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Dennis Hall: What right do others have to tell us how to charge?

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It irks me when self-appointed “reformers” tell others what to do while conveniently glossing over the fact their success was achieved the old way. The latest example is knocking percentage-based income in favour of fixed or flat fees. The irony is the loudest voices are from those that created their own financial security through a percentage-based income.

One name that springs to mind is Back2Y founder Paul Armson. Irrespective of what he sold (be it financial planning or otherwise) his remuneration model was initial commission and ongoing trail: a percentage-based income facilitated by products. Paul delights in telling people he made a good living from his business, enough to retire early and buy a yacht. Good for him. And I am sure his clients did OK too, notwithstanding the percentage fees.

Time marches forward and now, according to Paul, it is wrong to charge a percentage. But he has never built a successful IFA business on fixed or flat fees, so what evidence does he have that it can be done?

Apparently he does not need his own evidence because he can point toward Alan Smith’s Capital Asset Management, which, over one year, moved every client from percentage fees to fixed fees.

No doubt this is a great achievement but Capital Asset Management were able to do it because it had reached a level of financial security built over several decades of percentage-based commission and fees. What is more, we do not really know whether clients are paying more or less than they were before, or whether it meant letting go of unprofitable clients to concentrate on those who could pay their fees.

There are many younger businesses trying to grow that do not have the luxury of a stable income stream or a large pool of clients. They are still chasing every decent client they can get.

And if those clients and businesses find it easier to operate on a percentage basis, what right has anyone else to tell them they are wrong? Those businesses need to attain financial stability in an increasingly price-sensitive market, and they do not need wealthy old timers sticking their oar in.

Then comes ex-Bloomsbury Financial Planning principal Jason Butler’s much-trumpeted article in the Financial Times, which touched on the flat rate, fixed fee model. Interestingly, he did not mention his old firm as one leading the charge, naming Capital Asset Management instead. Another case of the pot calling the kettle black, I wonder?

The truth is, individual firms and their clients must decide on a fee model most appropriate to them and then keep it under review. There is no one-size-fits-all solution and it is likely firms will transition through a number of options as they develop.

Incidentally, I find the quietest people are those that have been charging non-percentage-based fees the longest. Ovation Finance managing director Chris Budd, for example, has been charging hourly rate fees for donkey’s years but he does not make a song and dance about it, nor castigate others who do not do the same.

Dennis Hall is managing director of Yellowtail Financial Planning

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Comments

There are 43 comments at the moment, we would love to hear your opinion too.

  1. Good article.

  2. Is that the same Chris Budd that did an excellent presentation at Back2y last year Dennis?

    • He may well have done Ian, but I didn’t attend Back2y, not last year, the year before, nor this year! I mentioned Chris because I’d recently spoken with him, and it reminded me that he’s ‘quietly’ done things his way for a long time without becoming all ‘evangelical’ about it.

  3. Here is a comment from another old stager who made a lot of money under the old model. Excellent article. For the last 12 years since my retirement from front line advice i have been working with some of the countries best & most successful advisers helping them get their business model right. All of them work on a “percentage of funds under management”, the only way to build real scalability into a small financial services firm.

    • Thank you Tony, and your comment chimes with some insights I received recently from a hugely successful US firm with $25billion AUM – they’ve looked at the other models, but admit they wouldn’t have been able to grow so quickly from the $1billion AUM they had 10 years ago.

  4. Excellent piece Dennis, genuinely ‘Clarion’ in tone!

  5. A thoroughly refreshing article, I get fed up being preached at by certain experts…

  6. Quite right Dennis, it is what works for you and the client. Discussion this week with a client with a large fund, could I remind him what I charged, not that he was bothered too much. It is percentage based, I told him that the fees would be a lot lower if I had not grown his fund to the current size.
    Happy client, and we are both incentivised by protecting his capital.

    • Thank you Geoff. Based on full disclosure you and your client clearly agree that your interests are aligned. Some might disagree, but that’s largely immaterial, the fee agreement (the clue is in the word agreement) is between you and the client.

