View more on these topics

Dennis Hall: Fixed fees shift will soon gather pace

Hall-Dennis-Yellowtail-2013 700 x 450.jpgI was at a dinner earlier this year discussing the future of adviser businesses, when the person next to me mentioned they had recently transitioned to a flat fee model.

“That’s interesting,” I said. The flat fee model is something I struggle with. Conceptually I like the idea, but I have not been able to develop a robust enough model that would work for all my clients. “Please, tell me more.”

“What I realised is that I don’t have to charge all clients the same fee,” said my fellow dinner guest.

It was an excellent point and brilliantly simple. Perhaps my difficulty has been in trying to treat all clients the same, or at least have a set of rules and a repeatable process when calculating the fee. “So how exactly does that work?” I asked.

“It’s simple,” came the reply. “All I did was take the percentage-based fee I received last year and agree to charge the same amount this year.”

I was gobsmacked. Should I admire the chutzpah and simplicity of the solution or should I listen to my gut, which was telling me this was wrong?

A few months on and my gut is winning the argument. There is no doubt in my mind that we will see a shift toward a fixed fee environment. It will be very gradual at first, no matter how loudly the current proponents shout, but it will reach a tipping point and then the shift will be swift.

Today, the pioneers are testing their various fixed fee models and not all will survive. Some will fail because they will not be able to weather all economic storms and others because they will not survive the transparency that fees bring. My fellow diner’s model will not last long, I am sure.

Personally, I think the argument for fixed fees over percentage based fees is an unnecessary distraction. The bigger issue is transparency and our reluctance to openly publicise our charges. Consumers find the lack of transparency more intimidating and frustrating than whether it is a percentage or fixed fee cost.

It is intimidating because they have no idea what they are letting themselves in for when initially contacting an adviser. They do not want to speak to us directly just to discover what it might cost but that is exactly what we make them do. What it costs is a mystery until they bare their financial soul to us, which puts them on the back foot. It is a scary prospect.

I have been listening to those advisers banging the drum for fixed fees but when I visit their websites I have not a clue how much they charge. From the snippets I have gleaned here and there, fixed fees do not equal lower costs. In fact, the opposite seems to hold true, with clients being terminated for not meeting minimum criteria.

Don’t get me wrong, I do not publish fees on my website either. I have tried but it was not a success. My enquiries took a dip, so I stopped. On reflection, though, I could have added more context to better demonstrate value for money. I think I will try again.

Dennis Hall is managing director of Yellowtail Financial Planning



Old Mutual: Replatforming costs are on track

Old Mutual has dismissed fears that the costs of its replatforming project would increase further as it confirms a date for its new platform to launch. In May this year, Old Mutual cut ties with technology provider IFDS after spending at least £330m on upgrading its systems with the firm. Having previously estimated the total […]

Is three a crowd?

The pension versus Isa debate has raged on and off for years. Les Cameron, head of technical at Prudential, asks if three’s a crowd.   I think the debate was arguably settled by pensions freedom when the biggest downside of pensions – limited access and poor death benefits – was fundamentally changed. Total access, albeit with […]


News and expert analysis straight to your inbox

Sign up


There are 10 comments at the moment, we would love to hear your opinion too.

  1. In 2013, the then FCA boss, Martin Wheatley said “In some cases, firms are charging a percentage of product investment, and clearly it takes away product bias in the sense that we are no longer seeing firms recommending particular products because of the payment that comes to them, but it does not take away ‘dealing bias’, because if you only get paid if people buy a product, then you are going to want them to buy a product rather than pay off debts or do something else.

    There are some concerns about whether that is entirely compliant with the philosophy we have set out, and it is something we will come back to.”

    It would be interesting to see a comparison of time based charging v percentage when levied to an investment over the term of the contract.

    These thoughts may throw some other light on where all this may lead

  2. How many times since starting your business have you changed your charging model Dennis?

    • I’m not sure what the question has to do with an article that is predominantly about transparency, but to answer your question, it’s 4 times. I’m not in a tearing hurry to change it again as I have more important changes I need to make in my business.

