Speaking with ifa, financial adviser and founder of ID Advice, Nicholas Block, argued that advisers should be charging strictly on an hourly basis, and having just started his own advice firm, is now putting this model into practice.
“I was employed as an adviser for a couple of years, and then, for lack of better words, I got sick of the typical industry a little bit. I decided to launch my own firm doing things my own way, modelled on the other professional services businesses. Think of your typical accountant, law, and, to a lesser degree, consulting,” Block said.
“What that means is purely based on hourly billing. So, no other method of remuneration whatsoever – no commissions, no ongoing fees, no fixed upfront fees or anything like that, just purely based on an hourly rate.
“The reason I’m doing this is, I think that’s the way towards professionalism within the industry.”
He argued that charging on an hourly basis is more equitable as clients are only paying for the time an adviser is actively working on their case.
“There’s that point where the time to manage a $2 million portfolio is more or less the same as a $1 million. And whenever you say that to anyone, they’ll immediately talk about the risk. And I think that’s a moot point, just simply from the fact that lawyers don’t charge you more if you have more money, and neither do dentists or anyone else. I think that’s a moot point,” he said.
“They just charge you based on their profession and the time that’s gone in to develop their skills as a professional, and then that determines their end hourly rate.”
Block noted that, although he believes other advisers are supportive of this pay model and that it is a necessary step towards professionalism, they are concerned about the practicality of it from a business perspective.
“From the advisers I’ve talked to, they’re all on board with what I’m doing. They think it’s a great idea, and it’s an amazing idea. It’s just, they don’t think it’s going to be profitable, but they subconsciously understand that this is the most professional way to do things,” he said.
“Unfortunately, the industry is so enshrined in the way it does things at the moment that if you moved everyone to an hourly rate tomorrow, half of them would go broke in a week, and the other half would see the value of their business probably reduced to 33 per cent of what it was.
“Just by the way you value a typical advice practice off three times your recurring revenue or whatever it is now. You move to an hourly rate model and suddenly it gets valued like an accounting practice, which is like one to one and a half times because it’s not effectively guaranteed ongoing revenue through the ongoing advice fee model.”
He added: “People understand what I’m doing and they go, ‘Yeah, this is great’. They just don’t think it’s commercially tenable at the moment.”
While Block recognises the value of financial advisers, he explained that he struggles to see the justification for them charging clients thousands of dollars a year for only a few hours of work.
“Look at other professions. Look at accountants and lawyers. My hourly rate of $440 an hour is not cheap. That’s not cheap in any scenario. I would question the fact that, if you have a book of clients that’s generating X amount of revenue, if you think that moving to an hourly rate is going to severely impact that revenue to you as an adviser, what value [are] you actually providing to your clients within the year for you to be worth a $1,000 hourly fee, or a $2,000 hourly fee?” he said.
Block added: “I don’t think anyone would disagree that advisers do a good job. I think it’s just purely that the pay is not aligned with what the industry wants to be in the future.”
Judging by his calendar availability on his website, he has plenty of free time! Wonder how the $440/h fee was calculated as it can’t be based on supply and demand with that much availability. Why should customers effectively subsidise his free time?
Good on him for having a go.
I tried hourly rates. It’s a perverse incentive where you’re rewarded for dragging advice out. Penalised for building processes and innovation that create efficiencies and in a world where advice is expensive – no matter which way you cut it, disappointed clients who under-estimate the time taken to properly prepare and execute advice.
some of the best advice I ever received is ‘Price is only an issue in the absence of value’
Your charging structure is irrelevant when the client sees value.
Not sure why anyone is giving any energy to a rookie adviser who has been in the industry 5 minutes. Next.
If we charge an hourly rate, clients with low balances can’t pay the bill. They pay a little bit for a long time and you eventually come out square and they get advice.
And when you go to retire Nic, who will buy your business? What will it be worth?
Sorry my friend but you have a lot to learn about business, financial planning, and how advisers are constantly under attack.
Why do you believe that your clients should be bought and sold like cattle?
yes, its called growing a business
In terms of risk insurance and not financial planning, why would you charge your client when a large insurance company is happy to pay you to provide the advice.
What about claims.. you know when it really matters ? Charge the widow and kids $400 an hour or would you hand it over to the insurance company to do their best. I can tell you that the widow wants you to get involved. At some.point you as the adviser will need to step up and get it sorted and I guess they will be on the clock.
