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