On the eve of their birthdays my children were (and still are) treated to a good night wish from my wife of “good night “x” year old” and woken on their birthday with the greeting “good morning “y” year old”.
Today marks our 19th company year end.
It seems very odd that 19 years ago Andy and I started this business with a blank piece of paper, how time flies?!
19 years ago the typical IFA business model was based around being paid through commission from product providers.
There were a few pioneers around who offered a fee based approach to providing financial advice, but they were few and far between.
Commission was the norm and far from the evil that some commentators believed it to be.
Even the FSA found it difficult to come up with compelling evidence that it introduced so called “product and provider bias” but, as you will know, for pension and investment products commission has now been abolished.
For us there was something of a mismatch between the professional services that we delivered and being paid only if our client purchased a financial product, so as long ago as 2004 we changed our pricing model so that we charged for advice, charged further for implementation and review but unbundled these things so that being paid was not contingent on our client buying a product.
Even before we did this we had voluntarily decided that we would restrict the level of commission that we would receive from product providers (3% plus 0.5% renewal commission) as many IFAs did and continue to do (except these days it is called adviser charging rather than commission).
Interestingly today we tend to charge less to our clients than we did in 2004 and yet 2011, 2012 and now 2013 company years have been our most successful so I guess we have introduced greater degrees of productivity and efficiency into our business.
However, we think that change continues to be inevitable and so we are taking the opportunity presented by entering our 20th year in business to change again our pricing policy.
This time the change is reflective of not only what we believe consumers value the most but also the avoidance of any doubt that somehow when taking advice a client has to buy a financial product.
We are replacing our charging structure of an explicit project fee for advice, a percentage charge (0.5% to 2.0%) for implementation and 0.5% to 0.6% review fee, with even more transparency and competitiveness of price.
Or advice fee will continue be an explicit monetary amount based on the value we add, the expertise we have to bring to bear to deliver at advice, the risk of delivering that advice (the whole regulatory world is I am afraid, still pretty much based on product risk) and the profit we want to make, so little change there.
However, our implementation fees are now also going to be expressed as a fixed monetary amount.
We have made this change to reflect the fact that advice is where the value is and the product solution, whilst not without value, is not where the bulk of the charge should be.
We will continue to charge a percentage of assets under management for our 12 point Your Annual Wealth Check, again because this is where a significant part of the client value lies.
We have carried out an analysis to see where our pricing policy sits and I have to say it sits very comfortably where we want it to be. We won’t be the cheapest financial adviser but nor will we be the most expensive.
Where we will remain different from the majority of our peers is that we will not deliver the advice speculatively.
We won’t deliver advice with it being contingent upon our client buying a financial product in order for us to to be paid. We provide real value and expect to be paid for it.
There may be a perception amongst consumers that a pricing model that charges an explicit fee for the delivery of advice must surely be targeted at really wealthy people. This is not correct.
An analysis of our charging structure indicates that we are cheaper than the typical adviser (charging 3% plus 0.5% adviser charging) for anyone with investable assets of £62,500 or more.
In some instances we are cheaper even at a lower level of investment.
Coincidentally the FCA has in the past couple of weeks indicated that it is not happy with advisers being paid for advice only if the client buys a product or indeed expression of charges as a percentage of money to be invested.
Whilst we are always conscious of regulatory views our decision to change our pricing policy is primarily about our client and their perception of value (advice not product).
We also recognise that more and more in the future implementation will be in the hands of the consumer after all isn’t that what the Internet is for?
Later today we are also publishing our “Pricing Manifesto”; this describes our view as a firm about what a good client pricing policy looks like.
For us transparency and great value for money can go hand in hand and we want to continue to be at the cutting edge of change in the financial intermediary world.
Good night 19 year old Informed Choice, good morning 20 year old Informed Choice!!
