What challenges did you face in convincing clients to pay fee?
In my case it was actually the opposite. I started as a financial adviser in 2001. Surprisingly, a few of my clients themselves asked me to charge a fee! At that time, I was reluctant to do that due to lack of confidence.
However, I gave it a thought and did research for a few months on fee based advisory services and decided to approach my clients with the new model. Obviously, I had worked hard to add value to my clients.
Most of my clients liked the idea and came on board. However, a few clients were not comfortable with the idea and refused to pay fee by saying that others are doing it for free. I countered it by asking them if these advisors were doing charity. Also, I explained them about the value they get in fee based service. They also came on board later.
What stops IFAs from charging fee?
It’s just a fear of losing clients. Nothing stops us from charging a fee. Off course, a few clients may leave you and it has happened in our case also. It is advisable to let go of such clients. Advisers should prepare themselves mentally for such a change. I believe most of your clients will continue to value your services and are likely to stick with you. Also, I think not many IFAs are giving a thought to fee based service as a business model.
How should IFAs transition to a fee based model?
Firstly, IFAs need to justify the fee they are going to charge. As long your fee is reasonable clients don’t mind paying it. Apart from helping clients meet their financial goals, IFAs can add value to their clients by finding ways to save tax, offer consolidated statements, etc. The second important factor is transparency. IFAs should disclose what they are going to earn. Finally, IFAs should invest in themselves by attending conferences, training sessions and seminars.
Should advisers part ways with clients who are not willing to pay fee?
There is no perfect answer. I cannot say no to such clients on their face. Just because they are not paying today doesn’t mean they will not pay in future.
We have experienced a situation where people came on board after nine months.
IFAs need to spend time on what they are going to charge, what value add they bring to the table and then talk to their clients with their proposal. The intention should be to get a consensus. Also, IFAs should give their clients time to adapt to such a transition.
How has been your experience in charging fee? Can you share some anecdotes?
We were charging fee even before the concept of financial planning became popular in India. The concept of financial planning came to India in 2005.
After developing our competence in the financial planning space, we have decided to charge a separate fee for financial planning services in addition to a management & advisory fee. However, we were a little nervous. How could we tell our clients that there was only one fee and now would be two heads?
Surprisingly, most of clients understood the value we bring to the table and came on board. The remaining clients took 6-7 months to accept the proposal.
Which is the best method (% of AUA, flat fee, transaction fee, etc.) to collect fee from client?
IFAs should be flexible when it comes to fees. It varies from person to person.
We offer a choice to our clients by explaining to them about the pros and cons of different structures. However, if a client seeks our suggestion on choosing a right structure, we recommend AUM based fee.
Which is a viable model – fee only or fee with commission?
At this juncture, fee plus commission is the ideal model for corporate advisory firms where both advisory and execution services are segregated. However, for charging a fee one needs to be transparent.
If you have the ability to add value and to cater to a niche segment, you can operate on a fee only model. However, if you have a corporate setup and want your client to act on advice instead of just listening to advice, you should go with the combo model.
