With the 2013 deadline fast approaching the debate around fees, or Customer Agreed Remuneration, has moved on.
The occasional rant about commission-is-king or ‘clients won’t pay fees’ aside, even the diehards now realise they need to start a fees conversation with clients. The results aren’t always pretty, however.
I’ve been fee-charging since the late 1990s and my earliest attempts were pitiful. Early on, when I did persuade someone to pay a fee it was because I significantly undercut the commission. It was an awful business model.
But through perseverance and practice I developed a service people were happy to pay for and a pitch that people understood. Early failures should be expected. But failures will come at any time, even several years into a fee charging business.
A notable one that sticks in my mind happened just a few months ago. Following an initial meeting with a prospective client I said to my paraplanner I rated the meeting nine out of ten. He had also been in the room and thought I was being cautious with my appraisal. This was our ideal client, a perfect match to our business profile. The meeting was faultless and there was a real synergy between us.
If we had asked her to sign up for our services then and there I believe she would have. Instead, I suggested she finish interviewing the three firms on her shortlist. I’ve had better ideas. But when we spoke with her the following week we were still amazed when she said she was engaging with someone else.
Having got along so well with her we decided to dig a bit deeper to find out why. It wasn’t sour grapes, but a real need to find out what we could have done better.
The winning pitch had come from a firm that promised to handle her tax return in house. We had only promised to liaise with an accountant.
But the real shocker came when we asked her about the fees. We had quoted 1% to do the financial planning and investment implementation, with 1% per annum thereafter. She said there was nothing really in it because the other firm was charging 2% upfront plus 1% per annum. With almost half a million in the portfolio this would become an expensive tax return. Almost £5,000!
There are two lessons we took away from this. The first reminds us that clients often don’t understand percentages, and rarely equate them with an actual cost. We should have quoted our fees in monetary terms, and reminded prospective clients to ask everyone else to do the same.
The other lesson is to keep asking questions until you’ve understood everything that is important to that client. We assumed that her meticulous file keeping and previous self-assessment experience meant she wouldn’t value a ‘tax return’ service. How wrong we were.