  7. This article is greatly flawed and appears an attempt by media friendly Mr Hall to score points. For the record, I never tell people how to charge. Never. In fact, personally, I don’t care how Advisers charge so long as a) it’s a lot (i.e. a joke, meaning EVERY client MUST be profitable) and b) any remuneration received is for knocking clients socks off by delivering GREAT client outcomes. So I’m not sure where you get your information from Dennis. Post RDR I do believe that the flat fee model can make sense, particularly with higher net worth clients. The key is are they profitable. Period.
    As regarding commission, I’m the first to admit that, like most Advisers over 50, I grew up in the old world and I’m not ashamed to admit it. I did alright and all WITHOUT selling a single With Profit Bond, unlike some. The world has moved on. But nice dig Dennis.
    I understand Dennis has wrestled with countless charging methods, most of which have failed. Over the last few years he has been a regular, all knowing mouthpiece in the press when extolling his latest effort. So very strange that he should take a dig at Alan. At last year’s BACK2Y Alan shared what he is now doing and why it might make sense. His message was “I wouldn’t start from here if I were you” – he was questioning how we got to this model in the first place. You can watch his talk here: https://inspiringmoney.leadpages.co/back2y2015-alan-smith-presentation/
    You weren’t at BACK2Y Dennis, for ego driven reasons I’m sure. But last week’s event was a great success. You should have come along.

    • Paul, I’ve replied to everyone else, so I’ll do you the courtesy of replying to you, though it will take a lot more words. (By the way, we’re both media tarts).

      I don’t believe the article is flawed, if I did I would have written a different one. Nor am I out to score points. To what purpose? Rather than score points I wanted to make a point, and you helped me with your comment “I don’t care how advisers charge, so long as….”, before you set our your conditions a) and b).

      It’s not really up to you whether EVERY adviser’s client MUST be profitable, that’s their choice surely? And remuneration for knocking client’s socks off and delivering GREAT client outcomes. What about good outcomes? Are they not good enough? What if the client cannot afford to pay for GREAT outcomes? Again, it’s not for you to say. However, I do agree with you that a flat fee model can make sense, regardless of RDR actually.

      As for commission, we’re both old enough to have earned our living from it, and we both used financial planning to demonstrate why clients needed to buy various products to achieve their goals. I haven’t implied that you should be ashamed, nor did I mention with profits bonds (or any other product for that matter). In fact I suggested that it was a win/win situation for you and your clients, or didn’t you read it that way? In this respect there was no dig.

      As for ‘wrestling with charging models’ there have been 4 that I’ve adopted in the past 10 years, hardly countless. What I have now is a hybrid as they all worked to some extent. I’ve taken the best of each and applied them to circumstances where they are most appropriate. Read what I’ve said in the past about fees and you’ll find I’ve been candid about what hasn’t worked for me, and why, in the hope that others don’t repeat the same mistakes (or at least think it through better than I did).

      As for having a dig at Alan, I don’t see it. I congratulated him for the achievement and mentioned him only because you do, often. Thanks for sharing the link to Alan’s presentation, but I disagree with you about his message, I don’t think he was questioning how we got to this model in the first place (he was pretty certain about how) but was questioning whether we should remain where we are charging on a percentage basis (among other things he talked about).

      I couldn’t come to your event because I was on holiday – no ego, just sunshine. But holiday or no, I didn’t wish to attend for a variety of reasons, not least because I have more than enough great ideas I wish to implement in my business. Spending a day picking up more would be a hindrance not a help.

  8. @Tony Gordon in the interest of balance can you clarify how you differ from the self appointed “reformers” that Dennis has chosen to have a go at?

  9. Philip Spierling 7th March 2016 at 4:30 pm

    I love Dennis’s articles ,, Another winner Dennis , Brilliant

  10. Right on Dennis. Stockbrokers charge by percentage, investment bankers charge by percentage (both for M&A, IPOs and capital raising). The FCA quote percentages as do all the bumph we have to give out.

    The issue isn’t percentages per se, but the size of the percentage. I have come across numbers that I would consider far too high. Any number to the left of the decimal point should be out of bounds.

    • Thank you Harry – if there is anything wrong with percentages (and there is an argument otherwise people wouldn’t be so het up about it) it should be directed at the fund managers first. Even if manager’s adopted Vanguard’s approach of reducing fees as the fund becomes larger and more profitable would be a start.

  11. Neil Liversidge 7th March 2016 at 6:04 pm

    Spot on Dennis. The percentage based model exists for a reason: It works for advisers AND clients.

  12. Surely this cant be the same Denis Hall that wrote this article in favour of flat fee models?

    http://citywire.co.uk/new-model-adviser/news/could-dennis-halls-flat-fee-model-take-off/a306530

    Or this one (this time with Jason Butler whom he now castigates)

    http://citywire.co.uk/new-model-adviser/news/adviser-workshop-how-to-implement-a-fixed-fee-model/a762796

    Bored yet? One more;

    http://citywire.co.uk/new-model-adviser/news/why-i-m-eating-humble-pie-over-my-charging-structure/a398628

    Not the most credible individual to be going into print on this subject I would suggest!