The system for risk insurance works and has done for 150 years in Australia.
The fact that you don’t understand that insurance commissions increase the cost of the policy by over 30% is incredibly concerning.
that might be true but the enormous fee you charge for fee for service and pretend you have the clients best interest at heart is more concerning…. commissions for insurance make sense to every one of my clients… especially when claims happen and they dont get charged
Can someone at the IFA please explain why you cap the likes/dislikes to TWO?
Is this an equality thing?
What are you scared of?
Since this was published the vast majority of respondents have canned Nicks ideology but in the most wished him well. I think he is also going to need a fair amount of luck to survive in business also!
Sure mate charge how you want but no need to think you have the Holy Grail.
With a couple of years experience there is plenty for you to still learn.
If you believe Accountants and Lawyers all charge purely hourly rates you are sorely wrong.
Many Accountants and Lawyers charge project based fees that may have some nexus back to hourly rates but then not so much.
And they get the $ fee split and paid monthly just like an Adviser ongoing fee.
Many good Advisers are and have been professional, educated and ethical for a long long time.
But knock your socks off if you believe you are the pushers of professional advice.
solicitors might charge an hourly fee but are anything but ethical….. their high bills would be the procrastination in moving a case forward… they could charge you $50k before you even get in front of a judge… really fair
Good luck Nicholas.
Please clarify your position on this scenario:
A Risk Insurance client’s advice process from commencement to implementation takes 15 hours of work.
The annual premium is $6000.
I assume you would then discount the premium by reducing the commission component to zero which will reduce the premium to approx $4200.
The 15 hours of work at $440 per hour, will be billed to the client at $6600.
The client will end up paying $6600 in fees plus $4800, a total of $11,400.
If the client had placed the Risk Insurance on the current commission basis, they would have paid $6000.
Whilst your position on these matters is a personal business decision, which option is better off for the client?
In fact, if the commission payment to the Advisers was at the level that it should be at a minimum of 100%, the client would have still paid $6000 and the Adviser would have received $6000.
If you can demonstrate this outcome is not more beneficial for the client ( as you are bound by Best Interest Duty) than the hourly rate model, then please do so.
Given the client will be better off in around three years, it is pretty easy to demonstrate why charging a fee for service is bettter…
Or lets flip it around. How can you demostrate that the client should pay $1,800 a year more for insurance every year the policy is in place?
the fact that the premiums will increase each year and in about 5 years there will be another policy even cheaper which we would look at and if health is good look to save them money. its a round about of good service.
You’re working on the assumption there is zero client contact over those 3 years. I have a substantial risk book and can tell you clients rely on you for everything….changing payment details, CoC’s for sub-contractors, claims, tax statements and that’s before you’ve even done a review with them.
The bigger issue with fees for risk advice is that the scenario outlined above will never eventuate. The client will not pay that fee and either forego insurance altogether, go to another Adviser who is commission based, or get rubbish group cover through their super fund.
An adviser mate of mine asked his accounting firm how much per hour to do his tax, and then when that was quoted, he asked them to give the work to the fastest accountant.
I wouldn’t give my work to an accountant or any other professional who charges an hourly rate as they reward inefficiency. Just tell me the price for the job, then I don’t care how long it takes them to do it.
Hourly rates are for dinosaurs.
Good luck though!!
Why do we continue to talk about ongoing fees? Simply charge an “annual fee”. If a client doesn’t perceive value after 12 months they won’t renew.
Where’s the virtue-signalling in that?
I look forward to the day when financial advisers no longer feel the need to market their personal interpretation of ‘professionalism’ as their ‘value add’, to differentiate from competitors. I get the ethos behind it, and while well intentioned, this strikes me as just another pricing model with little to do with ethics and best interests. So while I reject the notion that this is the ‘professional’ way forward, there should always be room for fresh thinking and innovative approaches, and on that level I wish you the best of luck.
Can it be confirmed that this business has only operated for just over a month (from the ASIC FAR), or is this incorrect?
I get why you might want to have this advisers opinion published, but if the above is true, it’s rather early wouldn’t you think?
Tell me Nick, what value do you place on peace of mind? Is it a few hours work for you or ongoing 365 days for a client?
As a financial adviser, I advise all financial advisers to charge for “value” rather than the time taken for them to deliver value. A client does not care how long it takes you to solve their problem, they’ll appreciate efficiency.
