Threes, tees and financial advice fees

Three things happened over the last week, which have led me to reflect on charging fees for financial advice.

First up, two separate conversations with advisers. When I asked what they were seeking to achieve, of all the things they could have said, they both said “I’ve got R500m in Assets under Management (AUM) and I want to get to R1bn.” When I asked “Why was this important?” the answers generally amounted to “I want to earn more money and sell my business one day.”

Next was a great members’ webinar, held by Paul Armson as part of his Inspiring Advisers community. Paul organised the webinar with Alan Smith from Capital Asset Management in the UK, to talk about fees for advice, or more specifically, why Alan had changed from % AUM to a retainer fee model.

It created lots of debate. Some agreed, some disagreed and it ruffled a few feathers, and had many advisers vehemently defending % AUM for all the reasons we’ve heard before… Of course.


The third thing that happened was that I played golf and had dinner with a couple who were clients of my UK financial planning firm for 20 years. They come to South Africa every year for a month, and we always hook up, play golf and chat about what’s going on in the world. Inevitably, the conversation turns to financial stuff and they ask me how it’s going here in SA. They’ve been paying retainer fees for advice since about 2010 and believe that paying a % of their assets for financial planning is nuts.


If you don’t know me, or didn’t already guess, I’m a fan of retainer fees, and this week’s conversations have led me to write about how and why this happened to me.

In 2009, I was scratching my head and having a frustrated conversation with myself. At that time, I was charging a % of AUM. Like most advisers, my clients had different amounts of money, which meant they paid wildly varying amounts for the services I provided. Like many advisers, I adjusted the % rates for some of those clients to compensate for the difference in wealth levels and what I thought was ‘right’, but it wasn’t making sense. I’d experimented with tiered pricing, but making it fit and keeping tabs on everyone was a challenge and it was sitting uncomfortably with me. 

It just didn’t feel right.

There were other challenges too.

Some of my clients really wanted and valued the great financial planning services, but didn’t have that much accumulated capital. Must I turn them away because they weren’t wealthy enough? That didn’t feel right.

One of my clients had a long-standing relationship with her stock-broker, who was holding all the investment money. Must I now break this relationship in order to get paid for the financial planning work that he couldn’t deliver? That didn’t feel right.

Is financial planning about investment assets?

In order to be commercially successful, it seemed I was required to gather, and keep, the clients’ investment assets. If I somehow ‘lost’ the assets, my fees would go down, so this created a whole bunch of challenges and conflicts.

If markets fell in value, my fees would go down. Why should I get paid less for delivering great financial planning advice and services? And how much control did I actually have over investment values anyway? None.

  • What if the right thing was for this client to exit drawdown and buy an annuity? The money walks.
  • What if the right thing was for this client to make gifts to their children or a charity? The money walks.
  • What if the right thing was for this client to pay off their mortgage or other debt? The money walks
  • What if the right thing was for this client to spend money, not accumulate it? The money walks

I figured that if I was truly client-centric, and my role was to help clients live the life they really wanted, (which is what I said I was doing) then I should not be conflicted by needing to have their money. It’s their money, not mine.

There’s a crucial question to consider when thinking about all this. “What is my role?” As a financial planner, is it my role to force people to accumulate money? Is it my role to sell people financial products? Is it my role to tell people what to do to make, or not lose, money? Is it my role to tell people how they should live their lives?

I’ve tried all those things, and they either didn’t sit well with me, or they didn’t sit well with my clients.

If you’ve heard me speak, you’ve probably heard me ask the question “Is the client the client, or is the client’s money the client?” – The truth is that many of us are distracted by, or focused entirely on, our client’s money, or how WE can benefit from having THEIR investment assets.

We define successful firms by how much AUM they have, not by the fantastic lives their clients enjoy. We describe people as “a £1 million client.” We set minimum investment thresholds to become a client and we talk about one day selling ‘our’ investment book in order to retire.

Think about that last one for a second. Are we selling our business? Are we selling our client relationships? Or are we selling our clients’ money and the revenue it generates?

Thinking differently

When I thought about this in 2009, and confronted it, the conclusion seemed blindingly obvious to me, and I developed two specific services, for two sets of clients, that solved two specific problems. One was for people who didn’t know whether they had enough money to live the life they wanted, and the other was for people who knew they had too much (or at least more than they needed). Then I worked out what each problem cost the business to solve, and then I added a profit margin. Finally, I removed any element of charging for moving the money around.

Then I spent the next God-knows-how-long trying to understand it myself, and articulate it with confidence.

The first three clients I pitched it to, thought it was a great idea and signed up.

To be fair, I started with clients who were already financially wealthy (including the one mentioned above), but what surprised me were the less wealthy clients who subsequently chose to pay more than they had previously paid, when on a % basis. One of my clients was effectively paying around 2% a year. Imagine that? Why would anyone in their right mind pay 2% of their investment assets for financial planning advice? They could easily have said no, and gone somewhere ‘cheaper’ but they didn’t.

But here’s the question: 2% p.a. of how much? And what did they get for that? The numbers aren’t important. It’s the context.

The point is it wasn’t positioned as 2% of their investment assets, and the proposition wasn’t about investing, investment performance, asset allocation and fund selections. It was about helping them understand the life they really wanted, what trade off decisions they were facing and how to manage them. It was priced on the basis of cost of delivery plus a decent margin.

Other advisers thought I was barking mad. I had moments when I thought so too. But it felt like the right thing to do for me and for my clients. Clearly, Alan Smith feels the same way. He’s taken it one step further and posted his firm’s retainer fees on his website. And he doesn’t seem to be short of clients!

Pressure on pricing

There’s a stack of pressure on transparency of costs in financial services, and a huge amount of this pressure is at the ‘wealth management’ end. Vanguard Group in the US is already offering investment management and advice for less than 50 bps. Many advisers are trying to get from 0.5% up to 1% at a time when the market is heading in the other direction, so it’s going to take more than a conversation about asset allocation and fund selection to make that stack up.

Focus on the right things

As a final thought, how do you get your AUM from R500m to R1bn? You either have to gather more assets from your existing clients, or more likely, bring in new clients. Does your business have the capacity and the resources to deliver your service to double the number of clients? If it doesn’t, will you just ‘wing it’ anyway?

Maybe what you really need to focus on, is increasing the profitability of your business revenues?  And you don’t necessarily need to double your AUM to achieve that.

Think about it…






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