MDG-MK profile part II: The firm’s fee and charging structure
Keith and Josh Butten explain their firm’s fee and charging structure, which is based on a tri-party benefit for everyone involved in the business
The ethos of MDG-MK is that the business has to benefit the three distinct parties involved in it: the clients, the staff and the shareholders. Every business decision made is done so with what’s right for all three parties very clearly in mind, says director Keith Butten.
“So when you’re looking at what to charge, it has to enable you to employ a good quality team, it has to be good value for the clients in terms of the service they receive, and it has to make a profit for the business shareholders,” he explains.
“With that in mind, our clients pay a minimum fee for the type of service they are receiving. We have different types of service levels and fee structures in place for the different types.
“For example, a private client dealing with me will have a minimum fee level of £2,500 a year for ongoing advice. We charge retainers to ensure we meet that minimum fee. Then we have a 0.5% model for ongoing advice. We could have gone 1% but we do not believe that is right thing to do. Our model means we can run a successful business on 0.5% and it works well for all three parties involved.”
Fees are payable for the initial financial plan and then for each time advice is given, typically for new money. These are charged on a tiered basis not just based on an individual’s assets but on a family’s assets.
In many cases, the firm looks after the whole family, Keith says, so the firm adds together the assets of all direct descendant family members and that affects the fee level. Where a family’s total assets are above £1m the initial fee is zero. So where a younger family member has a JISA opened for them, or another starts saving or investing towards a property purchase, none of that is charged for as no initial fees apply.
That is a fee structure which lends itself to a small business structure, where there is a real connection with clients, Keith says, not businesses just looking to grow assets and profits off the back of their clients.
“For businesses that look at every bit of business as an individual profit-making transaction, what we do would make no sense at all,” he says. “We’re interested in the relationship with the family concerned. Where that family has a decent amount of money in our care, we’re looking to be fair and for it to be a two-way street when they bring new money to us.”
Josh adds: “It also makes us more attractive to people with over £1m because there is a cap on initial fees of £10,000.”
This is part of the firm’s Fair Fees Policy, which includes:
• Implementation fees not applied to moving investments that the firm has previously implemented – thereby removing any bias for ‘churning’.
• % based initial fees are not applied to ongoing monthly investments.
• Family members (direct descendants) assets are accumulated for the purposes of calculating implementation / initial advice fees – so all family members gain from it.
• Once ‘family’ investments exceed £1m no further implementation / initial advice fees apply
“We are passionate about this policy,” says Josh. “Money invested with us once, if we decide it has to move because external circumstances have changed, for example, will not see a further charge from us to the client to move it. From our view, we charged once to put the money where we thought it should be and the client is paying us their annual fee to look after it. So we are not going to charge them again to move it.”
Keith adds: “That commitment shows clients the values that we hold strong. There is no room in our business for churning. Our philosophy is we charge a fair fee to run a successful business and we treat our clients extremely fairly in return.”
The business has had these practices in place for a number of years, says Josh, “we just hadn’t told anyone about them. So we felt it was time we formalised them into a policy because they are a strong part of our business ethos.”
But, Keith adds, while the fair fees policy is a differentiator for the firm “we don’t market on that or on our investment performance, for example, because, we have a very good referral stream. These things form a part of our conversation with clients once we know we want to work with them.
“We’re lucky; our clients are strong advocates for the business. We can pick up the phone and tell people we have the capacity for a few more clients and they will find them for us. We also work with professional connections, running a couple of seminars a year, which have proved successful for us.”
It is clearly striking a chord with clients as, combined with the performance of its model portfolios, the firm has seen its assets grow by between 15% and 29% a year over the past four years.
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