Your Industry  

Financial planners must get real with their fees

Financial planners are faced with a stark choice when it comes to implementing a fee structure in a post-RDR environment, according to Steve Billingham.

The world has changed and customers want a different experience, the director of West Sussex-based Steve Billingham Consulting said, adding that advisory firms could take steps to alter their charging structure where necessary to cater for clients.

The first step would be to acknowledge business shortfalls. Advisers should consider the amount they charge for their services in comparison to the amount charged by distributors who can offer a direct-to-consumer solution, Mr Billingham said.

Article continues after advert

For investments, planners should consider why clients would pay a relatively high fee for advice when they could go online and buy an asset-allocated portfolio which matched their risk profile, adding that robo-advisers posed a significant threat.

Step two would be to tackle the problems identified in the previous step, while step three would be the need to do a reality check.

“One of our clients faced his reality recently,” Mr Billingham said.

“Of the 100 or so clients he has, only 11 generate any recurring revenue, and only four generate recurring revenue above his minimum level. This guy is a well-qualified, client-centred, extremely nice person who does a good job. Like most advisers, he wants to help people, and like most advisers, he was never trained to run a financial planning business or have financial planning conversations.

“What do you do when you realise that in all probability, 90 per cent of your clients are unprofitable? What will you say when, post-RDR, your clients ask you: ‘What do I get for my money?’

“What will they say when you tell them that your financial advice services are no longer ‘free’?”

Step four is the moment of realisation that something needs to be done. For some advisers, that moment will come once a client rejects a proposition or leaves the business.

Mr Billingham said: “Clients will pay fees.

“It doesn’t happen overnight, but it can happen quickly if you are prepared to invest time and some money into developing your business.”

Adviser view

Ray Best, managing director at UnaVida Life Planning, based in Berkshire, said: “Advisers have had difficulties in adjusting their fee structure post-RDR. Most IFAs do not value themselves, they are just general practitioners – they think it is enough to do the average across the board instead of specialising in one area.

“Most clients who choose to go it alone through a platform often have poorly constructed portfolios. While platform charges may be cheaper, there is still great value in financial planning.”

Commenting on the perceived threat of robo-advisers, Mr Best added: “Perceiving robo-advisers as a threat seems to be a common theme in the industry. Yes, there will be a class of clients who will go down the robo-adviser route – it is something that is going to happen.”