Should You Charge Hourly Rates For Advice?

I’m not saying that hourly rate charging doesn’t have a role to play for some jobs in some circumstances, but in general I don’t like hourly rate charging for several reasons:

1. As a client who pays hourly rates to an accountant and legal people myself, I always find it a barrier to doing business.

It goes like this: I have a small issue that I think my accountant (in this example) can help me with. However, I know that if I call or email I’m going to get billed for the time so I will often try another route to obtain the information first.

This is bad for my accountant because I don’t interact with him/her as often as I might, which would allow them to know more about me and my business issues and could also build a deeper relationship.

This is bad for me because I waste some of my valuable time on stuff that I really shouldn’t be doing.

2. Call me a cynic, but there is a small part of me that is a little skeptical about the efficiency of some professional firms. I might be 100% wrong but I can’t help feeling that if they are anything like most businesses I know, they will have their own issues with staff, systems and processes. On an hourly rate charging model I am scared that I will be somehow paying for that inefficiency.

I know it’s ridiculous but if they charged me a flat fee (even if it was loaded above what they would expect to bill me in time costs) I would feel happier as a client because now they wear the risk.

As a result they would have to work harder to demonstrate their value added to me and they would have an incentive to be ever more efficient in their back office. As a client that feels much fairer and nicer.

3. I have read articles from learned professional people that want all financial advisers to be forced to move to an hourly rate charging system to remove all the conflicts of interest we deal with. I understand this position and even agree with the sentiment.

However, I could also argue that hourly rate charging presents a conflict of interest as it may encourage professional firms to take a little longer or find jobs that need doing just to add to the fee sheet. Now, if I raised this with any decent professional person they would be outraged (understandably) and obviously it is only going to apply to the less professional professionals (yes, there are less than professional accountants and lawyers too), but I still feel this to be an arguable position.

4. Finally, I don’t like hourly rates because they don’t allow advisers to be paid for the value they genuinely add rather than simply the time it takes them to do the work.

I want to see good advisers earning great profit margins and adding significant value to their clients as well. That is a win/win scenario.

Comment

I’d love to hear your thoughts on this topic. What are your challenges in this area? How have you resolved some of these issues? Leave a comment in the comments section below or drop me an email to [email protected].

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