Many years ago, I was contacted by a lawyer. I had been referred to him by a mutual acquaintance and was told it would be a great honour for him if I were to act as an expert witness on behalf of one of his clients.
The case concerned a legal dispute between his client and another litigant and my role would be to study the other party’s submissions to the court and draft a response to them based on my expertise as a personal finance journalist.
In due course, if the other side were to comment further, I might be required to comment on those comments,
as it were. There was also the possibility of my having to attend court for several days and to give evidence in connection with the case.
I demurred, citing work and family pressures – until the lawyer in question mentioned the fee, which ran to £200 an hour even then, with an estimated 60 to 80 hours of work involved over a period of about three months.
After a few weeks, I was asked to send in an invoice, which I did.
Two days later, my new lawyer friend called me back: “Look, I think you probably have not quite got the hang of this billing system yet.”
“What do you mean?” I retorted.
“Well, you seem to have invoiced us for exactly 12 hours’ work. Did you really do precisely those hours?” Instantly on the defensive, I replied: “Not exactly, all in all I probably did 14 or 15 hours in all, with a few breaks here and there.”
My lawyer mate then put me right: “The way we work is that we bill by the hour – but break down that hour into six-minute segments, each of which we charge for. So if I speak to you on the phone for under six minutes, I still bill my client for that time. If we talk for 10 minutes, I bill for 12 minutes and so on.”
Amazed, I asked: “What about your staff? Do they also behave the same way?”
“Oh, they invoice for everything too, not quite as much as I do but every task carried out by my secretary carries a bill with it, also based on 10ths of an hour.”
Much the wiser after my friend’s brief lesson – which probably cost his client several hundred quid – I sent in a new invoice and thereafter billed as I had been instructed.
Why do I mention this brief but lucrative interlude in my professional life? The main reason is that I was struck by some comments last week from Justin Modray, former financial guru at Bestinvest and more recently founder of the Candid Money website.
In an online column for Money Marketing, Justin writes about an IFA billing clients for 800 hours’ work a year at a rate of £200 an hour, the equivalent of £160,000. Assuming half that money goes on overheads, including staff, office rent, utility bills and various regulatory bills and levies, he estimates the adviser would earn £80,000 before tax.
Justin contrasts this with published annual results by St James’s Place, showing the company paid its 1,464 “partners” a total of £190m, an
average of just under £130,000 per salesperson before tax. Justin believes this to be “fairly representative of other salesfocused adviser firms”.
Based on these figures, Justin’s argument is to imply that these types of earnings may occasionally be the result of commission-hungry sales
advisers taking percentage-based commission from the sale of products to highly affluent clients.
However, it seems to me that the idea that “billable hours” is the honourable way forward for IFAs certainly does not chime with my own direct experience.
In any case, I suspect the hours Justin suggests are possible for advisers do not necessarily reflect what some could do if they decide to make serious (mis)use of the system. Dividing his 800 hours by, say, 44 hours a week – thereby allowing a generous eight weeks off a year – gives us a mere 18 hours a week.
Reports I have seen in the US suggest that lawyers there bill between 1,800 and 2,400 hours a year.
Even here in the UK, top law firms average a far more “moderate” 1,500 hours for their partners and that does not include the non-legal and paralegal staff’s own costs, which are added to a client’s final bill.
Where Justin is 100 per cent right, however, is in his final analysis of the outcome of the retail distribution review for IFAs.
He writes: “I fear that the RDR will not make much difference – an adviser who is already successfully selling commission-based products or charging a percentage-based fee should not have too much trouble talking their customers into agreeing a healthy slug of percentage-based remuneration.” Sadly, I fear the same will apply to hourly-paid IFAs.
Nic Cicutti can be contacted at firstname.lastname@example.org