Financial advisers should consider their role in the same camp as doctors, lawyers and other professionals and explain their work in a similar way so clients realise the value they can add, experts say.
Speakers on a panel discussing fee structures at Money MarketingInteractive in Harrogate in September agree lack of consideration around value of advice is continuing to cause problems for advisers explaining charging models.
Professional Partnerships insight consultant Gillian Cardy said: “My issue when I had my own firm was realising that just because I think what I do has value doesn’t mean the client thinks it’s work of value. When you start to talk about the value and a client doesn’t value the work, you’ve set yourself on a very slippery slope.”
Firms may also face increased financial risk if clients do not understand the context of charges presented.
She said: “If clients think your work is easy, you’re putting your remuneration and revenue in the hands of a very arbitrary decision made by them. I would say I am a professional and you are going to treat me like one of your other professional advisers who you ask them for help on medical issues or legal issues and pay.”
Red Circle Financial Planning director Darren Cooke said value between the planning and the advice process within the all-round service also warrants different structures with different explanations.
Cooke said the loss of commission post-RDR should push advisers to be more pragmatic in explaining value for money.
He currently works on a tiered percentage of assets under management on an annual basis, but is transitioning to a minimum fee.
He said: “I have half a dozen clients not meeting that minimum I intend to either offer a lower service to, or agree to an “as and when” service and charge on that basis. I’ve come to the conclusion I need to move to a fixed fee basis and charge an initial cost in that, and then make the planning side a fixed fee plus an additional fee for pensions or complexity of work involved.”
Despite that, Cooke said the planning work fee should be roughly the same between clients regardless of wealth and the complexity of assets.
FCA figures from last year found 48 per cent of firms charge on an ad valorum structure, 20 per cent work on hourly rates, and 10 per cent charge a combination of both. A total 81 per cent of initial fees and 74 per cent of ongoing fees were facilitate via providers and platforms.
Five Point Consulting director David McCabe said: “Clients should understand what they are paying and what they are getting, there should not be any issue what fee structure you’re on, it’s about clients getting value from that fee but also about clients understanding that value.”
Whatever fee structure is in place at a firm, Cardy said showing the credibility of a profession should be embedded.
She said: “Whatever the client does with the advice doesn’t matter, they have come for advice and they have decided it. If you have had the benefit of advice, you will pay for it.”