Moving an advice fee off percentages and onto the actual work

3 days ago
3 min read

Introduction

Percentage charging is the convention in financial advice and it has an awkward property: the work of producing a recommendation, writing a suitability report and conducting an annual review is broadly the same whether the client has a modest pension or a substantial portfolio. Charging a percentage means the second client pays many times more for the same activity.

That is defensible on the argument that larger portfolios carry more responsibility, and it is increasingly difficult to explain to clients who ask directly. It also makes smaller clients unprofitable and pushes practices toward a wealthier book by default rather than by decision. That is a strategy nobody chose.

Fixed and hourly charging is more work to implement and easier to justify. The justification is the point.

Charging structures, disclosure and adviser obligations differ substantially by jurisdiction. Nothing here is regulatory guidance — check your own regime before changing how you charge.

1. Moving an advice fee off percentages starts with costing the work

You need to know what each activity takes.

Time the standard activities

Initial fact-find, research, report writing, implementation, annual review. Include the compliance time. Most practices have never measured these. A fortnight of recording is enough.

Convert them into fixed prices

An initial advice fee, an implementation fee, an annual review fee. Each priced from the hours it genuinely consumes. Add your target margin deliberately.

2. Decide what genuinely should scale

Some elements reasonably vary with portfolio size.

Complexity, not value, is the driver

Multiple pensions, trusts, foreign assets, business interests, estate planning. Name them explicitly in the tiers. Those take more work and should cost more. Value alone does not create work.

Build tiers by complexity

Two or three levels, defined by named factors rather than by fund value. Clients can then see why they are in one. List the factors on the fee schedule.

3. Handle the transition carefully

Moving an existing book is the hard part.

Model the revenue effect before announcing anything

Some clients will pay less and some more. Know the aggregate before you commit. Model it across the whole book.

Move new clients first

New engagements on the new basis, existing clients transitioned at their next review. It is fair and manageable. Tell existing clients the plan in advance.

4. Set a minimum and mean it

A minimum is kinder than under-servicing.

State a minimum annual fee

Below it, the review, the compliance and the correspondence cannot be delivered properly. A stated floor is more honest than a promise you cannot keep. Say the figure plainly.

Offer a lighter service rather than nothing

A reduced review cycle or a transactional option for clients below the threshold, or a referral onward. Both are better than quietly doing less.

5. Explain the basis clearly

Clarity is the whole advantage of the change.

Show what each fee buys

The report, the implementation, the review, the ongoing access. Four lines is enough. Clients comparing advisers have no reference points. A worked example helps enormously.

Publish it

Fee structures in this profession are opaque and clarity is a genuine differentiator. Put it where prospective clients can find it.

Conclusion

Time your standard activities — fact-find, research, report writing, implementation, annual review — and convert them into fixed fees, because those activities cost the same regardless of portfolio value and a percentage means one client pays many times more for identical work.

Let complexity rather than value drive any variation, using tiers defined by named factors such as trusts, multiple pensions or business interests. Model the revenue effect before announcing anything and transition new clients first. Set a minimum annual fee and offer a lighter service or a referral below it rather than under-servicing. Then publish the structure and say what each fee buys. Check your own regulatory position first.