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Neil Shillito: How much do clients really care about price?

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There has been a flurry of excitement recently following Hargreaves Lansdown’s announcement that it is reducing its charges and the subsequent undercutting moves of Fidelity and Barclays.

Various questions have been raised, particularly about ‘hidden’ or additional costs; what are you actually getting for your money; how will the ‘price war’ affect the advice market and so on.

My take on it is most people simply don’t care. An inflammatory statement perhaps, but let me explain.

I suspect a large majority of professional, client-focused advisers who have embraced the new world of RDR and recognise the future is bright, not Orange, will have a broadly similar charging structure: an initial fee for preparing the planning report of about 1 per cent or a fixed fee, together with an annual fee of 1 per cent or thereabouts.

Some potential clients challenge these fees without considering the long-term benefit that will be derived from the relationship. They know the cost of everything and the value of nothing.

Spare a thought for the thousands who sign up to St James’s Place and are charged between 4.5 per cent to 5 per cent initial and between 2.1 per cent and 2.3 per cent thereafter (this is for both advice and fund management).

So why do they pay? Because they perceive it to be good value.

We get hung up on charges but our clients don’t. If you think something is worth having you will pay for it.

You don’t join Coutts or some other private bank because you think they are outstanding financial planners and investment managers, you sign up to status, prestige and the ticket to Henley and Ascot. Their clients are unlikely to question the costs or even ask.  

Hargreaves Lansdown is a successful company because it provides what its clients want. Fidelity has been doing the same for years and other providers too.

This is a market comprised of many different players providing many different options and those with any sense should embrace it.

 I leave you with the wisdom of Victorian thinker John Ruskin:

 “It’s unwise to pay too much, but it’s worse to pay too little.

 “When you pay too much, you lose a little money – that is all.

 “When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do.

 “The common law of business balance prohibits paying a little and getting a lot – it can’t be done.

 “If you deal with the lowest bidder, it is as well to add something for the risk you run. And if you do that, you will have enough to pay for something better.”

 Neil Shillito is director at SG Wealth Management  

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Comments

There are 8 comments at the moment, we would love to hear your opinion too.

  1. They don’t care because they don’t know. The industry is still doing its best to confuse investors.- to do whatever it takes to hide the costs.

    If told in simple terms that platform A would charge £2,500 pa and platform B would charge £90 pa do you not think you might get their attention. If you take 1% pa from my £500,000 I might not notice that you had taken £5,000. If you asked for a fee by cheque each year you might again have clients showing more interest.

    Anyway – Nice article – well spun.

  2. They only worry about price if performance is sub standard. If they have decent performance they don’t really care about reasonable price. However if the feel that they can get equivalent performance for less cost – then they are really engaged. That’s why anyone who comes to me from SJP becomes a client in a flash.

    I come across DIY clients when they have made a mess and need it sorting. Then price is a minor consideration!

  3. Clients may not care if 1% is taken from £500,000 but they certainly do care when you ask for a fee for doing a £100 pm pension

  4. @ Sam
    You don’t even need these to go DA. (Simply Biz or Three Sixty). You can actually hack it without them if you are prepared to make the effort. I had Simply Biz call recently to recruit. One simple question knocked it on the head. If you are controlling compliance and I transgress and get fined by the Regulator – do you return my fees?

    @ Bones
    Your last sentence is spot on and rather concludes the discussion.
    Of course it makes sense for Networks to go restricted. They need to control their members at the least cost. They don’t view it from a client centric perspective – they never did. It’s all about their bottom line (remember the Network itself doesn’t deal with clients – the members do) and ensuring they don’t get fined. Why do you think there have been no takers when Friends have had them on the market for so long?

  5. Moderator

    Please delete my last comment – it was put into the wrong discussion. Now corrected

  6. Entirely agree with “Bones”. Where customers are presented with prices in isolation (particularly percentages), most will not challenge what they perceive as the ‘norm’. When presented with comparative prices (particularly as cash amounts, and delivered via a cheque), they are then in a position to assess value. It is a regulatory requirement (i.e. Suitability) to discuss cost with the client – the variation in ‘price’ of advice, ie degrees of customer involvement (“I want X in my portfolio”) and the frequency of review (i.e they may simply want on-line access to valuations and not to pay for quarterly meetings). This has to be balanced against “Substitutability” ie portfolio options (eg passive versus active, DFM opportunities etc). Does the customer need to be on a platform? It might be convenient for the adviser, but pointless for a £10k ISA holder. Of course cost is important.

    As for value, Financial planning expertise is of huge value – it is easy to justify a fee in £000’s if the client saves tens of thousands in return. However, fees in thousands against the ‘value’ of investment advice (aka fund-picking) that has a variable and uncertain outcome is harder to justify…

  7. Sorry to say it yet again, but this is yet another articulation of the premise that all (most) clients care about are Proposition, Costs, Risks and Tax. SJP have realised this and taken full and very successful advantage of it even though, anecdotally, their proposition in terms of products and funds isn’t particularly great and their costs are far from keenly competitive. For all that, though, they sell their wares by the boatload and have hundreds of thousands of apparently satisfied clients.

    I picked up one client who, when his IFA joined SJP, wasn’t happy with their restricted proposition. He’d clearly been phoning around and asking several potential suitors a lot of questions. He phoned me so many times and asked so many questions that I began to wish he’d just go away and waste somebody else’s time but then, after all that, he chose to appoint me as his new adviser and we’ve had a very satisfctory business relationship ever since. I must have a helpful and confidence-inspiring telephone manner.

    Then I picked up another who’d been (poorly) advised by his bank to invest in a portfolio that he didn’t understand and he considered £4,000 commission to be unacceptably high. I did twice as good a job for half the price.

    So, when all is said and done, it’s all about customer choice.

  8. My genuine thanks to all the contributors and I appreciate the points of view. I can’t answer everyone individually but what is noticeable is that they are all well-considered replies. Not everyone agrees with me (and why should they?) but at least it’s a healthy and intelligent debate – thank you.

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