    • Andrew, thanks for those links to previous comments I’ve made (it’s Dennis by the way, with 2 n’s) they remind me of the fee journey I made, and how it had to evolve to meet the needs of my business and my clients. As for Jason, castigating? I don’t think so, I asked a question ‘was this the pot calling the kettle black?’ I have a lot respect for Jason, who has pushed many boundaries in the past, and been honest enough about his failures too.

    • Quite incredible. Thanks Andrew for pointing us all to these links. Mr Hall speaks does indeed speak with forked tongue.

      Why the fixation with AUM?

      Here’s the thing: If you are delivering a proper financial planning service then clients do not have to have ANY investable assets. For financial advice / investment advice of course they do, otherwise how are you going to justify your existence / fee? Many people commenting will be looking at this from a traditional IFA / Financial Adviser / Investment Adviser approach: “Pay me 1% a year and it’s perfect, we both get rewarded when your money goes up.” It seems to me that many Advisers are now earning more than their clients for their ‘investment’ expertise. Last April I ran a ‘Say NO to 1%’ April Fool spoof, to get Advisers thinking about how they are now becoming the most expensive link in the investment chain. And that its only a matter of time before clients question those fees, particularly when investments start to fall or go sideways. It’s happening to many right now.
      Proper Financial Planning has nothing to do with investments, which means the world is your oyster, ahem, and you can therefore benefit ANYBODY with the service. You don’t have to ‘hope’ that clients want to invest, or need a ‘product’ of some sort. Example Business Owners (my personal preference) who I found would pay several thousand a year for inspiring financial planning advice to help them secure their future via there business. Any ‘transactional’ income would be on top. With a proper financial planning approach you need never be short of the right type of clients ever again.

      So crossed purposes here. There’s financial planning – and there’s financial / investment advice.

      The world has changed. It kind of begs the question why is this publication / website still called ‘Money Marketing’? – Advisers are not ‘marketing money’ any more! They are no longer being paid by the manufacturers of those products (the ‘Industry’). They are now being paid by their clients for a service that benefits THEM, not the ‘Industry’. I fear many are still missing this point and their 1% pa ‘off the money’ is nothing more than commission in a different disguise. All this is fine, until clients say ‘What, exactly, are you doing for me for your 1%pa? How are you making my life better?” That’s where Robo Advice / DIY options will win and Advisers will lose. It’s just a matter of time.

      But DeNNis, this is just an opinion. Like belly buttons, we’ve all got one. Mine’s a big one. 🙂

      • You crack me up Paul, you really do. I really don’t know where to begin in order to unravel the inconsistencies you have thrown up in your reply, so I won’t bother (but I’m so, so, tempted). I do think however you share a trait with Steve Jobs – a Reality Distortion Field – it worked for him and it seems to work for you. So for now me and my tongue will just fork off.

        • Dennis the only inconsistencies I can see are in the NMA/citywire links kindly posted above (a great reply from Harry in 2008!)- if you read them in the order they were printed you make no sense at all. Say what you like about Paul, Alan and Jason, at least they can make a decision and stick with it.
          Oh… and they really do run profitable businesses. When your accounts look better I might start taking notice of your rants.

          • Ian, thank you for your contribution, though personally I’m struggling to see what value it adds to the debate. However, I’ve got to comment on a couple of points you’ve raised. It’s probably nit-picking, but since you mentioned it I do actually run a profitable business these days, OK it hasn’t always been profitable I admit. Though that was because I started my business from scratch, on a fee only basis, and struggled to find a model that worked for a business that was a) brand new, b) had too few clients, and c) started in an environment that was still largely commission led.

            The lessons I learned, which I openly shared in NMA/CityWire, allowed others to learn from my experiences and my errors. Over the years many have thanked me for my willingness to share – I don’t think you’re one of them, but you can’t please all the people all of the time. I don’t share all my mistakes Ian, there are some that I’m still too embarrassed about, but I’m pretty open about my fee experiments.

            It also gives me some licence (in my opinion) to comment about the evolving fee situation, given that I’ve tried most models with varying degrees of success. If I hadn’t had deep pockets, and a willingness to spend my own capital to support my experiments, my business would have folded, which is why I felt compelled to write the original article. Others need to know that there are upsides and downsides to each model, and they don’t all work, especially when used in isolation.

