20th September 2011

Scottish Life: Moving your business towards a fee-based structure

Find out from our Business Development Manager Fiona Tait how segmenting your service levels can provide the basis for a profitable business model which satisfies your TCF and RDR requirements.

As the Retail Distribution Review (RDR) roll out gains momentum, more advisers and business owners are coming to the view that like it or not, they will have to make some changes to the way in which they do business. Many have already started to charge fees for their advice while others are looking for guidance.

Here is a summary of the key points I have picked up from the advisers who have already managed this transition.

Calculate your cost per client

A common feature for all those successfully running a fee-based structure is that they had all measured how much it cost them to provide a service to each of their clients. That's right, every individual client.

How you can do this

A good starting point is to set up a spreadsheet to record the hours spent on each client, not just by you but by every member of your firm. You can then calculate what proportion of your income they need to generate, which in turn can help you to apply an hourly cost for each of the services they receive.

Benefits

This does not mean that you will necessarily end up charging hourly fees. Many advisers found this unsuitable, but knowing their costs did allow them to base their initial and annual/retainer fees on the amount of work that they estimated would be required.

If this estimate proved to be incorrect they could then write to the client and explain what extra work they had carried out and why. Most said that their clients understood the adviser's need to charge according to the work done.

It also doesn't mean the client will actually pay you a fee. Using a fee-based charging structure helps you to run a profitable business model. However, clients may well prefer to settle their account via a deduction from any products sold. Yes this is commission, but it's a commission based on the work done and quite independent of the selected product.

Read the full article here

RDR