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Adviser charging from the client’s perspective

2nd March 2018

Follow these five rules to get communication of this tricky issue right.

I can hear you already: “Oh no, not another article on adviser charging…” But bear with me. Many advisers have (perhaps subconsciously) hitherto approached the matter from the perspective of what they are required to say based on regulatory guidance.

This article focuses on adviser charging from a client’s perspective, and how better understanding and greater buy-in can be achieved, along with better outcomes for both client and adviser, while also being compliant.

1. Cognition

Cognition is defined as “the mental action or process of acquiring knowledge and understanding through thought, experience and the senses”. A shorter definition: information processing.

Do you know how your prospective clients feel when you talk to them about your charges? How might you do so in ways they can better relate to?

This is about using behavioural science to achieve greater understanding and one obvious way is to ask them. Client feedback invariably leads to improvements. So while it may appear a lot of effort when you have just updated your disclosure documents to be Mifid II compliant, there will be longer-term benefits if your clients better understand what you are explaining to them.

2. Concise

Is your communication with clients longer than it needs to be? The FCA makes certain requirements but sometimes there is more information than is needed or helpful, with even more added by different people as documentation gets updated. Regular internal and third-party scrutiny helps address this.

3. Considered

Is the layout and formatting helpful to client understanding? Again, account does need to be taken of what is required by the FCA, but that does not mean documentation has to be bland or poorly laid-out.

4. Calculation

While most clients will accept your charges without comment, there will be some who ask what you do for your fee. It helps if you can clearly articulate that.

One beneficial by-product of this review of what it costs to deliver your service, might be you find you are charging too little for certain elements of it (more of which under the consistency point below).

A further aspect to consider relates to the level of ongoing charges. Most firms charge an ad valorum fee as a percentage of the amount invested. Many reduce this percentage amount when the level of investment exceeds a certain level – commonly £500,000. However, this figure is often arbitrary, and working out the actual cost of delivering ongoing service may lead to the conclusion that the level at which any reduction should apply should be different.

Having the right level of charges should result in the right level of resources being in place to efficiently and effectively service the client.

5. Consistency

If there is one single aspect of adviser charging many firms struggle with it is consistency, especially in relation to initial charges. In some firms, advisers are permitted to charge varying amounts for the same level of work. This is unfair not only to those clients charged more than others, but often the firm ends up not being paid for what it costs to advise and set up the investments.

I have also found at some firms that there is not a full understanding of what work is undertaken because the advisers, paraplanners and administrators work in silos.

This can be addressed by holding periodic internal workshops to review different types of case to understand what needs to be done to take on and then service clients. Changes in legislation and regulation can make considerable differences in a relatively short period; one recent example being defined benefit transfers.

Treat the subject of adviser charging and how it is communicated as an opportunity to improve, strengthen and prolong client relationships, and not as a chore. The benefits in doing so are happier clients, less likelihood of issues with the FCA and an increase in profitability and value.

This article was originally published on Money Marketing

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