Advisers must adopt broader ‘commercial’ approach – Pru
Mr Harrison said far too many advisers “significantly” undervalue the work they do for clients, and in many cases carry out the work free of charge or without sufficient payment in return for their professional services.
Paul Harrison said far too many advisers “significantly” undervalue the work they do for clients, and in many cases carry out the work free of charge or without sufficient payment in return for their professional services.
He urged advisers to include “one-off” services in their new charging structures as they prepare for the retail distribution review.
He said: “It’s important for advisers to include ancillary services in new charging structures. They must identify the areas where the extra services they provide are not adequately charged for - trust work, tax planning and second opinion services are common examples - and realise that when the current practice of offering such services against other revenue streams, such as commission, disappear, this will no longer be sustainable. The stark reality is that advisers’ business models need to adopt a broader commercial approach to maintain profitability.”
Mr Harrison explained that the first step for IFAs is to work out which services the business wants to offer, who within the business is best placed to deliver these services, how long it takes to deliver them and what the business should charge to cover its costs.
He said: “As these services will be provided in addition to the initial advice proposition, advisers might prefer to let clients choose which additional charging structure best suits them.”
For instance, some clients may favour a pay-as-you-go method, while others might want a service proposition, which takes account of the level of support and the frequency and nature of client contact.
Mr Harrison said: “Whichever method chosen by advisers, it’s important for the charging structure to reflect the time and costs involved in delivering these extra services, as well as the benefits and value provided.
“Communicate this clearly and effectively to clients. It’s crucial for clients to feel involved in the process. Only then will they understand where advisers can add benefit.”
Max Horne, partner for Fife-based Max Horne Financial Services, said his firm, which has been fee-charging for seven years, levies a flat fee for implementing a plan, a retainer to maintain the plan and then charges for one-offs, such as setting up a trust.
He said: “I understand the position some advisers might be in because they have not had to disclose the commission they take until recent years, and even then it is a bit clouded. They might feel embarrassed about the amount of money they take in commission, so give all these extra one-off services for free to justify it.”