Hourly rates usually apply to laborious jobs… is this where we are heading?
Hi Nick, I wish you well.
A few reasons why I wouldn’t go down this path:
1. To only see clients when they think they need it will mean you need to have 1-2,000 clients on your books. This is going to take a long time to build up.
2. From experience, if you give clients the plan and leave it to them, many won’t implement it. It ends up not being a great outcome for the client and makes your planning fee pretty expensive.
3. Our ongoing value is more than “just a few hours work”. We check contributions, rebalance portfolios and check insurances, but the biggest thing we do is stop people from making silly/costly mistakes and holding them accountable to their plan.
That said, I wish you well and hope you succeed.
All very noble, but in practice you might struggle to find sufficient people to pay $400 an hour for financial advice walking through the door without running out of new prospects. But where do you go to from there? Do you charge them for giving them advice each day on investing, which probably means you actually have to call them? Or just ignore them till they call? Do you charge for “chats”. How many people want to be called? Not many. There are no scale benefits for either party involved, you will be worn out with paperwork, plans and long hours. @75% of the population don’t really need ongoing advice as such, they just want someone to manage their money well and efficiently for them. And that can be fee structured to be attractive to both wholesale and small retail alike.
Any adviser whose point of difference is their method of charging fees, is running a very shallow operation in my opinion. No fee model is perfect. They all have their pros and cons. If the client is happy and the adviser is happy, then that is all that matters. To be successful in this profession, the emphasis needs to be on the service you deliver, the value you provide and the trusted relationship which is built over time. If you get that right, you will have happy clients, more referrals than you can handle and the vast majority of clients will happily pay your fees, no matter which model you select.
“There’s that point where the time to manage a $2 million portfolio is more or less the same as a $1 million”
Someone explain to me then how Industry Super charges?
Sigh.
Here are just some of the many reasons why hourly rate charging is not broadly fit for purpose in financial planning, despite what lawyers, accountants, and other virtuous people may think.
• Risk Management: Larger portfolios inherently carry more risk. If a simple advice or admin mistake occurs, the professional liability is significantly higher. This risk needs compensation. He uses the example of $1m vs $2m. How about $100,000 vs $5,000,000? Same liability?
• Risk-Based Compensation Subsidy: Without a risk-based compensation mechanism, the risk associated with larger clients is effectively subsidized by smaller, less affluent clients. This approach is neither fair nor virtuous, as it places an undue burden on those with fewer resources while benefiting those with more substantial portfolios.
• Comprehensive Service: Financial advice involves ongoing support, not just isolated tasks. Charging hourly discourages clients from seeking necessary ongoing advice due to cost concerns.
• Client Hesitation: Clients will avoid reaching out for minor questions or regular reviews, leading to suboptimal financial outcomes.
• Client Relationships: An hourly model can strain client-adviser relationships, making clients hesitant to engage regularly due to fear of mounting costs.
• Comparison with Other Professions: Financial planning is not transactional like legal or accounting services. It requires continuous interaction and support, which fits better with an agreed fee (flat or percentage) or retainer model.
• Economic Viability: The market of clients willing to pay hourly fees is minimal. This model is not sustainable for the vast majority of financial advisers. A handful may be able to do it, for a very small and typically very wealthy set of clients.
• Professionalism: How fees are structured does not define professionalism. The quality of advice and client outcomes are the true measures of a professional adviser.
• Market Reality: Clients are accustomed to and often prefer agreed fees whether flat or percentage-based, which provide clarity and predictability in their financial planning costs.
• Client Agency and Adult Relationships: Financial planning should respect the agency of clients and their ability to consent to different fee structures. Removing options and imposing a one-size-fits-all hourly rate “vision of ethics and professionalism” undermines the mature, adult relationship between client and adviser, where both parties should be free to negotiate terms that best suit their needs and preferences.
• Percentage-Based Fees in Super Funds: Mr. Block uses super funds and managed money that charge a percentage-based fee. I would invite him to think about why they do that and whether they should only charge the time cost of the small investment team and support staff.
>Risk Management: Larger portfolios inherently carry more risk
PII is about 2% of advice income, so based on 1% asset-based fees, that is 0.02% higher cost to mitigate the risk. This is a misleading defence of asset-based fees.
