I have spent over 25 years trying to help my clients navigate the maze of financial planning and I have always aimed to put people before profit. I have approached my business from the perspective of how much value and service I could provide to my clients so I was not inspired by the title of one of the sessions at a seminar for IFAs last month which was called: ‘How much should you should charge your clients for your services and make a profit’. The seminar demonstrated that many IFAs think differently to me, they put profit at the top of their priorities, and they charge considerably more for their services.
The presenter started by telling us that we are available for work 44 weeks of the year after taking out 8 weeks for holidays, bank holidays, Christmas, illness, and so on. For a 5 day week this equates to 220 working days. Two days each week are taken up with seminars, keeping knowledge up to date, regulatory reporting, and other essential matters, which leaves only 132 days for client work. If one day each year is spent on each client this means that the business can manage 132 clients, if two days are spent on each client then we can only help 66 clients and so on.
I was looking around the room at this point, many of the attendees were nodding in agreement, but I was sceptical, and not sure that I even wanted to be there. However I stayed and he next asked us how much it cost to maintain the business, he wanted the base cost before we paid any money to ourselves or made a profit. People started getting involved and various figures were mentioned, all of them much higher than mine. I operate from a room at my home address, all support is outsourced, and I use technology to maximise efficiency and drive down costs. For the financial year to 31st March my base costs were £82,000 or almost £7000 a month. It was no surprise to find that many IFA firms had a base cost much higher with some saying £15,000 a month, and for some approaching £30,000.
We were then asked to add what we thought was a reasonable personal income considering our experience, qualifications, and financial risk. This is where people started becoming animated and there was a heated discussion with some ‘loud’ differences in opinion. To the disgust of many I put mine down as £40,000 a year and they protested that the figure ought to be at least six digits. However I refused to budge so I arrived at a total of £122,000 after the base costs and personal income were added together.
I thought that we had finished but at this point he mentioned the FCA requirement that all businesses should be profitable, sustainable, and build up a capital reserve, so we had to add in another figure. I decided to keep quiet and for simplicity I added £10,000 to bring the total income to £132,000 because I had anticipated what was coming next and I wanted to keep the sums easy.
You don’t need a calculator to show that my rate was £1000 per working day but I was surprised when some said that their minimum daily rate was £5000 or more. And while I was expecting that my rates were much lower but it did surprise me to realise that after taking out the base costs and capital reserve, only £300 is left for personal income out of every £1000 received by the business. I would like to bet that very few of you know how much it costs to maintain an IFA business!
So while I was a reluctant attendee, the seminar was useful because I was left feeling satisfied that I am providing good value for the service that I provide and that clients could pay a lot more elsewhere that is if they could get independent financial advice at all. I am sticking my neck out and I hope that you agree so if you have any questions or comments I would be very pleased to hear from you.