Why do you think distributors fear to charge a fee from clients?
I think some distributors are not able to communicate as to what they are offering to clients. They have to demonstrate value to clients.
Distributors need to first understand the life stage of clients. For instance, making a monthly plan for someone who is young could be valuable for that client. A retirement plan would be of value to someone who is closer to retirement. Thus, distributors need to offer tailor made solutions to clients in which they perceive value.
Clients need to be told in advance about what service you are providing and your fee. Clients are ready to pay a fee if they see value in you. They will get fee only if they ask for it.
Should distributors part ways with clients who resist paying fee?
It depends on how you wish to run your practice. It is an eternal debate on whether it should be ‘free’ or ‘fee’. For someone who is starting a new practice, the advisor may have an understanding with clients that they will have to pay a fee after one year. During this period, advisor can learn and develop their practice based on the expectations and experience of clients.
So there are no straight answers. Ultimately, it depends on the business model of an advisor. If an advisor is looking to achieve scale, he/she may choose not charge a fee.
Even SEBI registered RIAs charge fee and execute transactions for clients. Do you think a pure fee based model is sustainable in India?
It will take some time for our market to mature. Most of our clients are looking for simple one stop solution. They want us to handle the execution as well. Thus, we have to offer what clients want.
There are different types of fee models (AUM based fee, transaction based, annual fee, etc). How should distributors go about deciding which fee model is suitable to them?
It depends on the business model of the advisor. We offer our clients two options (annual retainer fee and percentage of assets) and they can decide how they wish to pay. When we started our practice we experimented with different fee models. Thus, advisors need to adopt a fee model which suits them and their clients. There is no one-size-fits-all solution for this.
You can’t be rigid. You need to adapt to circumstances and work out your fee model.
You can learn from your international peers. Advisors can charge some clients on an hourly basis. The younger clients may be looking for some direction and second opinion and we can charge them on the basis of time. This is an international trend. So we are learning and trying to see if it works in India.
The term ‘service’ is quite abused in our market. How would you define ‘service’?
It depends on how well you know your client. We take feedback from our clients annually on what are their expectations from us. What we think is ‘service’ may or may not be relevant for our clients. For instance, we got the feedback that our clients wanted better reports. So we improved and made changes to our reports.
Often, clients are also serviced by banks. So we have to benchmark our service levels to that of a bank. Thus, I think client feedback will help advisors meet the expectations of clients. This will eventually help advisors service their clients better.
What would be your advice to distributors who wish to transition to a fee based practice?
I would say that advisors need to talk to their clients and understand their pains, offer a packaged solution around that and then ask for a fee. Clients are looking for solution which addresses a pain.
For instance, we seek lawyer or doctors advice when we have a particular pain. Advisors can talk to some of their best clients and ask them what is that they can provide for which they are ready to pay a fee.
Clients are willing to pay a fee if advisors give a solution to their pains.
