Adviser charging and compiling a price list are difficult. Parsonage has been running on a service proposition and fees for quite a while now. It is published on our website and has never given me a problem. This should have put me ahead of the game for RDR preparations, but the trouble is my heart was looking backwards. There are long-standing clients with small amounts under management and I like these people. Our minimum annual fee (£600) is more than the trail commission, so the top-up fee seemed too high, before I had the commercial sense to charge it.
I suspect that many of us have wrestled with this. Despite our reputation, we care deeply about all our customers. I also fear that our desire to help is a distraction from a daunting question: At the true price of our service, how many of our customers will decide that it is not worth it? How many will drift away from financial planning?
My head, and my accountant, knew that;
1. I was not being fair to anyone by under-charging a tranche of customers (albeit a lovely bunch of people, who appreciate our service and who are better off as a result of it).
2. I should have set prices with reference to the cost of the service on day one.
Over 2012, we have not put our prices up, but we have begun imposing more rigorously our fee structure for ongoing service. Alongside that, the reviews have got better. Our clients are getting a better service and they have noticed. Correct pricing leaves enough preparation time to deliver a meaningful review.
In case you are wondering, some people did say ‘no’, nobody has sacked us (yet), a minority ‘postponed’ the review.
How much to charge is a relatively easy question to answer. It is just accounting. We start from any point except the commission we could have expected. If you have not started yet, I suggest beginning by asking all team members to record their time and tasks, to make sure that you know where the liabilities are. An example is fund closures or changes. We missed them completely at first, we had no mechanism to charge for them and they cannot wait for the annual review. They interrupt our planned workflow and demand attention.
How we should get paid seems obvious to me, but I feel like a heretic. I am not hearing the same view from many people. I do not think our fees should come from our clients’ investments, if their long-term goals are considered. Investments grow more if there are fewer deductions. That is not a revelation. Fundamentally, we can deliver more for the client if investments are not dragged back by deductions for our fees. Have we become tied up in the side questions, like whether ‘deducting fees from pension funds is tax efficient’ etc?
I realise that some clients do not want to pay directly and I am not advocating enforcement, just a shift in the default.
Knowing our clients consciously pay for our service has one huge advantage: It focuses us on service, clients have noticed and recommended us.
Good luck with your own deliberations.
Flora Maudsley-Barton is managing director of Parsonage