Talking fees with clients can be difficult. Some clients willingly accept them while others challenge the proposed fees and want us to justify them for the advice we are giving.
Therefore, I included a chapter on fees in my latest guide, Retirement Advice – An Art or a Science?
I struggled at first to find a way of discussing fees, then I came across a brilliant formula: price of advice = cost + value added.
Price is the fee for advice charged to the client. Cost is how much is spent on fixed and variable costs to provide the advice, including professional indemnity cover. Value is the monetary and non-monetary benefit such as peace of mind and security. It is the value we add to the client’s financial circumstances and overall wellbeing.
Feeling smug about this, I sent a draft of the guide to a potential client whom I was getting on with very well, and thought it would help justify my fee.
I was taken aback, but in a good way, by his response: “I wonder whether ALL the value added goes to the adviser, which would leave none for the client.”
This certainly got me thinking and, after a couple of strong coffees, I decided the value added was clearly the profit for the advice firm, but this should be proportional to the profit or value added to the client.
Clearly, the adviser’s added value is measured in monetary terms. However, the client’s added value is often intangible or invisible, such as ‘peace of mind and security’, and these are things you can’t put a monetary value on.
No shame in profit
We shouldn’t be shy about discussing fees, and profit shouldn’t be a dirty word. I remember well in the early days of our company a particularly wise client told me that in business there was only one important metric and that was profit. If firms do not make a profit they go out of business, so advice firms must be profitable if they are to continue delivering good advice to their clients.
Therein lies the challenge: how do we set our fees at a level that ensures we make a reasonable profit but at the same time add real value to our client’s financial affairs and their peace of mind in retirement?
With regulatory fees increasing and many clients more conscious about value for money, this challenge gets harder.
William Burrows is retirement director at Better Retirement
Follow him on Twitter @BillyBurrows