What’s your net worth?
Peter Welch, Intermediary Director of Touchstone Financial Analytics looks at the pricing of adviser firm fees and what can be done to ensure they are at the right level.
One area of change brought on by RDR that I’m particularly interested in is that of fees. Moving from commission to fees raised not only commercial issues for advisers but also emotional ones, especially around the level of fee charged.
MyTouchstone provides advisers with a free community database with which to access business critical data affecting advisers and their businesses. It’s a repository of industry data matched with the insights drawn from over 11,000 practicing advisers who use the database.
Analysis of the data used by advisers shows that one of the most widely researched areas within the database is that of the level of fees charged. The figures show that for advisers who are currently fee charging there is a very wide spread of the average fee charged across the UK. For example, MyTouchstone data from Quarter 2, 2012 shows a range from £75 per hour in Lerwick on the Shetland Isles to £225 on the Isle of Man and just under £200 per hour for Central London with Birmingham coming in the middle with an average around £150 per hour (at January 2013).
When it comes to setting the right fee, my view is quite simple. The level of fee charged is purely a function of two things; the value proposition offered by the firm and adviser – effectively the level of service provided (because ‘advice’ is a service) and secondly; what level of fee the market will bear. After all a tin of baked beans is a tin of baked beans but, clearly, the price is not the same per can in Waitrose or Harrods as it is in Aldi. This analogy is something of an over-simplification but hopefully you get my point.
Perceived value of advice
The adviser’s value proposition is a big subject on its own and possibly best examined separately. But the issue of what the market will pay for advice is an area where the data can be of real help. The level of fee charged is emotive because it is highly personal to the adviser (it can be seen as one measure of their own personal value) and the client, particularly for most as they have an existing relationship with their adviser.
The concern is that many advisers and firms undertake their ‘pricing’ based on the costs of ‘production’ (adviser reward plus the expense of running a business), rather than the market cost of the service provided. This, I would argue, is one of the factors behind why there is such a wide disparity in the level of fees currently charged in the UK, even by individual region or town.
Any business with accurate insight on the prices of its competitors should use it and review it regularly. In addition, in terms of Treating Customers Fairly, every firm setting a level for its fees should be able to prove it has thoroughly and accurately researched the market in which it operates and this should be done on an ongoing basis.
MyTouchstone refreshes the fee data on a quarterly basis and this would seem a sensible point in time to undertake and document a regular benchmarking exercise. Any adviser is welcome to quote the source of its data to customers when making communications on how a fee structure has reached. Indeed, this may be useful if fee levels have been set deliberately below the local market norm. Conversely, some very high net worth clients may be given comfort by knowing their trusted adviser is not the cheapest in town!
The success of the RDR will be judged on the legacy left and the future way of working within the industry. Business models, fees and technology will all evolve as time goes on and it is important firms plan accordingly and ensure time is set aside to regularly review the business using all available sources of accurate data to maintain a level of objectivity in a period of constant change.
For more information on Touchstone Financial Analytics go to www.mytouchstone.co.uk