            As for Paul, Alan and Jason, you mention they have a track record of running profitable businesses, and sticking to decisions – are you absolutely sure about that?

            Alan aside (as I believe he has been running CAM for a long time, and profitably to boot) I think you’re being economical with the truth. By his own admission Jason has made several changes to his business and business model over the years. He has been one of the most forward thinking advisers in the financial planning field, but it hasn’t all been plain sailing, and it hasn’t been without a few u-turns and changes in direction. In fact his willingness to constantly tinker with his business, and share his experiences are the reasons I do the same, I want to emulate that success. Though I’d rather not flirt with bankruptcy which he’s admitted to doing. That bit is in a pod cast entitled ”from the brink of bankruptcy to one of London’s top boutique firms” – google it.

            As for Paul, if his directorship record is anything to go by he’s tried his hand at several things over the years, and records indicate he’s been a director of 8 companies, 7 of which are now dissolved. He’s even been involved in publishing, but I’ve heard it wasn’t very successful. However, I don’t believe that has any relevance on what he’s doing now, except for your comment about making decisions and sticking by them (though I suppose when you decide to dissolve a company that is pretty final)?

            Other than that I think your post was brilliant.

  13. Yet again, excellent.

    Of course, the article can be extended beyond the mere charging structure matter to many others aspects of business and personal life.

    The trumpet cry of those who know what is best for us and for others. Those who aren’t content to let each of us make our individual choices but, in the interest of the consumer or some other body whose flag it is convenient to wave, of course, seek to design our lives amid structures that reflect their own desires and prejudices.

    The market will ultimately decide whether a fee/commission/adviser-charge structure is succesful.

  14. I don’t know anything relating to Mr Armson, personally, but it’s one hec of a lucidly expressed viewpoint,and that is more certainly refreshing financial press reading. I have had contact with Dennis and always found him to be a very well hinged and meaning adviser / planner. One point to add is that the world we operate in today, versus where we were in the past, is surely markedly better, almost inversally, across the provider and adviser / planning foodchain, which is the signifiicant positive to recognise – and generally, notwisthatnding the need for comment where it’s appropriate, objective, knowledgeable and therefore factual, I think the FS / planning / advisory sector is likely to be best served, as much as is possible, with more unfication. And, like I say, the bar is so much higher across the board now.

  15. Damien Clyburn 7th March 2016 at 8:47 pm

    In fairness to all, there is no right all wrong answer to this and we should all be able to run are businesses as we see fit. As long as we are open and honest to our clients, and they are happy with the service they receive for that fee model, then what is the problem? I must admit that I think this article is a little out of context to the BACK2Y event I attended. I was there the whole day and I did not hear Paul Armson once say that anybody should not charge based on a % of AUM. Maybe that is the message that the BACK2Y followers portray to some quarters,or that is reported by some people, however, I did not hear this message mentioned on the day. In fact I found the content of the day hugely educational, In particular there were two excellent sessions by highly intellectual presenters. One by the ideascentregroup.com on creative thinking and one by Jez Rose who is one of the country’s leading behaviourist and motivational speakers. In fact, I would go as far as saying that Jez’s presentation was the best I have seen in 13 years of going to events like these.
    I didn’t hear these people mention fees once and I suspect they couldn’t give a monkeys how we charge. On top of these sessions, there were many people at the event willing to share ideas without preaching that their business model was the best and we should adhere to that model.
    I was sceptical going into the day, but I can honestly say it was one of the best days I have spent at a seminar of that nature, but I am easily pleased!
    However, I will make sure that I do also attend other events as I am running short on notepads and pens.

    • Hi Damien – thank you for your contribution. I haven’t attended a Back2y event, so made to comment about it. I have heard others talking about Back2y equally as enthusiastic and it sounds as though there were some cracking sessions. My article was based on things I’ve read and heard from Paul outside Back2y, he is not ‘backward in coming forward’ as they say. And to be fair, his presentations on life planning, buckets, and ‘Truth’ are among the best I’ve seen, ever.

