Financial planning is a journey that spans decades. It is built on a foundation of trust between a client and planner. The two ideally work in tandem in pursuit of generating the financial growth required to unlock the client’s desired lifestyle and help them meet their long-term goals.
A lack of transparency, honesty, and mutual understanding can significantly undermine this relationship.
This is where the approach to fees becomes important. Traditionally, many financial planners would use a percentage-based model that would guarantee them higher returns if they generated sizeable growth for their client’s assets.
However, this system has its flaws, and a fixed-fee approach may have more value for your clients than a percentage-based agreement.
Read on to discover three valuable ways that a fixed-fee agreement can benefit your clients and help build up a greater degree of trust in the client/planner relationship.
1. It ensures that your clients goals come first and the solutions second
One of the problems with percentage-based fees is that they essentially penalise clients the more successful their investments perform. The more money your clients’ investments make from a financial planning arrangement, the more they’ll owe in fees.
At Grey Parrot, we consider fixed fees to be a fresher, fairer approach.
Money Marketing reports that fixed fees are expected to become the standard model in the future as planners work towards servicing different client demographics and offering greater flexibility. So, at Grey Parrot we’re already one step ahead.
We believe percentage-based fees are unfair, more expensive, and potentially cause conflicts of interest. So, we charge a fair fixed fee that reflects the work we do, not a fee based on the value of your clients’ ongoing investments.
We’re still working towards finding the right solutions to get your clients towards their long-term goals. But we avoid the conflict of deciding between encouraging them to take on more risk than they might be able to tolerate for greater percentage-based gains, or simply putting their best interests first.
Let’s take someone who invests £250,000 with a traditional financial adviser charging them 1% of that amount each year. Over 10 years, let’s say their investments increase in value to £500,000. That means the amount your clients pay to them has now doubled – even though they’re doing exactly the same amount of work. We don’t think that’s fair.
So instead, we charge a fixed fee, adjusted for inflation. That means, in 10 years’ time, even if the value of your client’s investments has doubled, their fees won’t have changed in real terms.
The core goal of financial planning should always be helping your clients to achieve the type of lifestyle they desire and aiding them in reaching their long-term goals. In working together with that objective in mind, both parties thrive.
2. It saves your clients money that they can put to better use elsewhere
If your client’s financial planner has been doing the same amount of work for them year on year, but is now raking in huge fees as your client’s investments start to see significant returns, it can feel like they’re being ripped off.
By using the fixed-fee model, all those extra funds your client might generate can be put to better use, such as generating compound returns on their investments or being assigned to any unexpected expenses to cover budgetary constraints.
During the current cost of living crisis, many UK households are having to make harsh cuts to their outgoings in order to balance their budgets. For many people, their insurance cover is mistakenly considered non-essential.
Meanwhile, in freeing up extra funds through a fixed-fee model, that money could be potentially assigned to keeping important protection in place during rocky periods.
We like to refer to these extra funds as “the wedge”. In fact, we call it “Reg the Wedge”.
Percentage-based charges mean that your client’s financial adviser’s charges go up with the market — fixed fees don’t.
The difference between what your clients are paying now and what they could be paying can, in many cases, be tens or even hundreds of thousands of pounds.
So, by working with a fixed-fee model, we can help your clients rescue their wedge. It could end up being the most important act in achieving their long-term goals.
3. It means the service your clients receive will not be dependent on how much they invest
Removing the conflict of interest of differing adviser returns based on the investment’s market performance, simplifies the decision-making process, while adding priceless transparency and trust to the relationship.
Have you ever known a financial adviser who’d tell you to stop investing? Well, at Grey Parrot that’s our number one goal. Don’t believe us? Here’s why.
Our fixed fees only change if your situation becomes more complicated and it leads to additional work for us to do for you. We aren’t incentivised to get you to invest just because it pays us more.
So, we can turn round to you when the time is right and say: “You have enough. Stop investing. Go spend your money. Live the life you’ve been saving towards”.
It doesn’t mean we don’t work hard to ensure your investments generate the wealth needed to reach your goals. We just approach investing differently with our evidence-based, passive approach.
Read more: What can your clients learn from Rain Man about the benefits of evidence-based investing
It may seem cocky, but when the evidence says your investment approach gives your clients the highest probability of achieving their goals, while saving thousands on their investment fees, it can be easy to get a bit carried away.
So, encourage your clients to come and talk to Grey Parrot about how we can save them money, while giving them the best chance of living the life they want to live.
Get in touch
If your clients could benefit from a different approach to receiving financial advice and possibly saving significant funds through a fixed-fee model, they should contact us by email at mail@grey-parrot.co.uk or call us at 02039 871782.
Please note
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
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