How you charge for your professional services is none of my business. You might charge an hourly rate, a fixed fee or ad valorem based on the amount of money to be invested by your client.
Whatever method you employ, your pricing seems to be under scrutiny by a lot of people with an opinion on the subject. But only one opinion matters: that of your client. After all, they are the ones paying it.
What frustrates me most about the price debate is the fact the focus is all wrong. Little or nothing is being said about the value of the service itself.
Imagine a client who has multiple pension arrangements, Isa investments and cash savings, and is due to receive an inheritance payment.
They will want to know how best to employ all those assets to generate retirement income. How much is good advice worth to that client? How much should the adviser charge to deliver it?
I do not for one moment think there is a simple answer to those questions. It depends too much upon the individual circumstances of the client and the proposition of the adviser.
“Little or nothing is being said about the value of the service itself.”
Getting the message across
Most firms are pretty good at working out how much it will cost to deliver advice, and most will charge an amount on top of that cost to ensure they make a profit. There are too many variables to be able to determine whether one adviser’s fee is too high or indeed too little.
We all work to pretty much the same process: engagement, know your customer, data capture, data storage, data analysis, research, and advice formulation and delivery. Then, if necessary, implementation followed by a review. The cost of doing this will be different for each firm depending upon the intensity of the proposition and the overheads involved.
So the current price debate is over-simplistic. Asking the general question: “How much would you charge someone for investing x amount?” is all wrong because, for many of us, the answer is nothing at all. The question would be better framed: “How much would you charge someone for the advice about investing x amount?”
And if the answer is £200 per hour or a fixed fee of £1,500 or 3 per cent of what the client invests (if they invest), we are still no further forward in the debate. Myself and other commentators simply do not know enough about the value you add to have an informed opinion about your price.
That is where the engagement letter comes in handy. The detail of what we are going to do for the client and the value we add at least gives them the chance to work out if paying us is a worthwhile thing to do. After all, it is value that matters; price less so.
Nick Bamford is executive director at Informed Choice