Hourly fees bad for business
The way planning practices charge for advice will be key to how well they deal with Future of Financial Advice (FOFA) regulations – and charging an hourly rate is definitely not the answer, according to Elixir Consulting business coach Stewart Bell (pictured).
Pricing comes down to how you charge, when you charge and what you charge – and the options for how you charge are hourly fees, flat fees and asset-based fees, Bell said at a recent Association of Financial Advisers (AFA) roadshow.
Of those three you should take hourly fees off the table straight away because they’re not good for business, they reward inefficiency and clients don’t like them, he said.
“The last thing you want is a client not picking up the phone because they’re worried what you’re going to charge them,” he said.
In terms of ‘when’ you charge, some planners do a discount upfront, which can send the message the true value of the advice is in the ongoing implementation rather than in the upfront plan. The two prevalent models are an all-inclusive annual retainer, or a restricted offer that includes an annual review and a newsletter but extra services such as additional reviews and Statements of Advice cost extra.
In terms of ‘what’ you charge, it’s very important to put a value on your advice, he said.
“It’s not about time, it’s about expertise, the difference you make to a client – charging by time doesn’t recognise that,” he said.
FOFA will actually create significant opportunities for those who move early, he said.
“My view is that when fees are positioned correctly, when it’s clear what they’re for and what they’re linked to, and when trust is present in a relationship, then fees are rarely an issue,” he said.
Bell said FOFA is less about radical change and more about evolution. It is simply pushing through changes that would have happened eventually anyway, and for those planners who are waiting for the details on FOFA there is already enough detail to be making a start, he said.
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