In his letter to Money Marketing last week, Julian Stevens invited me to describe the fees that we charge for our services.
I am happy to do so. I do, however, want to warn Julian against the risk of falling into the trap of looking at price in isolation. That would be meaningless as we need to look at the relationship between price and value.
We recognise that there will be other firms who charge more than we do and there will be firms who charge less than we do but that does not matter.
That is one of the delights of the UK intermediary market, it is dynamic.
Of course, I could have invited Julian to take a look at our client agreement letter which we publish on our website but that would also be an incomplete picture because each client or prospective client gets a presentation of services so they can judge whether our price is good value or not.
Our focus is on advice because that is where we know most value is added. We start by sending out our welcome pack and inviting the client to a first meeting at our expense and without obligation and subsequently the client receives an engagement letter setting out in detail what we are going to do for them and how much we are going to charge.
We charge for advice in the form of project fee because we prefer that to an hourly rate charge and feedback from our clients supports that although I concede that for other IFAs an hourly rate may be more appropriate.
That fee is payable by invoice on the satisfactory completion and delivery of an advice report to the client. The amount of the fee will depend upon a number of factors and those factors are input into a software calculation package we have designed in house.
This ensures we consistently charge for the work to be done, regardless of who delivers the advice report (there is too little space here to go into our team-based approach to the delivery of advice but if Julian is attending the PFS conference in November he can hear me speak about the details there).
Value, expertise, profit and risk are all factored into the advice fee. The intensity of this work, as most IFAs know, is enormous and like others we are constantly trying to improve what we deliver.
Project fees range from £450 for advising about a relatively simple thing such as establishing a regular-contribution pension plan, circa £800-£900 for a review of a number of investment and pension arrangements and advice about what to do with them and up to around £2,000 for more complex advice or financial planning work. My team tell me on a regular basis that we charge too little.
Our intention is to increase these charges because, as I said earlier, this is where the value is and in return to reduce our implementation fees, although I confess we are currently struggling with that, as you will see below.
This is where most of the risk is. Have you noticed that the environment in which we work is based on products rather than advice but perhaps that will change with the introduction of the RDR?
We currently charge 2 per cent implementation fees for new investments, 0 per cent obviously where we are re-registering assets. We would love to change this away from a percentage to a fixed monetary amount. I suspect our next step will be to reduce this to, say, 1 per cent at the same time as we increase advice fees.
Over the years, people have asked why it costs 10 times as much for an investment of £100,000 as it does for an investment of £10,000. Perhaps part of the answer is that it involves 10 times the risk.
All of the good research I have read suggests that the client places least value on the selection of a product and, let us be honest with ourselves, it is pretty easy with the research technology available to the IFA. Most clients’ value is placed on the delivery of advice and planning, particularly financial planning strategy.
I wonder why then that most of the price is centred on the delivery of product solutions. I believe we need to change this.
Every Monday morning, our clients receive an ezine newsletter updating them on important financial services issues and detailing what is going on in their advisory firm.
Each quarter, they will receive a valuation statement and our market commentary and our newsletter. At the moment, we are moving to a system where they can get consolidated valuations through our website 24/7.
Half-yearly or yearly, they will get a review report and that will be presented to them at a face-to-face meeting. This, as you can imagine, is intense and we reckon is why we have held on to existing clients and acquired new ones during the last couple of difficult years.
We charge 0.5 per cent of the value of the assets, excluding cash, direct equities and direct property.
We have just introduced a service where they will receive monthly review reports and, of course, we will charge more.
Actually how a client pays is, I believe, less important than how much they pay. But the RDR adviser-charging debate continues to focus on mechanism. A pity really because I believe it does not matter that much. What I do feel strongly about is that it is me and my client who should determine the price, and value, of my services and not a product provider.
I really do not see how I can describe myself as independent if my price is determined by someone else.
Nick Bamford is chief executive of Informed Choice