There’s a lot of work being done at the moment by financial planning firms in the Irish market in the broad area of charging for services delivered. Firms are reviewing the services delivered to clients and are working out how best to be paid for those services. This opens up a number of areas; fees v commission, how much to charge, how to charge, justifying charges etc etc.
We end up having lots of interesting and thoughtful conversations with financial planners that can be quite illuminating. When working with these firms on their Client Value Propositions, we spend quite a bit of time looking at the services delivered and how these are paid for. We are looking to develop the remuneration model of the future for the business. However as part of this, we want to understand the starting point – how the business is operating today in this area. To get clarity on this, we ask how the following question is replied to, when posed by a potential client,
“Can you tell me please how you charge?”
We get a quite a variety of responses!
We don’t charge
Yes, we have heard this one! This of course simply makes no sense. Nobody works for nothing, and clients have no expectation that you should work for nothing. Potential clients at best are simply confused by this answer and at worst are hugely suspicious of this answer. Where’s the catch? What am I missing? How can there be any value in what you are providing to me, if you are providing it for nothing?
Of all the potential responses, this one certainly takes the biscuit in terms of being the one to avoid…
You don’t pay us, we get paid commission
When advisers are being very candid, it’s apparent that this one is still trotted out quite frequently. For many of the reasons mentioned above, I have a real problem with this response. I also have a problem with it as it is simply not true. The customer always pays – fact. Without further explanation, this also positions the adviser as a price taker, and whose remuneration is solely dependent on the sale of a product. More suspicion for the customer – do I need this product? Why am I being sold this product etc.?
I am not for one minute decrying commission as a method of payment. It makes sense in so many situations. However that is the way it should be positioned – simply as a method of payment and not where the product is seen as the driver for you to be paid.
We charge 50bps on all monies invested
We’re moving into more positive territory now – at least with this response you have your own developed pricing approach. A thesis could be written on the differences and comparative benefits of AUM pricing v flat fees v retainers etc., but that is for another day.
The challenge I have with this approach is that it doesn’t make sense to me that all clients are charged the same amount. Because all clients are different and need and deserve different things and services. Some clients need to meet you quarterly, some once a year. Many embrace cashflow, some don’t. Why are they all charged the same, when they place completely different levels of demand on your time and expertise?
I’m not proposing a unique charging structure for every client, but the approach below seems much more appropriate to me.
We charge based on value delivered
Can there really be any other approach? Clients seek the services of financial advisers today to help them address a very broad range of financial challenges. For some, they have a single, specific challenge. For others, they want to make better use of their financial resources or improve their relationship with their money. For others again, they want a very broad service around establishing life goals and then understanding what is needed to bring those goals within reach through careful planning.
All very different requirements and delivering different levels of value. How can you not charge differently for each of these?
How do you answer the questions “Can you tell me how you charge?”, and how will you answer it in future?