Margin for error is a vital part of any fee-for-service financial advice model, according to an analysis published by Count Financial Limited.
In an article aimed at informing its member accounting firms, Count has cited the fee for service methodology used by accounting and wealth management firm, Cox Partners arguing that as well as ensuring price transparency for clients, this [fee for service] model enables advisers to price each service based on the complexity of work required.
The article cites Cox Partners financial planner, Hayden Lewis as stating that "pricing advice is part science, part intuition — and definitely not a case of set and forget"
It said that while professional services firms had traditionally used time-based pricing models, with clients charged an hourly rate, many firms were now recognising the benefits of using a fee-for-service model instead.
According to Lewis his firm breaks it fee-for-service approach into eight parts:
1. The initial consultation
2. Data collection and entry
3. Creating the advice strategy
4. Preparing the advice
6. Implementing the advice
7. Confirmation from the client
8. Advice completion.
He said that, typically, the overall advice process included four meetings, with most clients then having an annual performance and strategy review entailing a simplified version of the eight-step process, and the service being priced accordingly.
Lewis said that with a fee-for service model, a firm worked out how long each team member would spend on each part of the process, then multiplied the hours by the team member's charge-out rate with the resultant figure becoming the minimum price the firm needs to be paid to cover costs and turn a profit.
"We tailor our advice to each individual client — we don't follow a ‘one size fits all' approach, so the price of our advice will reflect the client's advice needs," he said.
However, Lewis cautioned that it was necessary to factor in margin for error saying that "no matter how careful you are, when you're building an advice strategy you can come across difficulties, so it's important to allow some extra time to deal with them".