Should you charge hourly fees for advice?

I understand that in some circumstances and jobs, hourly rate is an ideal way to charge clients. However, hourly rates for financial advisers are a controversial topic.

In this video, I discuss the top 4 reasons why I believe hourly rates should be avoided. I want advisers to generate great profit margins but also add significant value to their clients.

 

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10 thoughts on “Should you charge hourly fees for advice?

  • Brett – interesting comments, but a response to your points, if I may

    1. Worrying about being on the clock. This is easily solved by a small retainer fee for queries and an estimate for jobs. The key phrase here is ‘accountable for your time’
    2. If the firm is inefficient then we’ll be expensive and won’t survive
    4. The value add is in the hourly rate in the first place.

    The alternative method of remuneration, whether it is commission or a fixed fee based on value add (commission by another name in my opinion) is more unpalatable for me.

    I was recently quoted an £8k fee by an accountant for some tax work by an accountant. Why? He thought I’d pay it because of the tax it might save the company. It was a cut and paste job for him. I won’t be using him. Give me that job on an hourly rate any time.

    Reply
  • Fair points Chris. What do others think?

    Reply
  • I think you hit the nail on the head at outset when you said ‘I don’t like paying hourly fees’. My own preference is to paid hourly fees or a fixed fee rathe than a percentage of my wealth, possibly because of my background, and because I have a fair idea of the difference. My conclusion is that with the vast majority of advisers operating % assets models, and assuming there are other people like me, there is always a healthy market for £ based advice which might currently be under-served.

    My own instincts also react against the idea that you should share in the value you create. If you take a client on very early, before they have accumulated significant wealth I can see it, but as the main target market for advisers have established wealth which they are looking to preserve, I’m not sure everyone would view the adviser as genuinely creating that value, they might just see them as managing it.

    Having said all that there is not really much to disagree with in your video, it remains a very successful and lucrative model for most firms I talk to, and most clients right now don’t have an issue with it. My comments are really specific to my own biases as a consumer.

    Reply
  • I get all that too Phil. Fair point.

    I don’t subscribe to the view that advisers create anything for clients. However I do think they can enhance a clients life significantly when their skills are applied broadly. Done well this allows me to be comfortable with a percentage of assets or flat fee approach that might at first look extremely high. However, if I’m being honest I would only pay that percentage of assets fee to someone doing an amazing financial planning job that helped me get the most out of my wealth and my life. I certainly wouldn’t be paying on that basis for mere investment advice.

    Reply
  • I think the starting point for this brave new sector, no matter what part of the value/cost chain you operate in, is that transparency should be an absolute. Not just more transparency than our highly opaque past but genuinely see through. Perecentages are one of the main barriers – they create an artificial step, one which many dont quite get. The only way forward is to march under the flag of real money charging. Whether your service is consultancy, advice, platform provision, fund management, investment banking et al, tell me how much your service costs in real money – per day, per hour, per minute if you like and then I’ll decide if I want to buy. If it goes well, you will share in my sucess because I’ll work with you again – and I’ll tell all my friends!

    Reply
  • Fair points Chris. What do others think?

    Reply
  • I think the starting point for this brave new sector, no matter what part of the value/cost chain you operate in, is that transparency should be an absolute. Not just more transparency than our highly opaque past but genuinely see through. Perecentages are one of the main barriers – they create an artificial step, one which many dont quite get. The only way forward is to march under the flag of real money charging. Whether your service is consultancy, advice, platform provision, fund management, investment banking et al, tell me how much your service costs in real money – per day, per hour, per minute if you like and then I’ll decide if I want to buy. If it goes well, you will share in my sucess because I’ll work with you again – and I’ll tell all my friends!

    Reply
  • I think you hit the nail on the head at outset when you said ‘I don’t like paying hourly fees’. My own preference is to paid hourly fees or a fixed fee rathe than a percentage of my wealth, possibly because of my background, and because I have a fair idea of the difference. My conclusion is that with the vast majority of advisers operating % assets models, and assuming there are other people like me, there is always a healthy market for £ based advice which might currently be under-served.

    My own instincts also react against the idea that you should share in the value you create. If you take a client on very early, before they have accumulated significant wealth I can see it, but as the main target market for advisers have established wealth which they are looking to preserve, I’m not sure everyone would view the adviser as genuinely creating that value, they might just see them as managing it.

    Having said all that there is not really much to disagree with in your video, it remains a very successful and lucrative model for most firms I talk to, and most clients right now don’t have an issue with it. My comments are really specific to my own biases as a consumer.

    Reply
  • I get all that too Phil. Fair point.

    I don’t subscribe to the view that advisers create anything for clients. However I do think they can enhance a clients life significantly when their skills are applied broadly. Done well this allows me to be comfortable with a percentage of assets or flat fee approach that might at first look extremely high. However, if I’m being honest I would only pay that percentage of assets fee to someone doing an amazing financial planning job that helped me get the most out of my wealth and my life. I certainly wouldn’t be paying on that basis for mere investment advice.

    Reply
  • Brett – interesting comments, but a response to your points, if I may

    1. Worrying about being on the clock. This is easily solved by a small retainer fee for queries and an estimate for jobs. The key phrase here is ‘accountable for your time’
    2. If the firm is inefficient then we’ll be expensive and won’t survive
    4. The value add is in the hourly rate in the first place.

    The alternative method of remuneration, whether it is commission or a fixed fee based on value add (commission by another name in my opinion) is more unpalatable for me.

    I was recently quoted an £8k fee by an accountant for some tax work by an accountant. Why? He thought I’d pay it because of the tax it might save the company. It was a cut and paste job for him. I won’t be using him. Give me that job on an hourly rate any time.

    Reply

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