by Tony Vidler 
Here’s a simple strategy for getting paid fairly for the advice you give….and I mean getting paid for ALL the advice you give…every step of the way.
There are broadly three possible parts to any client work:
1. Planning
2. Implementing, or “putting in place” any planning recommendations
3. Ongoing Servicing
Not enough financial advisers value themselves sufficiently to be confident of charging fee’s at the outset of a client engagement – yet that is how you can best reinforce to a prospective client that this is not a sales operation relying on providing a product, but a genuine professional engagement. It also should reflect that actual value is about to be delivered.
When a client engages an adviser both parties should recognize that there is immense value in providing an objective assessment – a plan – for the client. The client is then free to do as they wish with that plan once it is delivered, however, value has been provided whether the client chooses to use the advice or not. A strategy has been created and delivered, and that strategy is in itself valuable.
The analogy I like to use is that working with a financial adviser at this stage is the same as seeking the professional expertise of an architect. A client engages an architect to assess their situation and the environment; the clients’ needs, desires and objectives; and try and balance all of those factors within the parameters of the clients’ resources. In other wrods, the architects job is to try and work out how to apply the clients imagined future or objective and create a plan that enables it to become a reality. No different to use really.
The result from the architect is a plan for the construction of a building for the client, and within the client’s budget. The building may or may not actually ever get built….that is ultimately the client’s decision. The architect cannot really do anything about ensuring that the client follows the advice, or the plan. Nevertheless, the architect has used their time, expertise and skill to devise a suitable plan for the client. And the architect deserves to be paid fairly for that.
The value of the professional does not, and should not be allowed to, hinge upon whether a client decides to use the advice. The value of anything purchased commercially should not depend on whether a consumer decides to use it or not. Imagine buying an expensive road bike and then being allowed to simply not pay the retailer because you hadn’t got around to getting on it and begin pedalling?
Yet, Financial advisers do exactly this all the time. They offer an arrangement to clients whereby the client only has to pay for the expertise if the client decides to use it. Or worse, they never put any conditions for payment (or value) around the advice to begin with.
Advisers frequently give away massive amounts of expertise for nothing (or next to nothing). They often don’t even seek to create some form of obligation on the part of the client to engage in any further work with the adviser after the initial plan is delivered.
That’s a pretty crazy business model.
The second possible area of work that an adviser may be able to do for a client is the Implementation phase. And this is where many adviser work on commission, or a success fee, or variable project fee or anticipated AUM trail fees….this is where they “pray” that the work can be completed and they can get paid. Effectively this is the “brokering” role…going to market to find a product solution that will help the client fix a problem or move ahead with the strategy or action plan.
Lastly, a financial adviser can be rewarded for an entirely different type of work on behalf of a client – that of providing either ongoing service and support, or, reviewing the work of other advisers or the clients DIY efforts from years gone by. That is; the adviser spends tiem and professional expertise looking backwards at what has been done and must determine whether it remains “fit for purpose”.
If you explain the three separate aspects of possible work and what is required for each of them, then each has its own clearly expressed value, and each phase can have its own charge. There can even be variable charging methods for the different phases.
Putting the three possible parts of a project alongside each other, together with how an adviser might get paid for each quite different piece of work, becomes a very simple way of explaining one’s remuneration basis for a particular scope of service.
In explaining the possible range of work to a client it is important to highlight that the client has the option to disengage, or walk away, from any phase of the work. There is no obligation for a client to engage fully in all three areas of work that an adviser may provide….but that does not mean the adviser should not be paid for whichever particular piece of work the client wants done.
Following the provision of a plan, should the client decide that they wish to engage the adviser to implement any recommendations that arise from it then it is effectively a new engagement. Some advisers will charge a fee for this aspect, but many more prefer to work on a success fee basis. For example, if a plan contained recommendations regarding income protection insurance then a client may ask the adviser to arrange that for them.
The adviser then undertakes to complete the paperwork; compile the financial, employment and medical information on behalf of the client for the insurer; liaise with underwriters and chief medical officers; arrange payment and/or payment facilities; adviser the client upon the taxation implications of the cover; check policy schedules and documentation for accuracy; and anything else that may arise during the placement of the cover. Implementation can be a protracted business taking many many hours on the part of the adviser over a period of months.
Once the cover is placed (for this example) the client has the choice of thanking the adviser and walking away. The adviser will have been paid for this work either on a contingency fee basis, or a commission basis, or a blend of the two. But getting the recommended actions put in place on behalf of the client involves a strong element of “praying” by the adviser….it is usually not a guaranteed success.
Finally, the client may wish to have the adviser provide ongoing service and support. The price for delivering that ongoing service may be determined as asset-based fees, trail commission, agreed service fees, or a flat annual fee each year….but however it is structured, delivering ongoing service comes at a price, which the client can choose to pay for, or not engage in.
It is worth remembering that regardless of the type of engagement chosen by a client, and whether it is a single phase or multiple phases, the client has the ability at any time for any advice given to them to complain or litigate. From an advisory perspective even an unpaid piece of work carries professional and commercial risk. I cannot for the life of me understand why any adviser would expose themselves to those risks without compensation.
Accurately positioning the different projects that an adviser MIGHT undertake for a client, whilst providing the client with full choice regarding what the adviser does for them, is excellent business. It ensures that each possible type of engagement attracts fair pay for the work being done at that point, to accurately reflect time and business overheads as well as risk for the practitioner.
Advisers really should get paid for each type of advice they give – or get paid every step of the way if they are providing all of this to a client.
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