>Risk-Based Compensation Subsidy
You are saying that higher fees (i.e., AUM-based fees of higher net worth clients) make up for the lack of profit of lower-fee clients, but if you were honest, you would admit that an adviser will not take on a client that does not provide a profit, so there is nobody to subsidise.
>Charging hourly discourages clients from seeking necessary ongoing advice
>Clients will avoid reaching out for minor questions or regular reviews
>An hourly model can strain client-adviser relationships
An hourly charge will be much cheaper than the standard 1% of the portfolio every year regardless of what work is provided (in many years, very little after the first year), which enables them to afford future advice as needed.
>Financial planning is not transactional like legal or accounting services
Yes it is. You provide advice. That is a transaction. You provide advice later as needed. That is another transaction.
>The market of clients willing to pay hourly fees is minimal.
The market of clients willing to pay for _any_ advice is minimal. As a result of the (earned) lack of trust in the financial advice industry, 90% of the population refuses to see an adviser at all.
>Clients are accustomed to and often prefer agreed fees whether flat or percentage-based, which provide clarity and predictability in their financial planning costs.
Being accustomed to something does not justify it.
>Financial planning should respect the agency of clients
Clients who come to advisers don’t know any better, which is why they get taken advantage of so easily.
>Percentage-Based Fees in Super Funds:
Most industry funds have fixed admin fees. The percentage-based fees are based on the investments themselves.
>Risk Management: Larger portfolios inherently carry more risk
PII is about 2% of advice income, so based on 1% asset-based fees, that is 0.02% higher cost to mitigate the risk. This is a misleading defence of asset-based fees.
>Percentage-Based Fees in Super Funds:
Most industry funds have fixed admin fees. The percentage-based fees are based on the investments themselves.
Seems your first and last point conflict?
So remind me, why do the Super Funds charge a % on FUM?
Clients who sign off on their fees every year are not being ‘take advantage of’. They see the value and appreciate the service. I’m frankly sick of our clients being belittled like this. The most common occupation in my client base is accountant. They pay fixed annual fees and life insurance commissions. I have never had a complaint about my method of charging and these people are not stupid, far from it.
“Clients who come to advisers don’t know any better…”
And there you have it. The collectivist, oppressor-oppressed victims world view.
I rest my case.
>Financial planning is not transactional like legal or accounting services
Yes it is. You provide advice. That is a transaction. You provide advice later as needed. That is another transaction.
So tell me, why can’t Super Fund charge for advice as required? They reckon advise is valuable for members, and they seem to reckon the Super Fund can be good at providing Advice – so if it is any good, simply charge an appropriate fee at the time of that specific transaction – rather than charging all?
I zoned out after he said he had been an Adviser for 2 years…He may well have been a Lawyer or an Accountant or God forbid a Consultant (telling everyone what they already know in a different manner). I will definitley listen any maybe even take advice off an Adviser of substantial experience that changes his pricing model, if it works over time BUT not someone who just hit the circuit and thinks he knows every corner and trick.
I have to say I am getting a bit sick of this whole argument.Firstly the proponents of this methodology never seem to consider the matter of fees for life risk advice, with or without rebating of commission
After 35 years of experience I think I should be be paid around $285 an hour, plus GST,minimum. To develop a comprehensive life risk program for a couple is probably about 14 hours of work i.e. $3500,plus GST.
Out in the real world, no couples I’ve ever come across, regardless of their income and assets, want to pay $3500 for life risk advice. It’s entirely different when a client presents to an investment adviser with either money burning a hole in his pocket, a tax problem, or an inheritance in the wind
.
Those folks understand they have a need, have urgency, and are willing to pay, if value can be demonstrated. I can demonstrate value to my risk clients but at the end of the day it remains a grudge purchase. Despite what ASIC might think in their cloud cuckoo land environment.
An accountant of my acquaintance tells me he constantly has problems with clients who think setting up an investment property and claiming on the ATO for expenses, but not capital improvements, and discussing ownership structures etc is an easy job, and shouldn’t take more than a few hours. Accountants face this problem all the time and are continually discounting one way or the other to retain the client.
Charging a flat hourly rate is not the panacea that everyone seems to think it is, because clients always seem to think you’re “padding out” the time is being spent on their work to justify a bigger fee. Accountants confirm that this is a problem.Unless the client sitting with you at the desk they do not understand the degree of work involved.
