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By Jacques Coetzer, 12 December 2017
Jacques Coetzer, General Manager: Sanlam Personal Finance: Broker Distribution, says with multiple market factors at play, value needs to be carefully calculated. “Clients will quickly look elsewhere if they feel that you are charging too much and not giving them fair value.”
To find a realistic benchmark to work from, talking to clients about their expectations and doing research into more-or-less what other practices are charging can be useful. This will give you a good foundation from which to determine appropriate pricing.
So what are the structures within the RDR proposal in terms of services intermediaries can render and charge for? The first is the advice process. This involves conducting a financial needs analysis, constructing a financial plan and making recommendations based on clients’ priorities. There are various ways to structures your fees – a retainer, charging per hour, or charging a project fee per service needed, among others, each of which have their own pitfalls and benefits. There is also an option to introduce different ‘packages’ which suits the needs of different types of clients, and charging per package. The fee charged for advice may be agreed to between the intermediary and the client. Then secondly, there is the implementation of this advice – in other words, buying the products recommended from the selected product provider. The future dispensation will still have commission on life and risk, but not for savings and investment products. Then there are the activities intermediaries render on behalf of the provider, for which a service fee can be charged.
Coetzer says that South Africa implementing RDR some years after the UK has allowed us to learn from the mistakes made in that country. “One common mistake is not charging for stage one, the initial needs assessment and plan, which can be a noteworthy loss. Often the broker tries to recoup this fee by hiking up prices on products which can lead to the products being over-priced.”
He says that in order to the get pricing right at each phase, brokers could consider the below elements during the process of setting their fee:
The key is to start planning ahead. If you haven’t done so already, it may be worth spending some time dedicated to upfront planning and research, which can benefit you greatly in the long run.