice is free’, ‘the provider pays’, ‘commission will be banned’, etc. Our message is different, and this can confuse.

It is also hard for us to explain the value of what we do. Many clients, especially business owners, have been trained to make judgements on quantitative bases. What they want, and we cannot give, is assurances over annual returns, future tax saved, etc.

For these reasons we give away a certain amount of value for free.

Nevertheless there are some individuals who treat fee negotiation as a game. I’ll tell them our fees and they seek to reduce it.

There are different strategies; asking us to match or beat another firm (whose services are invariably different to ours), reduce the work or services we are undertaken or simply a potential client will do nothing (under the assumption no action is better than paying for advice).

The first lesson we learnt was that we may never attract these clients who have typically gone for a short-term gain.

We considered whether we should offer the client to select or deselect elements of the service. The problem is what elements can you drop without prejudicing the advice you give?

Although we agree our fees in advance, and had agreements in place for many years, we are now refreshing our terms to make them ‘RDR-friendly’. This puts our fees under the spotlight again and we expect them to be challenged. This does not mean we will reduce them, nor have we set any historic precedents.

I am of the mind that if we reduce our fees for client A, and client B is receiving the same service in all other regards, it cannot be fair to charge A more or less than B.

It also seems unfair that some firms operate a policy of using existing client monies to subsidise the attraction of new clients.

In very rare circumstances we do offer ‘dual pricing’, for example, some employees of our corporate clients will have an agreed minimum service through their employer. As the employer covers the cost of an annuity purchase, we may discount our initial work for the establishment of a drawdown contract, but never discount the on-going service.

Ultimately I do not believe clients select their financial planner based principally on fees, nor indeed that fees are any significant part of the decision making process; as long as a client feels the fees are reasonable and trusts their professional adviser, the debate about fees is largely a game; a game that we, as a profession, have encouraged clients to play.

Alistair Cunningham is financial planning director at Wingate Financial Planning

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Many interesting points covered here.

    I do believe that there is always an element of cross subsidy in all Business propositions.

    The notion of fees/commission offset ultimately mean that a customer/client pays.

    The RDR is unhelpful in that Tied and Manufacturer/Distributors can and will operate pre RDR models. How can an independent/restricted advisor compete against such an uneven backdrop.

    In my 21 years in the business I have only ever come across 2 true fee charging companies. One is part of a Big 5 firm charging out at £700 ph and another provided reports but never transacted client business.

    The RDR will clarify how people pay but this month I have already had a discussion with a successful high earning business owner who said I should be paying him commission for his business. This is not an uncommon secnario even amongst the mass affluent and professionally educated.

  2. If a client has an “Only fools and horses ” attitude to paying for an IFAs services, I would respectfully suggest to them that they are not the sort of client I would wish to deal with.

    I have in the past negotiated charges, usually via a reduction in the commission available, especially for higher value investments, only to find that the client “shopped around” and went to a firm which offered a cheaper cost of advice.

    never again

  3. Right on the mark, Ned. To provide advice without requiring an up front fee for it, in the speculative hope of being remunerated for it some months down the line in the wake of a product sale, is simply not a tenable business model. I discarded that practice over 10 years ago and, on the very few occasions on which I’ve been persuaded to do the work for nothing, I’ve regretted it.

    It doesn’t have to be a huge fee, but there has to be some sort of upfront payment, if only as a gesture of serious intent. Why should somebody benefit from your services with no commitment to paying for them?

    If the client won’t pay, then just walk away ~ you absolutely have to.

    A bit of horse-trading may be commonplace when it comes to buying a used car or a house, but in the field of professional advisory services we shouldn’t demean ourselves by allowing the value and price of what we offer to be knocked down.

    And if a client thinks he can get the same as what you’re offering for 20% less from Joe Soap down the road, then let him go to Joe Soap.

  4. Ummm, in the real world if the client questions the price it’s called an objection. If you have this problem it’s because the client can’t see your value. At least that’s the theory.

    A good presentation, presentation skills, sales skills and skilled objection handling is needed here.

    I wouldn’t go with / blame the client or we won’t move on our price.

    You could inflate your fee by 25% and then knock that off. I used to do that when I flogged double glazing.

    Anyway I thought I’d moment as having 3 is a bit embarrassing 0)

    Love

    Richard

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