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‘Leading advisers’ moving away from AUM percentage fees

Leading advisory firms are beginning to move away from percentage-based fees and towards charging on a set fee basis, according to Standard Life.

Speaking at the launch of ‘A measure of success’ – research by the firm and NMG Consulting looking at how adviser firms achieve excellence – Innes Miller, head of business services at Standard Life, said charging models similar to those of other professionals are emerging.

“There is a question over whether or not we will see advisory firms charging in a way that lawyers and accountants operate, also using value pricing and risk pricing” he said.

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The research, which looked at 25 leading advisory firms, looked at the traits shared by firms excelling in their field.

There is an increasing need for firms to be able to sell on the basis of value, Mr Miller said, which will become key going forward.

Advisory firms are looking more closely at charging clients based on their needs rather than their wealth, he added, which often includes a conversation with the client on what charging structure is best for them. “Increasingly what we are seeing is firms letting their client decide what is best for them,” he said.

Alan Smith, chief executive of Capital Asset Management – one of the firms included in the research – said moving away from percentage-based fees was part of nailing down what proposition the firm actually offers.

“I think it is an evolutionary process, in our experience,” he said. “In our firm, we are on that journey. Historically we have been on a percentage-of-assets fee-based model. But we have got an increasing number of clients where we sit down and work out what is a fair fee and it is a fixed fee.”

Some such fees will be quite high, Mr Smith said, making it imperative to be able to demonstrate value.

“Regardless of what we charge, we want clients to look at that and say ‘that is good value for money’,” he said. “The challenge is to ensure that your proposition is in line with what you can charge the clients.”

Jason Butler, founder of Bloomsbury Wealth, another of the firms in the research, said advisers must be clear on value and competence.

“The thing that determines the price is complexity and relationship need,” he said. Profitability must also be taken into account, he added, saying that his firm cannot service a client for less than £600 per month.

The seven attributes identified by Standard Life as common to leading firms were:

• Strong leaders with a consistent vision who set clear direction and expectations

• Employees who put the firm’s interests before their own

• The structure of the business follows its strategy

• Clarity of who and what the business is

• Embracing regulatory change

• Clear, regular and open communication with both clients and employees

• A culture of continuous improvement and operational excellence