      The one thing I know is that my business (note, I’m talking about my business, not yours or anyone else’s) will need to constantly change and evolve to stay relevant and meaningful to clients. I don’t believe my business can stay still, and if that’s means constant change, including charging models, then that’s something I simply have to live with.

      Personally speaking, if my business looks the same in five years time as it is today then I’ve probably failed. But that’s my opinion, and it’s how I view the world, and we’re all different of course.

  3. “I have tried but it was not a success. My enquiries took a dip, so I stopped.”

    No matter how you slice it only a small number of people need and can also afford to pay the level of fees so typical today.

    Thanks Regulator

  4. We’re currently in the process of rolling out the choice of a fixed fee option alongside a percentage model. Either way the service is clearly defined as are the pound costs under both options.

    Offering one over the other seems to be a bit short sighted. Some clients will prefer one option over the other. Offering the flexibility of both options can only be of benefit to the client.

  5. “My enquiries took a dip so I stopped.”

    Did you look at the conversion rates before and after?
    We point potential Clients to our published fees before we meet them if we can. It seems to work for us. If it puts people off, then so be it, they probably were not going to want to pay fees anyway, contingent or flat fee.
    Take a look at our website if you want;
    Feedback gratefully accepted and respected

  6. Your experience pretty much confirms what I have always suspected – that sticking fees on your website is a recipe for failure.

    I know the FCA are keen to encourage this. I can see why. I can even agree that, from a consumer viewpoint, it’s a good thing. But, until everyone is doing it (i.e. the FCA mandates it – which they show no sign of doing), then I am not going to be that lone sap who does so and loses business as a result

  7. One of the FCA’s pet projects is pushing a fixed fee model for advisers, which is (naturally) something it doesn’t do itself; it charges according to turnover/assets under management, the nature and basis of the business done, and a proportion towards the FSCS/FOS great money-give-away road show for the ambulance chasers. Why is this?

    To quote Karl Marx:

    ” From each according to his ability, to each according to his needs”.

    I appreciate I’m using this in a narrower context, but that is entirely beside the point; this is undeniably natural justice; in fact, the saying is often wrongly attributed to Jesus himself, but one can see why.

    If you do prefer a Biblical Reference:

    “A person who gets ahead by oppressing the poor or by showering gifts on the rich will end in poverty.”

    Then there’s:

    “Whoever walks in integrity walks securely, but he who makes his ways crooked will be found out.

    Both great maxims.

    The argument runs that percentage charging is unfair, but are flat fees any fairer?

    We don’t all pay a flat fee in income tax, we pay a graduated percentage. We don’t all pay the same stamp duty on a house purchase, we pay a graduated percentage. We pay VAT on a large proportion of goods and services, mainly at 20%, so the more expensive the item we buy, the greater the monetary amount we pay to the treasury, even though the percentage remains the same.

    Coming back to our own world, Fund Managers charge a percentage of funds under management, so what is the all-powerful argument for charging a flat fee?

    It is argued that “the work done is the same, so why should someone with £500,000 to invest pay more than someone with £50,000 to invest” – I simply refer you to the above.

    However, even if we put this argument to one side for a moment, those with greater wealth almost invariably have more complicated scenarios to deal with and to cater for, therefore by the very nature of what we do, there will always be sizeable variables within the mix, so unless you’re a one-trick pony and say, only do £20K ISA’s and nothing else, why is a flat fee either right or fair to anyone?

    I get the anti cross-subsidy argument, I really do, but it is a fundamentally and fatally flawed argument; how the hell do annuities work for goodness sake! The only way society can function – be that monetarily OR socially, is by cross-subsidy of one sort or another. Sure, it can be argued that there are elements which, when taken in isolation, might be viewed as “unfair”, but the bigger picture most definitely proves otherwise.

    Think about it.

  8. I prefer asset based fees for obvious reasons but agree with Dennis that pressure for fixed fees will grow.

    Currently we only have one client on a fixed fee; he loves what we do but when he came into some more money recently (just after all the stuff about fixed fees was in the sunday papers)- he asked why he should pay double what he was paying before for the same service! It’s a valid point, so we quoted him £5K p.a. + RPI increases which was c.20% more than before. He’s happy and still profitable for us.

Leave a comment