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Charging Fees: Breaking the Myths

Marlene Shalton CFP Great BritainBy Marlene Shalton, CFP

January 2013 heralds a new dawn for financial advisers and planners in the UK with the requirements of the Retail Distribution Review (RDR) to be implemented. Amongst the raising of standards of qualifications and gap-filling of knowledge, the introduction of “adviser charging” will probably prove to be the most challenging, for some.

Adviser charging means that providers and insurance companies will no longer be able to determine the amount of commission advisers are paid or even offer a menu of amounts that they can choose from.

Instead, the adviser will need to agree on a fee, from the outset with the client, with a signed agreement that this fee can be paid and how it will be paid. There is nothing to stop payment still coming from the product, provided the client agrees.

For those who have probably been disclosing commissions for many years and even the enlightened few who already charge fees, this transition should not prove to be difficult. From a client’s perspective, this method is better, knowing what they are going to be charged in a transparent and open way. Also, understanding what they are getting for their money has to be a vast improvement from the old cloak and dagger type of payment that has existed, in the past.

Myths Around Charging Fees

However, a number of myths abound about charging clients fees. The first myth is that clients will not want to pay fees. The second myth is if the client pays fees, then they are most likely wealthy.

From my own experience, all this is utter hogwash. I have been charging my clients fees for a number of years and many of them have actually written me a cheque, there and then, when I discussed the figures with them. In addition, none of them were mega-wealthy, but actually, what I would call ordinary investors who had inherited a lump sum, or retired or been made redundant.

I feel that the problem for advisers who complain that clients won’t pay fees is that they either have a psychological issue in that they deep down do not believe that they are worthy of being paid a fee, and /or they have not properly articulated their service proposition.

The Challenge is Offering Good Service

The real challenge is not changing payment but understanding how to offer an advising service: how to provide it , but cost effectively, and knowing what processes and systems are needed to do so. There are still advisers in the UK who have little or no support staff, that think they can operate a professional practice single-handed. For the sort of service that these people are likely to offer, they cannot justify a huge fee and even if modest, the client might not be prepared to pay anyway, once they realize what they are going to get for it.

Perception is key. This is why it is so important to be clear about the type of service you have to offer, the kind of advice that you are prepared to give, who will do what in your office, and how you are supported.

If the client has a good grasp as to what is available and it obvious that it will help them achieve their objectives, payment of the fee will follow naturally and usually quite promptly. Those who do not work on their business model now, to this effect may, look forward to fairly bleak times following January 2013.

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