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Adviser workshop: How to make a flat-fee structure work

How to charge a flat-fee structure for advice.

Alan Smith, chief executive, Capital Asset Management

We offer three levels of service depending on the complexity of the client’s situation, the personnel required and the time we expect to spend on their account. Some wealthy clients have simple requirements, so why charge them a huge premium?

Create a system

The first service is entry-level portfolio management, targeting people with £500,000 of investable assets, although the amount of money is not a deal-breaker. For this service, we charge £6,000 per year or £500 per month on a retainer fee basis.

We charge £14,000 per year for a more comprehensive mid-tier service. The upper tier is invitation only, where we act as a family’s finance director and do a lot of work for them.

If clients want additional services, such as estate planning or long-term care, they can buy them as modules. This is the same as any other professional services firm, where we say, ‘the fee for that is X amount: would you like us to continue?’

Our clients can pay annually or any way they want. We are very flexible.

Calculating your flat rate

There is an element of averages built into the way we calculate fixed fees. This is based on the time we estimate it will take us, the people involved, the degree of complexity, and the element of risk to us. Then we work out the profit level we expect. We did not want to go for hourly rates.

Top tip: Work out the costs of delivering the service you want.

Alan Smith, chief executive, Capital Asset Management

We offer three levels of service depending on the complexity of the client’s situation, the personnel required and the time we expect to spend on their account. Some wealthy clients have simple requirements, so why charge them a huge premium?

Create a system

The first service is entry-level portfolio management, targeting people with £500,000 of investable assets, although the amount of money is not a deal-breaker. For this service, we charge £6,000 per year or £500 per month on a retainer fee basis.

We charge £14,000 per year for a more comprehensive mid-tier service. The upper tier is invitation only, where we act as a family’s finance director and do a lot of work for them.

If clients want additional services, such as estate planning or long-term care, they can buy them as modules. This is the same as any other professional services firm, where we say, ‘the fee for that is X amount: would you like us to continue?’

Our clients can pay annually or any way they want. We are very flexible.

Calculating your flat rate

There is an element of averages built into the way we calculate fixed fees. This is based on the time we estimate it will take us, the people involved, the degree of complexity, and the element of risk to us. Then we work out the profit level we expect. We did not want to go for hourly rates.

Top tip: Work out the costs of delivering the service you want.

Ian Roberts, director, ARW Wealth Managers

A fixed cost or an hourly rate is our preferred model, but we have historically offered clients the option to pay a percentage of the assets. The charge-out fee for our wealth managers is £175 per hour and administrators are £75 per hour. We record the time spent and charge on that basis.

Find their level

There are four levels of service. Firstly, we offer a transactional service where we do a one-off piece of work with no ongoing service. This can be a fixed or hourly fee.

The second service is a biannual review for smaller clients. If assets are under £100,000, we charge 1% or an hourly rate. There is the option of ‘pay as you go’, based on the time spent.

The middle range is for clients with £100,000 to £300,000 of assets, where we provide an annual review and are available to respond to ad hoc queries throughout the year. We charge 0.75% for this or an hourly rate.

Full package

If clients want more contact, our wealth management service includes three meetings per year and complete support. For clients with assets over £500,000, we reduce the charge to 0.5% or they can choose a fixed fee.

It is not an exact science but we find it easy to explain, because we put examples in the client agreement document. For example, a pension transfer is £1,500, so we know from the outset what the costs are going to be.

Top tip: Be upfront with clients that they are buying a professional service, and there is a cost for this.

David Anderson, head of financial planning, Fowler Drew

Our fee is predominantly flat. We calculate the cost of providing the ongoing service and express that clearly as a fixed monetary amount. There is some relationship between the cost of providing the service and the value of client assets, and we recognise this by charging a small asset-based fee of 0.05% per annum.

Market forces

The flat-rate fee is increased annually in line with the retail prices index, while the asset-based fee is revised periodically, prompted by large portfolio inflows or outflows. That way when clients enter drawdown their fee should begin to reduce.

For an initial review, there is a cost of £3,000 to £5,000, plus VAT. Clients can stop at that stage, but 99% ask us to manage their portfolio. We offer discretionary portfolio management and financial planning. It is an ongoing process.

Occasionally we do one-off financial planning, such as defined benefit transfers, which we charge separately for.

We are getting better at estimating what it costs to provide the service and reserve the right to check that, as some clients end up being time-consuming. But we are good at estimating.

Be straight

For new clients, it is a straightforward monetary amount. It is there in pounds and pence alongside a very small asset-based fee, which we also express as a monetary amount at the outset.

Top Tip: Be clear and upfront with your clients.

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