I get it that it a flat hourly rate might be okay for a simple transaction, where no personal advice is be provided. But where proper personal advice is involved, and the client insists on an upfront estimate of how much they will pay, most of us will end up out of pocket.
In life insurance, it’s a huge issue because until the policy is issued, the adviser has no idea of the time that will be spent on that case, once the policies have been submitted. And there’s no point going back later for more money
OR, plenty of people are happy to pay $3,500 for risk only advice, especially if they know their premiums are going to be $1,500 a year cheaper.
‘Plenty of people’ are not so happy when they realise they will pay another $3,500 to have their policies reviewed a) if their needs change; b) after the insurer has jacked up their premiums beyond the market; or c) on a regular basis as any competent adviser should be doing. Also not happy to be paying fees for help to make a claim and especially not happy to be paying huge fees for a complex claim which is ultimately declined by the insurance company.
“…lawyers don’t charge you more if you have more money,” Seriously?
Public trustee comes to mind
Especially when people need help with their TPD claims.
I laughed at this one too – it shows a lack of real world experience.
Those people who ‘think’ financial advisers are a profession have no idea what that means. The industry is regulated and highly legislated so that it does the right thing. That is not a profession. I have seen a number of clients still paying a monthly/annual fee for no regular ‘service’ at all and shifted into their employer’s fund that has ‘no’ management fee on a platform. If they want to leave that adviser or not pay any adviser fees then they have to be moved out of those funds. I am sure it is the minority of adviser but it is sad it still exists. The other adviser rang the client and ‘was quite angry with them’ (clients words) and rang me and told me off. There was SoA for super but no SoA or RoA for non-super funds in the same funds. The only service that was really provided by adviser was providing quarterly and tax statements but this was provided by the platform and they client had no idea what they meant. The advisers comment was ‘they will be dead in few years anyway’ as the client’s health is deteriorating. So for those that think we are a profession, sorry a profession does not need to be regulated to make sure those in the profession do the right thing because the profession makes sure those in the profession do the right thing. Yes, professions occassionally have problem children but the profession does something about it.
Relevance? Such an irrelevant comment about semantics and other back yardism
I don’t believe this comment at all
[i]“There’s that point where the time to manage a $2 million portfolio is more or less the same as a $1 million. And whenever you say that to anyone, they’ll immediately talk about the risk. And I think that’s a moot point, just simply from the fact that lawyers don’t charge you more if you have more money, and neither do dentists or anyone else. I think that’s a moot point,” he said.[/i]
I strongly disagree with this. If our admin team are implementing advice on greater sums and they press a 9 on the keyboard instead of a 6, the potential re-imbursement to a client, payable by our practice is therefore higher. There has to be a pricing mechanism that compensates for the risk of undertaking this endeavour given the liability. We use a mixture of flat fee (based on time) and % based fee (small) to compensate for risk.
[i]“From the advisers I’ve talked to, they’re all on board with what I’m doing. They think it’s a great idea, and it’s an amazing idea. It’s just, they don’t think it’s going to be profitable, but they subconsciously understand that this is the most professional way to do things,” he said.[/i]
Again, I strongly disagree. Mr Block may claim he knows what advisers think is the most professional way of charging clients, however, I’d urge him to actually be able to demonstrate this. It is well understood that all pricing models have flaws. For example, if I am charging by the hour, it could be argued that I am motivated to work more slowly. This needs to be considered. [u]I strongly disagree with the notion that by not charging an hourly rate undermines professionalism.[/u]
[i]While Block recognises the value of financial advisers, he explained that he struggles to see the justification for them charging clients thousands of dollars a year for only a few hours of work.
[/i]
All of our ongoing service clients receive more than ‘only a few hours of work’ over the course of the year. We’ve done a deep dive into this in recent years and the practice time used was considerably more time per client than even we anticipated and a is significantly a lot more than claimed here.
The other thing time based charging does is incentivises dealing with clients with lower balances, as the risk to the practice is lower. If I’m going to do the same amount of work (time) for a client with $5 mil vs $500k, I’d be better of prioritising the lower balance client, as it’s less risk from an error made by the staff in our business.
Treat people like adults and let the client and adviser agree on what method suits them. There is no perfect method as any charging method can be misused. I don’t think removing options from consumers is fair to them.
