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Topics: Independent Financial Advice
Yellowtail’s Dennis Hall has been charging fees since the 90s, but he still gets reminded that a perfect first client meeting is no guarantee of business won. The art of failure, he says, is using it to your advantage...
With the 2013 deadline fast approaching the debate around fees, or Customer Agreed Remuneration, has moved on.
The occasional rant about commission-is-king or 'clients won't pay fees' aside, even the diehards now realise they need to start a fees conversation with clients. The results aren't always pretty, however.
I've been fee-charging since the late 1990s and my earliest attempts were pitiful. Early on, when I did persuade someone to pay a fee it was because I significantly undercut the commission. It was an awful business model.
But through perseverance and practice I developed a service people were happy to pay for and a pitch that people understood. Early failures should be expected. But failures will come at any time, even several years into a fee charging business.
A notable one that sticks in my mind happened just a few months ago. Following an initial meeting with a prospective client I said to my paraplanner I rated the meeting nine out of ten. He had also been in the room and thought I was being cautious with my appraisal. This was our ideal client, a perfect match to our business profile. The meeting was faultless and there was a real synergy between us.
If we had asked her to sign up for our services then and there I believe she would have. Instead, I suggested she finish interviewing the three firms on her shortlist. I've had better ideas. But when we spoke with her the following week we were still amazed when she said she was engaging with someone else.
Having got along so well with her we decided to dig a bit deeper to find out why. It wasn't sour grapes, but a real need to find out what we could have done better.
The winning pitch had come from a firm that promised to handle her tax return in house. We had only promised to liaise with an accountant.
But the real shocker came when we asked her about the fees. We had quoted 1% to do the financial planning and investment implementation, with 1% per annum thereafter. She said there was nothing really in it because the other firm was charging 2% upfront plus 1%per annum. With almost half a million in the portfolio this would become an expensive tax return. Almost £5,000!
There are two lessons we took away from this. The first reminds us that clients often don't understand percentages, and rarely equate them with an actual cost. We should have quoted our fees in monetary terms, and reminded prospective clients to ask everyone else to do the same.
The other lesson is to keep asking questions until you've understood everything that is important to that client. We assumed that her meticulous file keeping and previous self-assessment experience meant she wouldn't value a ‘tax return' service. How wrong we were.
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crystal ball
Steve - you would charge 0.5% - but would you be providing the same service that we provide? Would you be rebating all trail? Would you be accessing the cheapest possible funds/institutional pricing and/or ETF's? Will you be providing a full cash flow modelling service? Will you handle cash management? Will you do this/that and the other? I don't know what service you would prvide so I don't know whether your 0.5% is over or under charging - therefore don't presume to know that my 1% is over charging. LOL
Posted by: Dennis H
Please be cautious
Whilst I fully grasped the tongue in cheek retort by Steve S to Dennis H's article about charging 0.5% rather than 1% to get the client, it has brought sharply into focus, how important promoting your proposition is. If IFA's in the future decide to adopt under cutting as a real tactic, and with less than the tongue in cheek intent, then how long will it be before good firms go? Undercutting tactics are dangerous for clients, and adviser firms alike, and we must ensure the practice is discouraged.
Posted by: adrian
Price vs Value
The story Dennis tells is a classic example of the price vs value argument. In this case it probably didn't matter whether the price was 0.5%, 1% or 2% what the client wanted most of all was not on the menu. There is little doubt in my mind though that it is the proposition that matters most to the client and the adviser. A future IFA, certainly in the post RDR world is going to struggle with a proposition where it revolves around choosing the best financial product or investment fund. Clients are going to buy advice, financial planning, service and wealth management (or if you prefer investment management) services. Product is simply going to be a route to delivery of those things. And if the client does value the proposition we had better make sure we can deliver on it because changing advisers is going to be dead easy for the consumer.
Posted by: Nick Bamford
what matters most to the client
Agree completely with Nick - the only thing that matters to the client is what matters to the client. Many are now charging more than they did in the past in order to cover increased regulatory costs. Some are engaged in activity for its own sake in order to show the regulator that they deserve their on going fees. None of this matters to the rational client. over a working lifetime an extra 1% charge reduces the value of a portfolio by approximately 20% in real terms. The only thing that a client needs to ask is am I getting the value for money that I want and not what the adviser thinks I want.
Posted by: John Blackmore
This is question, not a comment!
I was wondering how other fee charging firms account for the time wasted with certain insurance companies whose administration is, to put it mildly, abysmal? Obviously we aim to avoid them where possible for new business but if a client already has a policy with them and asks us to deal with the shoddy insurer on their behalf we can't avoid it. So far we "take it on the chin" but it isn't a satisfactory solution. What do other fee charging IFAs out there do?
Posted by: Michael Both
Fee Percentages
Dennis is correct in stating that some clients won't necessarily understand or check percentages with fees. Many will recall when commission disclosure commenced many years ago that it was initially disclosed on a percentage basis. This was subsequently amended a few years later to that of cash disclosure so as to ensure absolute clarity under the heading 'cost of advice'. Can someone enlighten me if we are really going back to a percentage based disclosure of remuneration model post RDR?
Posted by: Gansy
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Over charging
1% p.a. ongoing charge - poor client she should come to us we will do it for 1/2% LOL.
Posted by: steve s