Whether or not to separate the cost of upfront and ongoing fees is the prerogative of the adviser, with some businesses opting to communicate this more seamlessly while others allow breathing space from the initial onboarding process.
Self-employed financial adviser Adele Martin tells Professional Planner advisers fall into a trap of overwhelming clients with too much information by explaining ongoing fees at the time of presenting the Statement of Advice, rather than in the initial meeting stages.
Instead of trying to treat the SOA and ongoing fees as two separate offers, Martin says she prescribes an onboarding fee and monthly ongoing fees at the same time.
She does this by having a quick phone call with a potential client to see if they are a good fit. Then after a second, longer meeting to establish a financial plan, the client pays the combined SOA and onboarding fees.
The process that is used in the second meeting is for paying onboarding fees with monthly ongoing fees starting the following month.
“I say that we can get a client to pay within 60 minutes,” Martin says.
“It’s because they’re coming in very warm to us. In that second meeting, we’re walking through how to help them…I don’t talk about SOA fees.”
She says she does not consider what they present to the client as an SOA, but rather a financial plan, or a “step by step guide”.
Accru Felsers partner and financial adviser Thomas Heenan also values strong ongoing relationships but says they don’t charge any fees upfront for any meetings up to the presentation of the advice.
“You’re just trying to assess the client situation, build a rapport and a relationship [which is] really important; I don’t want to say that’s $200 for my time,” Heenan says.
“I find that kind of relaxes them a bit…while I’m having these discussions with [them], I’m not going to show up with a bill, which means they can just share and talk.”
He admits this does open the business up to potential risk as they don’t charge anything until the delivery of advice.
“It really is just about making a connection,” Heenan says. “Once I know more about them, I can start showing them value.”
Mitigating risk
Heenan’s approach to the SOA shares similarities with Martin’s, as by the time his team begins to prepare the SOA for a client, the relationship is well established and the client has already received a two-page executive summary outlining the agreed strategy.
“There’s no point getting my team to go and write it if they’re still [unsure], which is why people would charge the upfront, because they may not convert,” he says.
Like Martin, Heenan strongly values the relationship between client and adviser, which influences his approach.
“It all boils down to build the relationship, keep the fee structure really simple, so clients can understand and it’s easy for them to calculate.”
While Martin and Heenan differ on when they present fees to the client, both say they value establishing strong foundations with a potential client early in the relationship.
Deposit to ensure commitment
Tribeca Financial head of advice Robert Devlin says they hold a “get to know you” call with a new client, similar to Martin’s initial approach, to understand the client’s motivations for seeking financial advice.
“We’re mostly an index business, so we want to share a little bit of our investment philosophy upfront,” Devlin says.
“We want to explain how our fees are structured and what they could be in their circumstances. From there, we’ll book a meeting to discuss all of that in more detail in person.”
Devlin says the second meeting is called a “discovery meeting” to understand the potential client’s personal goals and preferences as well as their quantitative circumstances.
“We generally don’t charge for that. We want to work with people who we want to work with, we don’t do a lot of DIY type clients,” Devlin says.
Unlike Martin and Heenan, Devlin says they separate the SOA fee and ongoing advice costs, with the SOA a one-off fee, as not all their clients choose ongoing advice.
“Over the next three [to] five weeks, we’ll build that SOA for them,” Devlin says.
“We charge half of that fee upfront, so we call it a commitment fee. They understand that we’re doing quite a lot of work in those three or four weeks.
“We charge 50 per cent of the money to get started, and then they get the statement of advice, and when they’re happy with the advice, they pay the remaining 50 per cent.”
He says the process has evolved over time as they used to not charge anything upfront but now charge a deposit to ensure the team is paid for the work.
“One of the challenges we found with not charging anything upfront was that clients haven’t invested in the process yet, and so getting documents back from them or scheduling meetings becomes really hard because they haven’t really invested in it yet. Whereas if they’ve paid half of our SOA fee, they’re going to get results.”
The client then decides whether to continue with ongoing service – Devlin estimates for around 20 to 25 per cent of clients it is just one piece of work.
“We’re in a position where we’re happy to do some clients just one off and make sure that’s commercial.”