Nick says “lawyers don’t charge you more if you have more money”…
What world are you living in?
How about those no win no fee lawyers that charge 30% of a persons life insurance claim?
This is based on their sum insured and in some cases runs into hundreds of thousand of dollars. Why? Because they can as it is legal.
If your self righteous model works for you great but please don’t tell me how to run my business.
That is all well and good for an adviser without a legacy book of customers/clients. Try explaining to a 20 yr client who rings you up, because my name and number are listed on everything he has, that I need to charge him $100 for changing the address or $200 for providing generic advice over the phone. Until providers up their level of service to answer a call directly and then fix their issue’s, this doesn’t work.
A book of insurance and in the past, investment clients with commissions, provide their own insurance cover of service. Individually, they aren’t paying a great deal, but together they provide the adviser with the income to be in business and to provide an appropriate amount of service to those that need it, when they need it.
This was ignored with the RC and an enormous amount of people without the asset to attract an adviser or income to afford $4,400 pa upwards, now go without advice or assistance.
To take commissions away from insurance will result in even lower levels of cover and the end of the industry for those who need it most.
Good on this guy for promoting a high end, FFS business model. It works for selected clients and is appropriate for the industries and professions he is comparing us to.
We aren’t lawyers or accountants though. They do their own thing.
We provide money for people when they need it most and it’s the commissions that allow us to do that for the whole community. Not just the top end of town.
We are already a profession in our own right and we should not be apologising for it.
John Parker
We certainly are a profession of you should do this and you should do that. At the end of the day, its really between the client and adviser to decide on how and what fees will be paid.
He has been an adviser for 2 years! Clearly it shows he has never really had to deal with reviewing and looking after long term clients. When his model fails we won’t hear a thing from Mr Block.
Sure! hourly rate charged in 15 minute blocks like legal professionals have. Most aren’t opposed to charging fees. One should be remunerated in a fashion that is commensurate with their skills and expertise however clients may not be in a financial position to pay 440 per hour as many and fsg states.
Charges $440 for an initial consultation sounds affordable…. been an adviser for 2 years and running a business for 3 months. Goodluck but it wont last.
He won’t or his fee model won’t. Naiive.
Clients reach out to a lawyer or an accountant (and certainly a dentist), when they NEED to….i.e. they have no choice but to engage one, and it’s usually time-critical. The same cannot be said for financial advice.
Advice carries significant value, but it’s rarely a necessity and usually not time-critical. So once clients get hit with invoices every single time they engage…they will stop engaging, or engage a lot less.
I don’t see the issue with charging a flat fee or including an asset-based component each year. Our clients are happy knowing they are paying XX dollars to be a client for 12 months, we have the conversation every year so they are very clear on the arrangement. I don’t see how that is unethical or difficult to articulate!
It’s like the debate around insurance comms….fee for service might be more ‘ethical’, but at the end of the day, it simply is not how consumers want to pay.
Have you actually tried it? Plenty are happy to pay FFS knowing they are getting 30% of their insurance premiums.
Regardless of what he is doing or saying, why is IFA promoting the opinion of someone who graduated from university in 2019 and only just started a business? Most of my associates have more experience.
I wish him well, but he absolutely lacks the experience to understand the impact of different business models and definitely shouldn’t be promoted. IFA, please do your due diligence
Project/value based fee structure works fine for my business.
I’m sorry but you don’t know what you are talking about. Stop printing garbage. Accountants charge usually the same for every year – if you ask for extra they charge extra – they run timesheets. Sorry, but that is just another admin burden for financial advisers. Stop printing this rubbish.
You are straw manning the argument against this a little.
The strongest argument against this are:
1. Clients underestimate how much time is spend on their specific file that is not client facing (e.g. generating an advice document). “You mean to tell me we met for an hour and you are charging me for 5 hours?”
2. Clients hesitate to call to express fears, or ask questions because they don’t want to get a bill for asking a simple question.
3. This would cause clients to put off reviews until they believe a review is needed (which they will get wrong 9 times out of 10).
I am not at all jealous of solicitors and accounts who commonly get the complaint about padding their “billable hours”, and that clients can’t believe they got a bill in the mail because the accountant or solicitor “reviewed an email” they were cc’ed in on.
