This month’s question: Are flat fees the way forward for the advice market?
YES:
Raj Shah, IFA at Blue Wealth
Charging percentage fees is akin to being charged more at the supermarket because your shopping weighs more.
A flat-fee approach can help to widen the services offered to clients, such as lifestyle financial planning, business consultancy and coaching. The fostering of these deeper relationships reduces the risk of clients getting poached from competitors.
The impact on adviser revenues is also positive, by providing far greater stability as business revenues are not pegged to a stock market or other factors that cannot be controlled.
This in turn creates a service over sales culture, which enables project work to be priced and even more importantly clients will understand exactly what they’re paying. There is also the benefit of non-contingent charging, meaning remuneration is not dependent on a financial product being purchased.
A key aim of the RDR was to put adviser charging on the same level as its peers such as accountants and solicitors, and flat fees would provide these professions with a better understanding of adviser costs. The reduction of contingent fees should provide better returns for clients.
Flat fees would also address the issue of helping clients without large sums of investable capital. Many high-growth business owners are in this bracket, but they would still value an ongoing service from a professional adviser.
The headline result is better recurring revenue, business.
NO:
Kusal Ariyawansa, chartered FP at Appleton Gerrard
What we all seek is fairness. How we articulate fairness, as we see it, will justify whether clients agree or disagree with a fee proposal. A flat fee is a useful PR exercise to target the wealthy few.
Apply that to those who have saved little or require basic advice and you run the risk of restricting our services to those who might need it the most. Or do they? While I believe that the majority does not need complicated financial advice, basic advice could be provided using a menu-based approach that could be compensated through fixed fees.
Our behaviour, facilitated by provider payments, has diminished the value of advice to the extent that many believe it ought to be free.
In deciding what is fair, fees should be based on your justifiable self-worth while ensuring there is a complete detachment from earnings. Qualifications or experience, but not the expensive office or lifestyle, can justify the former, which is why hourly billing can be flawed.
In seeking equilibrium look to a hybrid model where each area of advice in providing comprehensive financial planning has a fixed price, beyond which a value-based fee for a profit can be agreed. This removes cross subsidy and forces the adviser to justify why a client ought to subscribe to an ongoing service.
The day advisers agree to a universal fixed fee model will be the day when our own tax system removes its percentage-based charging.
