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Adviser Workshop: How and when to increase your fees

Adviser Workshop: How and when to increase your fees

Alan Smith (pictured), Louise Oliver and Jeremy Freeman give tips on how to review your fee structure and let clients know about the increased charges.

Alan Smith

Chief executive, Capital Asset Management

We start with the idea of ending up with a gross profit margin of 25% as a minimum. If we know what level of profit we need to generate, we can identify what service proposition we think is of value to our clients, work out what it costs to deliver that service and ensure it all joins up.

If we cannot deliver that and maintain our profit margins, one of two things needs to happen: either we need to scale back on the proposition or we need to raise the fees to match it.

We think we have it pretty tight now. We can deliver a high-end proposition to those who want it and value it, and maintain the margins and the profit levels.

Quarterly review

I review it constantly, but I would look at it in detail on a quarterly basis. We can also identify early on if we are starting to see our profit margin squeezed, like we’ve seen lately due to regulatory cost.

Louise Oliver

Partner, Taylor Oliver

We review our fees on an annual basis and on an individual client basis. If we do a one-off project, we need to see how long it would take and charge accordingly.

The factors increasing costs are the retail distribution review and the raised capital adequacy requirements that will be coming our way.

Most of our clients have seen an increase in their fees in the past 12 months to two years, especially clients at the lower end, which is a shame because they are the ones with less funds under management who paid 0.5% a year and whose fees have now been raised to 0.75%, or 1% in some cases.

Focusing on profitable clients

We’ve lost clients, but these are the types of clients we do not want. They do not need us, and for us to have that type of client in our client bank is not profitable and they can be a risk to us.

Jeremy Freeman

Director, Palmer Lane

Our fee structure is reviewed once a year and we tend to look at the whole business, which includes our costs and the associated costs we have no control over, such as industry and professional indemnity insurance costs.

In the past we have achieved a balance, so we have not had to raise fees when associated costs go up. We usually look at all the options and, where we can, cut the costs internally. We look at software, hardware and review contracts with phone companies to see if we can renegotiate better terms.

With ongoing advice service propositions, we charge a percentage of the assets under management. When we did increase the charges some time ago, it was to reflect the service we were providing.

Clear communication

We have been totally transparent about raising fees in the past. We have written to clients confirming what the fees would be and what services they can expect to receive. They would love to see the costs go down, but they do understand commercial pressures.

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