Stupid idea IMO – do what you want but don’t cast your opinion on the rest of us. How would the hourly rate model apply to real estate agents, general insurance brokers or ISN’s?? It wouldn’t bcz there are too many moving parts in the back end that happen that cost the business not to mention that it would be an administrative nightmare to charge an investment account or super fund directly.
Good luck with your model. For a new prospect client or ad hoc advice this might work, but the paperwork to process your fees everytime to charge the client would be a nightmare. Clients do not have an issue with paying a fixed fee for service annually which entitles them to fixed services for the fee paid, along with the ability to contact their adviser whenever they feel the need during the year.
Good on Nicholas on choosing how to run his business. However, to denigrate the rest of the profession for not charging hourly fees is nonsense. How you charge does not define a profession. I lead an integrated accounting and financial planning business. Accounting moved away from hourly fees many years ago. Regardless of the service engaged, all clients are quoted and charged upfront for projects and pay a retainer ongoing depending on a range of factors, using a transparent fee schedule.
Why did we move away from hourly fees? We’re selling advice and outcomes, not hours. We provide clients with a price and articulation of value upfront so the client can choose to engage or not. We charge retainers for ongoing access and proactive advice. Time based billing typically leads to clients only engaging when they must because they have a problem to fix, and you react, rather than being proactive and guiding clients to avoid problems in the first place.
Being upfront with project fees and retainers means there’s no invoice shock after we’ve done the job and totaled the hours. We also don’t waste money and resources on debtor follow up. To be commercial we must drive efficiency and deliver outcomes, not pad out time sheets.
Just because other professions do it one way, doesn’t mean it should be followed. I saw a GP recently and I was charged a fee based on the type of appointment (in person, more than 1 issue dealt with) not how long it took.
I suggest that it’s ethical to charge hourly fees. It does not encourage efficiency. For consultants and lawyers, rather then deliver a timely and effective outcome they’re inherently conflicted to keep the job going.
Being professional means putting client’s best interest first and helping them achieve their goals and doing it in commercially sustainable way so your business can deliver that value repeatedly.
That’s okay, you must be doing simple advice, some clients can take a week of advice and set up, you want us to charge a fee of 30 hours worth? then every time they ring up and request items during the year, hit them with another fee? then come review time, no client would want to change anything due to the cost. The clients would not benefit from advice properly given this charging method.
You might have a different business model and different clients, but these ideas don’t work across all organisations and especially does not suit mine, we need to look after our client and sometimes sacrifice time to do extra for them to ensure the clients are benefiting from constant changes. I disagree with your comments.
Good luck trying a make a living with your revenue model.
No thanks happy with our charging model.
While I agree that transaction-related remuneration will soon exit the profession, the difficulty with time sheets is who pays for the time we have to put into research or CPD? You’re not going to allocate that time to individual clients, so it means your hourly rate for the time you actually work on a client file would need to be in the higher end of three figures. That would be a hard “sell” to clients. Further, how do you cover support personnel time? Do THEY have to keep time sheets, as well? In addition, the time taken to record the time has to be paid for, as well.
Our model is to determine an annual retainer based on the anticipated work load, adjusted annually. This factors in all of the above, but obviates the need for keeping time sheets.
It also avoids the awkward conversations around why you clocked so much time on their account.
I’m sorry but I must be missing something.
How is risk assumed with a higher FUA figure a moot point ?
How can you draw an analogy between this and what a dentist charges ? A dentist doesn’t charge me more because I am a HNW individual ? I have never heard a more ridiculous argument put forward.
Do whatever you want, but please don’t throw shade on those that do not charge an hourly rate – Zero to do with professionalism in my opinion.
I could make loads of arguments against an hourly rate billing structure – been to see a suburban , jack of all trades solicitor lately ? One who charges an hourly rate ? Highway robbery – professional ? Ahh no.
Seen others go down this path and been out of business within a few years. Reality is, the market of clients prepared to pay an hourly fee is negligible. It’s also an inefficient way to run a business where there is a large contingency of work associated with ongoing service. Legal and Accounting are transactional services, whereas advice isn’t. You can’t turn on a stopwatch everytime a client calls to request a new direct debit form or process a super contribution – it isn’t economical for either party. The only thing this approach would create is a more distant relationship between adviser and client, and I daresay little to no profit margin in the longer term.
No Thanks..
If you are so strong with your comments – the repliers – why is it that the majority of you are anonymous.
Nickolas has his name stated – why not you?
Ted Carroll