    • Usually I take a lot of notice about what Dennis Hall says as it is often useful to hear what has and hasn’t worked and Dennis is someone who is happy to share his experiences, but so is Harry Katz (a friend i have never met, but spoken to on many an occasion and Paul Armson (who I met about 6 years ago before starting to use Truth software and again at Back2y last week).
      Dennis’ article did seem like a pre-emptive strike against an assumed aggressor but for my mind, may have been based on a Tony Blair style dodgy dossier.
      Back2y was good (I took away some useful info), but so were the 2 FCA half day seminars I attended near Bristol the day before and I took away as much form them as fro B2Y, so it’s a bit like charging structures, all good info, just pick and choose what works for you and your clients.
      Jez Rose was hilarious and I wonder what he’d make of Dennis and Paul’s visible spat here on MM!!
      Come on guys, play nicely.

  16. Dennis has a heart of gold and true intentions. My FT article refered to focused on the issue of delivering value and managing conflicts of interest. Fixed fees are not a panacea, but ONE way that some firms might use to ensure value & avoid conflicts. I mentioned Alan and CAM because they exclusively charge fixed retainers. For the record my old firm Bloomsbury offers a range of charging options including fixed retainers, asset based, and hourly, based on what makes best sense for the client AND the firm. Thought leadership is about being prepared to say something that might not be popular but which advances knowledge and understanding. I don’t know all the answers and neither does Dennis. I have, however, built a successful, high quality and profitable advice business which I was able to exit for a meaningful amount, and which goes from strength to strength since I left. No charging structure is perfect, but that shouldn’t stop firms from continually questioning the status quo.

  17. Christopher Petrie 7th March 2016 at 10:54 pm

    Nice article. Balanced up the regular MM opinion IFA from Scotland who regularly tells his competitors they’re doing it all wrong because they charge ad valorium and he doesn’t.

  18. Good article and right on the money if you pardon the pun. If you are lucky enough to operate within a wholly high net worth environment then ok, fees maybe work. Most of us do not and for that reason, the article resonates and I can certainly vouch for the fact that without a spine earned through a acquiring business in the pre rdr commission and percentages world, I would have been long gone. Now I can continue to look after those clients and new ones with an income stream which allows a small element of time subsidy. I won’t earn at the levels I used to, but I’m experienced enough to know that I make a difference to those I look after and would not wish to leave them to some of the acquisition models I have seen, whose earnings models and greed (flat fee or %) demonstrate why this industry will never truly turn its reputation around!!

  19. Dennis Best bit of advice I was ever given

    “When you’re employed , you work for the company and within reason do what you are told to do
    When you’re a self employed , your company works for you” Your job is to ensure you give value for money to your customer. Work on your terms to ensure you are profitable. Finally don’t listen to bloody consultants they the road to ruin you and cost a fortune along the way.

  20. Thought- and (clearly) debate- provoking article Dennis! It must be as this is the first time I’ve posted a comment on this website for years.

    Living in Northern Ireland I’m stuck with voting for the local political parties (I must have been very bad in a previous life) but if I lived on the mainland my natural inclination would be to vote Conservative. That used to mean (admittedly amongst plenty of other things, good and bad) an occasional step towards simplification. Not any more – ALL recent governments have been unable to resist messing about, increasingly frequently, with pension rules, investment rules, tax rates and allowances.

    The point that I’m making is that it’s becoming harder and harder for ordinary people, rich or poor, to make the right decisions with any degree of confidence and so, more than ever they need help. That’s great news for advisers provided we can find a way of doing that where the value we add is clearly in excess of the price paid by the client. I enjoy the more complicated aspects of our work so for that reason and also because we decided years ago that every client must be profitable we focus on HNWs. In my experience, putting the client’s lifestyle and financial planning first is where we add most value. We have conversations with new clients that they’ve clearly never had before – they understand that we care about them, their future and their families, not their money.

    We charge a flat advice fee according to the client’s circumstances and the complexity of the work, a % based implementation fee and a % based ongoing fee (all subject to minimums). The investment funds that we recommend (core portfolios and satellites) are researched carefully by us and are exactly the same as the ones that I use in my own investments. Our clients like this ‘skin-in-the-game’ approach. I believe that our fees are lower than most and that we add much more value than most but that’s really for the clients to judge!

    This works for us but you’re right – there is no one-size-fits-all solution to fees. Flat, hourly, percentage based etc. are all fine. I would, however, recommend that business owners tinker with it as little as possible – clients do like some consistency in their lives, particularly when so little is shown by our politicians!

  21. A light bulb moment !!!

  22. Coming from Dennis Hall, the man who had spent the last 10 years telling the financial trade press all about his continued tinkering with fee models – this is hilarious!

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