It seems that the IFA sector is finally becoming aware of the need to provide value to clients in a far more obvious way and in turn, it is just possible that these clients might then pay for the advice they receive!
The problem, however, is that the adviser often doesn’t realise the extent of the value he/she provides to the client and is therefore unable to equate this with the cost of advice.
A good example of this would be a firm that I have been working with in the North-West of England. This one-adviser practice has a history of dealing with many wealthy clients and charging in an ad hoc fashion: the most memorable occasion being when advising a landowner on a business deal, which netted the client a profit of over one million pounds, the adviser decided to charge nothing at all!
After I had challenged the IFA on his understanding of the value his client received, he started to charge every client for his strategy at a fee of £2,000 per financial plan. This seemed to work and people began to pay - not everybody, but those he wanted as clients because they understood the value of the advice.
Although the adviser was now charging for his strategy, he was still charging for his service proposition in a really random fashion and not building the recurrent income in his practice in the way he desired.
I suggested that he break up his fees/commission into the following areas and charge accordingly:
- Strategy - client pays for the intellectual capital by fee ·
- Implementation - client pays to implement the strategy: fee charged or commission received from product provider
- Ongoing Review - client pays for wide range of ongoing services: fee charged or commission received via trail commission
Once he began to understand that he should be paid for each discreet part of the client work, the IFA began to confidently present his proposition to all new prospective clients and found, once again, that the right type of person would accept the fees/commission as a fair exchange for helping them meet their goals and objectives over a given period.
The IFA has now seen his recurrent fee/commission income rise by 450% in less than 2 years and is confidently charging his new clients the following:
- Strategy Fee: £2000 per Financial Plan
- Implementation Fee: 1% of assets invested
- Ongoing Fee: £2000 per annum for Strategy and 0.5% of assets invested for service proposition
Clients are paying the fees shown above, in the same way people pay for accountants, solicitors and other service providers. They only pay when they understand the benefits of doing so. If it’s all about value for the client and the right type of client can grasp that concept, it seems as though it is actually the adviser who needs to change his/her thinking and not vice versa. How refreshing!
John Robinson is senior consultant at FP Advance
The views expressed in this blog are those of the individual.
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