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Why it pays to charge hourly for auto-enrolment advice

Many advisers now describe their propositions as charging a fixed fee for their services. Although this may appear to be the fairest and most transparent new model approach to corporate advice, it is wrong to have a purely fixed fee, which is why we  adopted an hourly charging structure instead, says Glynn Jones of LEBC.

Fee structures

Advisers now recognise the opportunity auto-enrolment presents, and the fact that the capacity crunch is almost upon us, offering even greater potential to provide a valuable service to employers for a fair price. With the demands on our time likely to increase, it is critical we charge correctly for the advice and services for employers faced with auto-enrolment.

There are three parts to the auto-enrolment opportunity: a one-off event – to ensure our corporate clients successfully arrive at their staging dates; a decent pension; and an ongoing duty to make sure our clients comply in the future.

Although differing in their specifics, the majority of advisers have a three-tier charging structure: review and recommendations, implementation, and an ongoing charge.

I have seen fees charged for an initial report ranging from hundreds of pounds to £3,000. Implementation is either a per member charge, which can range from £20 to £200 per member, or it can also be subject to a minimum flat fee around the £1,000 mark. Ongoing charges are also in the low hundreds on a monthly or per member basis.

Fee structures

Advisers now recognise the opportunity auto-enrolment presents, and the fact that the capacity crunch is almost upon us, offering even greater potential to provide a valuable service to employers for a fair price. With the demands on our time likely to increase, it is critical we charge correctly for the advice and services for employers faced with auto-enrolment.

There are three parts to the auto-enrolment opportunity: a one-off event – to ensure our corporate clients successfully arrive at their staging dates; a decent pension; and an ongoing duty to make sure our clients comply in the future.

Although differing in their specifics, the majority of advisers have a three-tier charging structure: review and recommendations, implementation, and an ongoing charge.

I have seen fees charged for an initial report ranging from hundreds of pounds to £3,000. Implementation is either a per member charge, which can range from £20 to £200 per member, or it can also be subject to a minimum flat fee around the £1,000 mark. Ongoing charges are also in the low hundreds on a monthly or per member basis.

The RDR redesign

Although already a corporate adviser, the retail distribution review (RDR) provided the ideal spur for LEBC to review its charging structures.

Historically, we had been agnostic as to how we were paid. We would outline the payment options to the client, the employer, and let them decide, going through the benefits and disadvantages of each.

With the advent of the RDR, we looked into how we would need to reorganise our charges since the option for the employer to remunerate our work by commission was set to go for schemes set up after the RDR deadline. It has recently been announced commission could be removed from existing schemes if they are being used for auto-enrolment.

Hourly rates

In redesigning our fee structure, we looked at how we bought services to sell on to clients, and we decided it was by the hour. So we felt the most appropriate way to design our charging structure was also by the hour.

We examined the total cost to run LEBC and then allocated an hourly rate to each employee, whether administrator, paraplanner or consultant. This included an allowance for profit.

We have been recording time across the company for a number of years, so we were able to build a cost modeller to estimate how many hours of time for each employee would be needed to fulfil each component of the advice service for clients. This estimate is outlined in our letter of engagement to clients.

This can be expressed as a fixed fee for clients if they prefer, but on the condition that if the service specification was to change, the fee would change as well.

This really works for auto-enrolment services. To date, there have been no two employers starting from the same place with the same requirements, so we are able to create an estimate of costings bespoke to the client’s needs and what they want to achieve from auto-enrolment, both for themselves and their employees.

Bespoke charging

As we have refined and developed our services to employers, we have built a wider menu of services for auto-enrolment and are able to offer clients a choice of what they want and how they want it, which can cap costs and also offers us the opportunity to be more flexible. This is particularly necessary when it comes to the point at which our capacity to offer bespoke advice services comes under pressure.

We are evolving this into a three-part process. Although charging by the hour, it typically costs £850 to create a plan. Implementation will vary enormously, depending on the agreed work with the client. We have examples from £2,000 to £50,000. Our ongoing charge, to cover governance and compliance will be typically a mix of a fixed review fee, perhaps £3,000 per annum, plus a member charge if the client uses our compliance tool, which will be from £7.80 per employee per annum upwards.

All our fees are based on an estimate of time spent by each type of LEBC employee, aside of the monthly compliance tool, which is a fixed annual cost.

Auto-enrolment can be complex under the surface and it can take more time and resources than expected for a client to get to their staging date. In that event, the time-cost way of charging will offer protection.

Online tool

One of the services we are designing is an online tool for organisations to use for ensuring their scheme will comply with all aspects of auto-enrolment legislation.

This will not be charged as or based on an hourly rate, as we are paying a licence fee for the software. The compliance tool will then be charged on an annual per capita fee.

If any consultancy or assistance is required, the employer will engage with LEBC on our hourly charging structure.

Challenges ahead

A potential challenge is when a prospective client is underprepared for their staging date: how do we offer our services and how do we charge? I hear some consultants will expect to charge more. This is not unreasonable because it could entail working extra time or taking on extra staff to complete the work.

Our charging structure is designed to be sustainable and right for our clients. We are looking to stay away from per member fees for our consultancy because it could lead to unfairness to the employer or the adviser.

LEBC’s auto-enrolment proposition

What are your charges?

Recommendations and implementation: Fee-based using time costing.

Although fees vary by location (eg, the south of England is more expensive) and specialty (some work carries more risk and salary cost), typically they are:

  • Consultancy: £160 to £275 per hour
  • Research and technical: £120 to £165 per hour
  • Administration: £80 to £110 per hour
  • Clerical: £65 per hour

Do your charges increase nearer to the staging date?

To date, we have been able to avoid the situation of taking on an underprepared client.

Do you take any charges from employee contributions?

Not unless agreed with an individual employee: that is as an adviser charge.

Do you charge for services, such as employee seminars or one-to-one advice?

Yes, there will be a fee, based on time cost.

Do you offer any non-pension products as part of an employee benefits package?

Yes, a full suite of employee and voluntary benefits, such as group protection and health insurance.

Do you offer advice to individual employees?

Yes, access to employee advice is a key differentiator we are able to offer our employer clients.

How many auto-enrolment employer clients do you have?

Around 800

What is the average membership of the schemes you advise on?

210

Glynn Jones is divisional director at LEBC.

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