I recently took a client to dinner. He had referred another client to me and I wanted to say thanks. What was meant to be a pleasant social occasion turned into a two-and-a-half hour mentoring session, as the client grilled me on the future of financial planning and how I was preparing for it.
This client, Jim, is unusual in that I have advised him without taking on any of his assets to manage. Yes, we do that. Not often, but as and when the situation demands. Turns out, financial planning need not be all about taking on assets under management. Who knew?
Jim was referred to me by another client, Tony, who is very different. Tony is a delegator and has handed his entire portfolio to me to look after. Jim, on the other hand, wants to keep control and save the money he would be paying me if I were managing his affairs.
Jim is well aware of the value an adviser can add but does not accept that ad valorem fees are the only way to pay for it. I am beginning to agree.
Instead, he proposed a regular retainer for me to keep him on my books and be on hand to answer questions as they came up. Furthermore, he suggested that, if we had a set of modular services, geared to different stages of life, he could pick and choose those as his circumstances dictate.
The example he used was a service for managing a drawdown strategy with a mind to minimising the lifetime allowance charge. Other modules could be family protection planning, estate planning, care fees planning and so on.
I have been thinking about this ever since, wondering if it is something we could implement and indeed whether it might be the future of how we get paid. I am not proposing we become order-takers, or that we should only offer focused advice at different times throughout our clients’ lives. Advice should always be given in the context of the client’s complete financial position, never in isolation.
But I like the modular idea. You and I both know the value added by a good financial planner far outstrips the fees paid over time, but that value tends to come in fits and starts with clients’ changing life stages or legislative changes like pensions freedoms.
In between, there are long periods of sitting in a holding pattern. We are there if clients need us, and always honour our commitment to meet regularly but without very much to do. At these times, the AUM fees we charge on portfolios look expensive in return for the odd phone call and a quarterly email newsletter.
We all like to say we offer holistic financial planning but some clients just do not want to pay for a vague all-in service. Instead, they would rather be able to pick and choose from a menu of services as and when. I also have a feeling that, as well as charging structures coming under increasing scrutiny from the regulator, they will also come under market pressure as clients become more savvy and demanding. Once the last of the baby boomers retire, Generation X is going to be harder to convince about the merits of the all-in service.
So we can either ride the ad valorem wave until we retire or we can look to get ahead of the game before a change is forced upon us. Are any readers already working in this way? I would be interested to know how it is working for you.
Pete Matthew is managing director of Jacksons Wealth Management