It has been said that fees for financial advice are not popular with the
general public. Taking this at face value, it could be argued that the
public prefer “free” advice.
I disagree. People like to know what they are getting for their money and
it is the lack of information on the services that an IFA provides which is
the major barrier
to the acceptance of fees.
Let us first dispose of the false argument of fees versus commission as
this suggests that one method
is better than the other when an adviser is being rem-
unerated for his advice. In future, it is important that we consider fees
and commission as options either on their own or in combination.
There is no doubt that the introduction of stakeholder will be recognised
in the future as the major catalyst in the reduction of commission levels
generally. This should not give the impression that I consider IFAs to be
overpaid for the tasks performed – far from it – but there are situations
where excessive commission is being taken by a substantial number of IFAs .
If IFAs are to prosper, they need to control their costs, avoid costly
errors and, last but not least, make a profit.
Traditionally, IFAs have concentrated on product selection and purchase as
the key elements of their service. This will no longer do as the cost of
purchase continues to fall and the easy status distinction brought
to the market by polarisation disappears to be replaced by a greater
emphasis on caveat emptor. So, for independence to be easily evidenced,
fee-based advice is the most sensible way forward.
Before we rush headlong into this move towards fees, we need to make sure
that the services we are providing are what the customer really wants. Most
clients would probably cite the following as the missing elements in our
services at present:
l Lack of clarity in terms of provider communications.
l Limited hours of opening.
l Flexibility in contracts in words but not in practice.
At present, many customers find information from product providers is
rarely summarised in an understandable format, unless the IFA collates and
I remain unconvinced that people want to pay their bills in their pyjamas,
despite Robbie Coltrane's protestations. The concept of 24/7 leaves me cold
but a service available from 10 to 10 does have obvious benefits.
The prime reason most clients use an IFA is to avoid bias. So, involve
your clients in the process by asking them what they are looking for and
grade those clients depending on the level of service they require. In many
cases, some clients will be unsure as to what you can actually provide.
At the same time, look at your business with a critical eye and map your
processes to see where unprompted value lies and opportunities for
When the Fees Toolkit was designed, we recognised that many advisers would
be unsure how to set their hourly rates in a way which avoids a rapid drop
in turnover. Which neatly brings me to the point of the benefit of a phased
move to a fee-based operation.
The toolkit allows you to determine the correct hourly rate at each level
for the firm's principals, advisers and administrators. The system also
takes account of your fixed costs, the profit target for the firm and the
of time you have to sell.
In addition, it splits your time into admin and advice, with a lesser rate
for the former. Most important, it takes into account the level of recovery
to allow for jobs where the time on the clock cannot be charged if the
is to be retained.
The Fees Toolkit is not rocket science but it is set up
in a way which saves you time and allows your individual stamp. Whatever
your stance, the toolkit will either move you to fees or, at worst, enable
you to spot your profitable clients accurately.
Robert Reid is director of Syndaxi Financial Planning