What A Good Service Proposition Looks Like
For almost 9 years Bradbury Hamilton has explored different service propositions to sit within the fee based model. Over this time we’ve developed a structure which allows for fixed fee, hourly fee and percentage based charging depending on the type of work undertaken for our clients, it’s size and complexity.
But until recently, pricing the work you do for clients could be relatively straightforward. Charging nothing explicitly for products that attracted trail commission and by the hour for everything else. Recurring commissions on products meant a viable stream of income and it also presented a charging structure for clients that was simple and affordable.
Unfortunately, those days are gone. RDR has left many IFAs with a difficult dilemma. On the one hand, delivering the first rate service they are used to giving. On the other, pricing the service to be affordable and without high risks to be borne by the adviser’s firm.
I have discussed the issue of having a good service proposition for clients in previous posts. In this post I thought it would be a good idea to explore exactly what this means.
Defining Your Client’s Service Proposition
A service proposition is the secret to finding a new charging structure when trail commission ceases in 2016. It’s the quid pro quo you present to a client. Any good adviser will calculate this based on the amount of work that needs to be done, the risk attached to the firm and the revenue accrued to the client.
Previously, as mentioned, the fact that a recurring passive income was available meant that charges did not need to be excessive and the risk was low, insurers would provide a healthy income stream. A client will be keen to hear your service proposition. But, if it isn’t compelling, their focus will be price first and any value you can deliver will be a poor second. Does your service proposition stand out? Does it offer the assurance your clients need to know their fees are for the services that count and not overheads or profits and bonuses for your benefit?
Can you include statements such as these in your client service proposition document? • Independence from any product provider's influence. • Independent evaluation of the investment market from leading research and risk management sources. • Access to innovative investment solutions and coverage of the investment and tax wrapper market. • Comprehensive management information that supports your decision making, regulatory and audit requirements. • Efficient administration allowing more time for advisers to invest in client relationships. • Consolidated views of assets, regular statements and online real time valuations.
Pricing Your Client’s Service
Costing the work you provide is far more complex than it once was and a poorly or hastily costed job could be disastrous for your firm. You may be tempted to bill by the hour as trail ends, but this is a low profit - high risk strategy if the pricing is not correct.
We are all ultimately in in a business that involves risk management . We are paid to limit the exposure of our client to financial risk, so it makes sense to extend the same prudence to our own businesses.
Without trail, we need to factor the size and the type of a client’s investment into our costings. The bigger the investment the greater the risk to the client and your firm. If something unexpected happens on a major investment, the results can wipe out smaller firms and this is even more likely now that there will not be recurring commission to fall back on.
RDR has made investment for clients a far more expensive business and as a result many smaller investors will no longer be able to afford face to face advice.
Clients with more assets to invest will inevitably make up the client base in the future. They will have considerable buying power and will seek to set the price for managing their assets. Making it imperative to agree a fee commitment with your client before you undertake any work.
Spelling out your costs to the client is a crucial part of your service proposition. You should not worry about becoming more expensive, as long as your price is transparent and you can articulate and establish the value you are offering.
For almost nine years Bradbury Hamilton has been working on different approaches to find the right propositions that offer excellent value to the client and deliver an acceptable balance between the price charged and the cost of producing the work along with the risk of producing that work to the firm.
It hasn’t always been easy to strike the right balance. The process has been a steep learning curve. What we have learned for certain that a vitality important aspect of developing a service proposition is the establishment of uniformity throughout the business. As I’ve previously written in this blog, uniformity across a firm or a network is essential; Uniformity of advice and uniformity of charges.
Allowing individual advisers to create their own pricing structures without a firm wide frame work is a recipe for disaster. Clients and the regulator need to see consistency in the pricing of work and this should not differ between advisers in the same firm.
Our initial fees forwork done on a percentage charging basis operate on a sliding scale starting at 5% and dropping to 1% depending on the size of the investment. We also carry out work on an hourly and fixed fee basis. Having properly defined charges like this also ensures your firm does not toil for nothing. Reports prepared for clients are only done on completion of a fee agreement and the cost of this is paid irrespective of whether the advice is take up or not, or whether a transaction is recommended.
Sometimes the best financial advice to the client is that the investment should not go ahead or the client should keep their money where it is. This is still valuable, billable advice and needs to be rewarded.
If you are looking at your future as an IFA with some degree of concern following the end of trail and are not sure where to start in overhauling your billing structure, Bradbury Hamilton can help. We are looking to bring IFAs with turnovers between £100,000 and £1,000,000 per annum, in under the umbrella of our firm and we can offer the uniformity of our charging and service proposition.
You still have a valuable asset in your IFA business; so don’t consider leaving the profession before you have it properly valued. If you are looking to sell your business or you can see a future working with Bradbury Hamilton, you can contact me here for an informal chat.