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Should advisers offer free services?

The kind folk at Money Marketing gave me the following brief when discussing writing this, my first ‘At the Coal Face’ column: “You’ll have a chance to praise, rant, share ideas, start discussions or debates. Whatever you fancy really.” It made me think this could be a fun gig.

When thinking about what topic to start with, I decided to use the opportunity to share a proposal I am toying with for 2018. The idea is whether to offer clients a ‘freemium’ service and, if so, how best to do it.

A Google search of ‘freemium business model’ explains the premise much better than I could:  “Freemium is a pricing strategy by which a product or service (typically a digital offering or application such as software, media, games or web services) is provided free of charge, but money (premium) is charged for additional features, services, or virtual goods.”

Freemium is a current American buzzword, and the business model is being used by numerous tech firms and start-ups in many different industries.

The challenges facing advisers – then and now

Think of Dropbox, Wetransfer or Evernote – they all offer a scaled back version of their service which is free for consumers. Should a client need more than just the basic operational aspects of the process, they will have to then pay a premium for the service.

This got me thinking about whether it is feasible in the financial services profession. Or is anyone actually already doing this?

I asked via Twitter what people in the industry thought of using this model. The results were mixed and I did not really have enough responses to make any meaningful conclusions.

That said, the answer is never going to be black or white because there are so many different aspects to financial services. With this in mind, I am going to concentrate solely on where my business sits: financial planning.

When looking closer at the freemium offering, there are lots of questions to ask around the idea. Is this going to be useful from a business perspective? Is it going to generate more enquiries or clients for the premium model? Are enough people looking for financial help? Is there a viable market for this?

Then we need to think about how to execute/automate the process. Can I build an online offering where prospective clients or the general public can get information, helpful tips and ideas for free in a non-advised way? Is there anyone in the UK doing anything like this?

When will advisers start to feel pricing pressure?

We are looking into the possibility of creating a viable, sustainable and helpful freemium service for both clients and non-clients. My view is that the more people we can help the better. I recognise not everyone will use us for our billable services but if we can be seen as providing value through our free services then, hopefully, should a need arise for full financial advice in the future, we would be front of mind. And if we are not, well, that is ok as well.

I would be really interested to hear from other firms in the profession about their thoughts on this subject.

Sam Sloma is managing director of Engage Financial Services

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Comments

There are 19 comments at the moment, we would love to hear your opinion too.

  1. Christopher Pitt 10th January 2018 at 3:31 pm

    Many advisers already operate a “Freemium” charging model; it’s called contingent charging, i.e. the client gets the initial meeting free and only pays for the “premium service” of actually investing. In a broader context “Freemium” charging is fine as long as it is done with right intent, to let prospective clients experience the product or service and make it abundantly clear that other services are chargeable. But, if it’s done to lure customers in without making it clear that charges will apply for other services then that’s surely not right.

    • As per my comment below. The point of the article is to see if there is a way to offer a free of charge ongoing service to clients – rather than an initial meeting. I completely agree with the intent point. Blue sky thinking would be that the intent was to provide expert free of charge advice that can be automated but always in people’s best interest.

      Easy to think of, difficult to achieve.

      • Hi Sam ..what a joke..work for nothing
        did you write this article for nothing or would you write subsequent articles for nothing
        Will Tesco’s give me a loaf of bread in the hope I will come back and buy all my bread there in the future

  2. Most IFAs already offer a service of this kind Sam.
    We at my practice give an initial meeting free of charge which we use on the face of it to find out exactly what the client requires by way of advice; in effect it is almost impossible to have such a meeting without passing on some “tips” in the process. We then send the potential client an estimate setting out exactly what we will be doing and how much it will cost. The client can then walk away without charge or sign the estimate and we begin.
    I am quite sure that most IFAs work in a similar way.

    • I offer a free discovery or initial meeting as well. This isn’t a service offering though. It’s a one off meeting to establish a right fit for both client/adviser. The objective of the article – is to see if there is no cost ongoing relationship model available. I haven’t seen this in the UK as yet?

  3. I think this model lends itself to quantity not quality. Large Nationals or Direct sale forces could run lost leaders like this, but for the average 1 to 3 adviser firm, the large numbers of enquiries required to make this work, I believe is not viable

  4. We offer a ‘freemium’ guidance, education and information service via our website videos and information tabs.

    We do not offer ‘Free’ advice, I was always taught that if it costs ‘nothing’ it’s worth ‘nothing’.

