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Nick Bamford: The value of advice is more important than its price  

Nick Bamford 

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

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Comments

There are 18 comments at the moment, we would love to hear your opinion too.

  1. Quite Nick! Paul Lewis needs to consider the value of things more!

  2. wonder if you could have a chat with Paul Lewis.

  3. It comes down to knowing the price of everything and the value of nothing. So we had a potential client who was outraged because Fidelity had levied a £45 p.a. Charge on his exiting investments. Having analysed his position we pointed out that he was paying over £2k in tax that could easily be avoided.

    He wasn’t bothered, just wanted to bang on about the 45 quid – doh!

  4. There are many career practicioners in this industry who maintain good client relationships by delivering added value and charging fairly, but it is not newsworthy. I would prefer to question the people on the periphery of this industry, many of who ‘steal’ a living at our (and our clients’) expense but seek to question our morals!

  5. Indeed Nick. I keep saying the same thing in posts. I always find it amazing how good the “experts” are at judging how or how much we charge when they know Sweet F A about the businesses they talk about. They really should shut up about it. And as bloggers, we really shouldn’t bite, but human nature is to instinctively defend oneself.

  6. Money Marketing should set up a debate between Nick Bamford and Paul Lewis and print a transcript of what was said. It would make for interesting reading.

    • Neil F Liversidge 13th February 2017 at 2:13 pm

      I’m sure Nick would be up for that and so would I. Last time I sparred with Paul on Moneybox about 4 years ago it brought us a wealth of new clients, which says all that needs saying about whose arguments they thought were the most convincing. Rematch Paul? Name your date.

  7. Happy to debate thre topic of what value the client gets for the price they pay with anyone who has an open mind.

  8. Steve D – that’s made me laugh lout loud after a very trying Friday! 🙂

  9. Blue Eyed Monster 10th February 2017 at 4:25 pm

    Paul Lewis is not the only one who ignores value. See l&g new head Helena Morrissey article in last Sunday’s times. We are considered by her as greedy rip-off piggies in the middle. Unbelievable!

    • Neil F Liversidge 13th February 2017 at 2:15 pm

      Save yourself some anguish and accept that there are always those who hate paying for anything. We don’t try to hoover up every client in the world. There are enough smart and nice people out there who value what we do and we’re happy to serve them. Barbers don’t chase around after the idiot tightwads who’d rather cut their own hair.

  10. I don’t know why Paul Lewis is given any credibility or why anyone takes any notice of his drivel
    He is unqualified to give advice, unless you want to know about psychology.

  11. It always amazing that many of the ‘experts’ who want to tell advisers how much they should charge have never actually been an adviser or run an advisory business.

    Paul Lewis’s article is just a repeat of previous articles that pensions/funds etc with higher charges could result in a lower outcome assuming all other things are equal (which they rarely are).

  12. You never question the cost of good advice once you’ve paid for poor advice.

  13. I don’t think its right to try and stifle discussion and challenge about cost. In a competitive market cost is a key driver to its development and evolution. The advice market, like any other, needs to have this conversation regularly, if you dismiss it you run the risk of reducing customer centricity.

    Advisers often give the impression of being overly defensive, this reaction to a single article on a trade press publication can look puerile. Yes value is obviously important, but is cost not?

    • Matthew

      It’s just that a debate about price is wasted time if it doesn’t take into account the value delivered.

      I don’t think it’s advisers being defensive I think it’s more about frustration at the linear nature of said debate.

      Nick

  14. Fully agree – I go spare at advisers saying they have to determine their fees to substantiate what they do. Stop using the word substantiate – you don’t need to need. It undervalues the intellectual knowledge that you have.

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