Billing prospective clients, an unacceptable practice

I was recently involved in a very long Twitter discussion/debate on the merits of advisers charging for the first meeting with a client. I guess what really got me engaged was disagreeing with Gillian Cardy on the issue. I rarely disagree with Gillian. She is one of the lights of the industry and a real innovator who saw the future in terms of fee charging when most though adviser remuneration was spelt com………!

The thrust of the discussion was that clients benefit from the initial meeting and that this may be to the detriment of the adviser ultimately in that solutions have been revealed before a deal is done and the clock is ticking.

Gillian’s approach is an interesting compromise whereby she would treat the meeting as billable, but waive the cost if the client did not proceed. As such, as one would expect, Gillian argued an ethical case, but one with which I cannot fully agree. Michael Kitces, on the other hand, took a much harder line, i.e. that the meeting has value and that therefore, the adviser should charge.

I could not disagree more – at a number of levels:

Most people do not have experience of hiring an adviser. Most are or have been sold a product or a solution by a sales person that they may or may not stay with. The success of SJP indicates that many remain with advisers who sell themselves well.

The diversity of advisers in terms of their competence and their proposition is huge and it is unlikely that many would-be clients can differentiate between them, especially without meeting.

Very few advisers put their fee schedule on their websites. The client must be made fully aware of the likely cost and have an opportunity to consider and compare this in her/his own time and not AT the first meeting.

One of my major concerns is the lack of accepted best practice between advisers. This is largely unsurprising, as the majority of advisers have learned their trade over time in a relatively unstructured fashion. For years, the major source of training and learning was life companies. This role has been, to some extent been picked up by fund managers. Advisers can accumulate learning points for so-called CPD by reading a trade mag – including rants from folk like me! Younger advisers have grown up in an environment of more independent learning, but there is still no appetite for a single professional program of study and examination for all would-be advisers to follow, before they go on to specialise.

Let me quote a simple example. In a recent piece of research* we conducted with advisers around decumulation, we looked at the important issue of sequence risk. One of our questions related to the amount of cash or near cash that should be held by the client from which pension payments will be taken in the early years.

The answers ranged from zero to ten years. Now, whatever your views on the matter, it is inconceivable that both can be right. For what it is worth, and being of a certain age, I would be extremely worried that early year’s pension might be paid from equities that have collapsed following a crash, especially given that current markets are at historic highs.

However, my views do not matter (much). It is the disparity.

As a businessman, I regularly seek the advice of an accountant and a lawyer. On the vast majority of issues any of us are likely to discuss with such professionals, their answers will be the same or similar. Law is law, whether fiscal, contract etc. It tends to be only the very rich that have a need for QCs or top accountants to argue over nuance.

Sadly, in the advice sector, we will not have such consistency. Until there is a consistent training and examination program in which all who qualify will have partaken, this will not change.

Advisers have very different target markets and very different fee levels. In my experience, some of the highest fees are charged by the least competent advisers and vice versa. It is pretty much impossible to get a feel for an adviser’s skills, abilities and general aptitude from the website. Indeed, arguably the most vociferous adviser on blogs etc in the UK appears not to have a website!

This brings me to a very simple conclusion – that advisers should behave as do most solicitors and accountants and offer a no-cost meeting where they explain who they are, what they do and who for, whilst the would-be client explains what he or she is looking for. I cannot imagine why an adviser would not do this.

Let’s get another matter clear. It is NOT a cost to the adviser firm that the client should pay. It is part of the acquisition cost, as is the website, as are seminars, adverts and mailings etc, etc. An adviser should not be giving advice at the first meeting. Nor should he or she be carrying out a fact find, other than very high level stuff needed to identify whether the nature of the client and their needs are appropriate to the business and vice versa. That’s the stuff of the old life co salesman.

Just as a final point, consider an adviser firm that you really have little or no respect for. Would you be happy for a prospective client to be charged by them for a ‘getting to know you’ meeting. You might know how bad the firm is, but will the client?

* Never mind the quality …… 3, CWC Research & the lang cat, to be published October 2017

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