    • I like the videos idea and info service. Very cool.

      I didn’t say there would be ‘free advice’ a freemium service could be anything. It’s a model rather than gift!

  5. should a taxi driver give you directions for free?
    should a surgeon tell you how to do your own operation for free?
    Sam i have just received a big FSCS bill from 2016 they dont think anything is for free so no

    • The world is moving forward where anything that can be automated is being driven to very low prices…… 🙂

      Again I didn’t say do everything for free…… 🙂

  6. After reading Chris Anderson`s book “Free” (a recommended read if you are genuinely going to pursue this concept)in 2011, I set up Freemium Financial Planning Ltd in conjunction with the website: http://www.money-guidance.co.uk
    While accepting that I was probably failing to do things properly, there have been plenty of takers (15,000+) for the free element of the website but, lo and behold, a marked reluctance to pay anything for more advanced services.
    I guess this comes down to the fact that consumers “don`t know what they don`t know”, but also to what the author refers to as “the penny gap” – i.e. the biggest gap in any venture is that between a service that is free and one that costs a penny (mental transaction costs).

    • Well explained.

      Basic contrcat law requires offer and acceptance. As far as I am concerned, until my client agreement has been signed and even £1 paid by the consumer, we have NO contract and my client agreement makes that quite clear. If I EVER have a complaitn go to the FOS, the first thing I will look to see is whether I have ever been paid a cent. If I haven’t, whilst I will investigate a complaint, it will (other than in exceptional circumstances, be rejected).
      Contract law, offer and acceptance and case law built up over 100’s of years and whilst the FOS system turns case law on it’s head, if anything FOS decisions SHOULD be creating recedent a firm can rely on and I now routinley save FOS decisions against notice number and may start to classify them (I think APFA had started doing that), so inconsistencies can be shown AND preferably before a case goes from an adjudicator to a full ombudsman.
      Like others, I do plenty of “pro-bono” work, but that is help at MY cost, which is not the same as free advice.
      What also needs to be remembered is PI premiums are invariably based on turnover as are F-pack fees including FSCS, so any firm doing shed loads of unpaid for advice, may be building up an infinite liability for other firms.

    • Really interesting thank you. I’ll read the book and see if any elements could be adopted. Many thanks

  7. Outline what the service might be and how much time it would entail and then ask the customer what they would be ‘prepared’ to pay for your service. That can be done for free (no Americanisms thanks!).

    If their answer is the square root of nothing or a bottle of wine, then you know whether or not to continue assisting them.

    It’s a good exercise as sometimes we can see or perceive the value in a clearer way than the customer and a bottle of wine is not food in the table

  8. The problem is that we are now talking about a ‘what the market will bear’ approach to advice fees. As I understand it, this is not what the FCA wants.

    For Clients (we use a ‘family’ approach for fees) that have the same portfolio values within our bands, we will always charge the same fees except in exceptional circumstances; health etc.
    We do not want to start a ‘bartering’ advice fee system whereby the Client decides how much they want to pay and we go along with it. Most Clients have no idea of the amount of time, research, administration, waiting, effort and cost goes into providing an excellent IFA service so why would we expect them to know what the cost should be in ‘their opinion’?
    I just wanted a BT mobile ‘unlocked’ and this service is a ‘what the market will bear’ service. Shop no.1 – £45, 1 week, shop no. 2 – £35, 1 week, EE, (the original provider was Orange) £8.99, tomorrow by 4pm.
    @Philip Castle, I agree totally.

  9. No-one values “free”…

    People who seek out “free” are the one’s who cant afford you ! which in turn leads me to believe, have no money just debts.

  10. The problem is that as has previously been stated clients do not value “Free”. They don’t perceive the advice to have had any value in the first place (“its just words”)so don’t see it as providing anything significant or worthwhile (however I am sure if it turned out badly that they would complain about their free service). In addition those attracted to free services are those who really don’t ever want to pay for it in the first place.

    My mother has a free bus pass and complained that the bus she used to use to get to Winchester now goes at a later less convenient (for her) time which she was most unhappy about. She couldn’t see any issue with complaining about a service provided to her without cost.

  11. In terms of structuring, I’d look at setting up a charity to do the “free” bit and a commercial company to to do the “mium”. You may as well get all the breaks that you can.

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