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The Business of Advice

The recent debate on fees related to annual investment performance raises some important issues around adviser charging. The argument for fees linked to performance is that clients like the concept of rewarding success and penalising failure, the case against is that investments are for the long term so linking fees to short-term performance is asymmetrical. This raises the question of what are clients willing to pay for and how should that be linked to investment outcomes – if at all?

Quite correctly, different firms will have different answers but everyone should follow the same logic to reach their own conclusion.

Prices, or adviser charges, must be linked to client benefits which in turn link to the service proposition. The role of investment within this often divides the adviser community, with some arguing it is a core service that clients expect to be performed by the adviser while others see their role as financial planner, with investments being outsourced to specialists. In the context of adviser-charging, those who outsource are criticised for not undertaking the complete task so, by inference, should charge less whereas those undertaking both planning and investment advice are in a position to charge more. The purpose of this article is not to rehearse these well-known arguments in detail but to consider their implications for adviser charging.

The starting point, as always, is what the clients need and cannot do for themselves. Some clients place great emphasis upon investment performance, others are happy to delegate the “black box” and focus upon the target outcome. Client banks may include both types or they may tend toward one of the extremes – whatever the case, the service proposition must reflect this so that prices can be structured against the benefits.

It is essential that, when presented with adviser charges, clients see value in what is being offered. To make sure this happens, it is important to work out both the financial planning and investment parts of the proposition and ensure all the processes are in place to deliver it. Business owners and their advisers must fully believe in what they are promoting so they sell the benefits with confidence and enthusiasm.

If firms can achieve this, they will have an easier adviser charging conversation with existing clients because they can remind them of their services benefits. In addition, a clear and well presented proposition will provide competitive edge in the market for new clients at a time when the papers are likely to be full of headlines such as, what do you get for your money? And shop around for advice, it may be cheaper than you think.

David Shelton is the author of The Business of Advice book and website



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