Cherry Reynard Consulting Editor, Adviser Evolution
Much of the debate about transition has centred on the wonders of fees versus the evils of commission but are things that simple?. There can be few advisers left who are unaware that if they are to remain in business, they will have to shift their clients to a fee or adviser charging basis. On the surface, this sounds like a fairly simple proposition – do some work, issue bill, get paid – easy?
Advisers have a number of choices when it comes to deciding the fee structure they are going to use and their choice will have an impact on the type of business they run in the future. In the FP Advance column this month, Brett Davidson explores some of the options open to advisers and their pros and cons. He also looks at how advisers can decide the route that is right for them. The type of work, the type of clients and the type of business advisers want to run will all play a role.
Our cover star this month – Alan Smith of Capital Asset Management – mulled a range of different options before offering clients two options – a fixed annual fee or a percentage of assets under management. He rejected the idea of hourly charging as fiddly and a barrier to efficiency. He didn’t want to have to bill a client every time he answered an email. However, other advisers have found hourly charging the ’cleanest’ route.
Smith also discusses the other big issue in moving to fees – how to tell clients? Mailshots or phonecalls were too impersonal, so he decided to deal with every client face to face. This is relatively easy if review meetings are naturally built in to the advice process but less so if an adviser has a client bank of thousands. In these cases, it may be a question of having the discussion with top-earning clients as a priority and then tackling the remainder on an ad hoc basis.
It may be an uncomfortable discussion as wealthier clients realise how much cross-subsidy has gone on. However, being clear about the more effective service that can be offered in an alternative charging structure can soften the blow. Smith says only a small percentage of clients decided they preferred commission and left.
Ultimately, procrastination is tempting but the days to RDR tick by. Every step brings advisers closer to a better business -wouldn’t it be good to achieve that as quickly as possible?