Oh no, not another worthy eulogising the benefits of a move to the
supposed higher moral ground, I hear you say. But don't worry, I am
determined to look at the positive aspects of running your business on any
method of remuneration and, more important, running
it at a profit.
Over the years I have attended many Round Tables where a fellow tabler
delights in taking me to task over commission as means of payment for my
services. His profession was that of solicitor.
Recently, he has increasingly moved over to contingency fees from
fee-only. I asked him how this operated and he explained that the share of
damages paid by the defendant had to cover the successful and the
unsuccessful cases that he was involved in.
I laughed and he look puzzled. “Why the hilarity?” he enquired. I
explained that as I moved to a fee basis he had moved to a commission basis
which, after all, is what contingency is, as clients who lose their actions
are cross-subsidised by those who succeed in obtaining damages.
So before we link professionalism with the method of charging, let's not
forget the example of the solicitor.
Recent reports have indicated that the public's perception of the IFA sees
the work done by the IFA as almost incidental and their comments regarding
reasonable costs have to be seen in this light.
We need to market the services we provide in a more detailed fashion and
that means engagement letters, whether they pay by commission or fees or
It is said that the average IFA spends some 25 per cent of his or her time
on compliance, yet how many of us transmit this fact to our clients?
I decided to do just that, with interesting results
such as clients asking if they could opt out of regulation
to save costs.
But as a first step to improving the efficiency of your business, why not
try keeping a timesheet, if only to discover where all the time goes? In
addition, this will allow you to confirm to providers the additional time
spent in those cases where the life office make significant errors. When
they then demand evidence of the extra time caused by their
maladministration, you will be in
a position to provide the required level of detail.
Also, if you take the time to determine the hourly rate, which is correct
for your business, based on your fixed costs, the time you have at your
disposal and the level of profit which you are targeting, you can then
prevent the provider paying compensation on the basis of a default rate
that has no bearing on the cost of the average business, let alone your own.
Another positive aspect of this preparatory work in the move to fees is
that it gives you a chance to have a fresh look at the steps involved from
information to advice and finally to execution.
Having taken the time to do this myself, I have come to the conclusion
that the splitting of the advice element from the execution will become
inevitable, certainly as far as the IFA is concerned. In doing this, we
need then to make sure that our level of advice, its detail and the overall
quality of advice is obvious to our clients.
This inevitably means that advice extends to counselling and looking at
the quality of life and not simply concentrating on the monetary aspects, to
the exclusion of all other aspects of the clients and their families'
But the move into life planning needs an article all of its own, so for
now let's concentrate on getting that business into a better shape for the
next big challenge that the market finds itself having to deal with.
So the next time someone says fees are the only way to be professional,
tell him to see a solicitor,
Robert Reid is a director of Syndaxi Financial Planning