Advisers concerned about switching pricing model during downturn
Many financial advice firms that are toying with the idea of moving their asset-linked fee or commission model to a set dollar ongoing fee have concerns about doing so during the market downturn, according to research into how the global financial crisis has impacted financial advice pricing models.
The research, conducted by Elixir Consulting, showed advisers were concerned they might 'miss out' on the upturn when markets recovered if they switched to a set-dollar fee based on the current market.
They also questioned how they would tell clients they were happy to share in the 'good times' but couldn’t share the pain when markets dropped.
Elixir said very few advisers had changed their method of charging as a result of the current climate.
One adviser echoed the views of many and said the only thing that had changed was a more heightened awareness of the need to avoid high fixed costs, Elixir said.
The research showed that while businesses that charged a set dollar fee did not report a substantial decrease in their ongoing revenue, many recognised the value of their advice, as clients were more 'fee-sensitive' in a downturn and seeking to reduce their overall cost of living.
Additionally, there was a widespread drop in new client referrals, which was not affected by whether clients were on hybrid, fee or commission models.
Without fail, those advice firms that stepped up their marketing activities and/or reported an increase in the time they spent with their centres of influence obtained new clients at a greater rate than in the previous year, Elixir said.
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