Last week we got into the specifics of charging and had a more detailed look at charging an initial planning or strategy fee. This week I want to look more closely at the implementation fees, and next week we’ll tackle the ongoing review fees.
How much should you charge for the implementation fee (or putting it all into action)?
The implementation fee can be a much higher amount than the initial planning fee, because at this point in your process the client should have already seen the magic (in other words, the value you can add for them). This might be in the form of clarity or certainty about the future, which are very high value for clients, or it might be a more tangible short term saving, like a tax win, or reduced fees on investments and pensions that can be quantified in cash.
If you are investing a lump sum of money, percentage based fees still work.
For example you might charge between 1%-3% of the money invested, depending on:
- The size of the amount invested.
- The value you have added to the client.
- The value the client perceives you have added.
- The time and effort it took to get the work done.
Other advisers I know charge hourly rates for implementation, or a flat fee agreed between them and the client. These are also perfectly sensible approaches to charging for implementation (although I’m not a huge fan of hourly rate charging per se).
In this part of the process you need to charge a fee that will cover all of your costs up to this point, and make you a profit. In your charging schedule you may wish to have a typical starting position and flex around it slightly on a case by case basis, depending on how the four factors outlined above interact.
If the work is insurance work that can still generate a commission payment, my advice is to take the commission payment in most circumstances, unless you feel that the amount you will be paid is out of all proportion to the time you’ve taken and the value you have added to the client. If there is an amount you feel is over the odds, you can offset it against future fees (like ongoing fees) or rebate some of it to the client. However, don’t sell yourself short on any of this work.
For example, a client arrives who is married with two children, debt, loads of expense and very little disposable cash flow. They require £750,000 of life insurance cover. You explain to them that they can go and buy it themselves dirt cheap from Tesco, but when they die the payout is likely to be taxed at 40% because it has not been properly structured (i.e. a cost of £300,000). Alternatively, they can get you and your team to set it up properly using a trust structure to own the insurance policy. On death the full £750,000 will be available for the client’s family.
In this situation the value added is £300,000. If the time taken is minimal, I have to be honest, I’m still comfortable with you taking a significant fee/commission for the job.
I really want you to charge for the value you add, not how long the job takes.
Next week I’ll take a look at ongoing review fees.
I’d love to know your thoughts on this newsletter, or any questions it raises for you. Let me know by leaving a comment below.
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By Brett Davidson