The trick to fees? Make clients love to pay – Money Marketing

You want to build a home extension to plan for your future. Because designing and constructing an extension is difficult, you decide you need expert advice. So you approach a qualified architect to discuss your plans. 
You have a meeting where the architect listens to your needs and situation, asks questions about your future requirements, confirms your budget and the quality of the work you’re looking for. They say they can assist and provide you with an outline of what can be achieved. 
The architect goes away and conducts further research, constructing a detailed and personalised proposal. They present their recommendations to you. Here the skill, diligence and hard work of the architect becomes clear. You recognise how these plans will help realise your dreams and enhance your future. You agree to proceed and willingly shell out a not insignificant sum in architect’s fees. 
This process will be familiar to advisers. So how is it that a recent survey undertaken by the Social Market Foundation concluded that, despite the transparency that RDR brought about, 76 per cent of people are still unwilling to pay when it comes to financial advice? 
Can anyone define adviser value?
Putting aside any legacy misselling and mistrust issues, one of the key questions savers will ponder is whether handing over hundreds or even thousands of pounds to a financial adviser will boost their pension or savings fund enough to pay for itself? 
Or, to put it bluntly, is my adviser worth it?
A quick scan of online forums further evidences the scepticism:
“I personally don’t use advisers anymore because in the past their performances have not been any better than indexing or even my own picks. Why would you pay money for this?”
“I’ve yet to meet an IFA who could justify what they were charging”
And taking a holistic perspective: “What are you paying for? IMO financial advisers will go the way of the travel agent by the time millennials reach retirement age.”
Advisers also have to compete with the cheaper fees offered by robo-advice services and a multitude of DIY online investment offerings. 
So how should advisers demonstrate that they provide good value for money? 
Research suggests that savers who have received advice are significantly better off as a result. But this laudable achievement is often drowned out by the noise created by well-publicised, historic industry wrongdoings.
The value of personal, bespoke financial advice arguably increases with the age of the consumer. Would a 30-year-old – having easy access to company pension schemes, simple saving plans and protection products – view an IFA’s typical fee as good value for money? Conversely, to a client faced with a multitude of complex options as they approach retirement, the cost of sound financial advice may be viewed as money well spent. 
Then there are ethical considerations: should a vulnerable client be charged the standard rates? If not, is it fair for non-vulnerable customers to subsidise these reduced fees?
News, views and analysis on vulnerable clients
The industry has undertaken many studies to decide how advice fees should be structured and charged. However, surprisingly few of these consultations provide the consumer’s perspective. 
Ultimately, the judge of whether a fee represents good value will be that of the consumer. It is then the adviser’s role to communicate, explain and contextualise their charges. 
It is now not enough to charge a fee for doing only the basics. It is entirely reasonable for a client to expect that the fee they pay will include regular reviews of their portfolio, regular communication, financial education through seminars, newsletters and even introductions to a wider network of subject matter experts. 
Adviser charging will remain a contentious issue but the answer is not in lower charges or a one-size-fits-all, formulaic fee structure. 
Clients want an adviser they feel they can trust, someone they can ask questions and who has the knowledge and expertise that will help realise their objectives. Who can put a price on that?
Value for money, like beauty, is in the eye of the beholder 
To be seen as money well spent, a fee needs to be entirely transparent, wholly justifiable and ideally tailored to the individual client.
Importantly, the adviser needs to understand, define and be confident in articulating the value of the service they are providing. If an adviser can do this, there will be no need to justify a fee with formulas, algorithms or charts. 
Back to the original analogy. If an architect confidently explained that their charges not only included their expert advice but also access to exclusive materials, preferential project rates, an introduction to recommended builders and planning officials and an ongoing client partnership with regular reviews of the work undertaken, how many clients would quibble the fee or not view the cost as excellent value for money? Probably very few.
Neil Dethick is a senior regulatory consultant at TCC

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