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Forward Thinking Magazine : April 2011
46 “We assessed Rosemary’s entire client base, the time she spends on each category of client and her profit and loss statement to get a sense of a fair hourly rate on which to base the fixed fee, taking into consideration the resources needed for the firm to remain compliant and the effort Rosemary puts into staying abreast of new regulations and current market trends,” says Mackenzie. At the same time, Salway developed a more focused value proposition for her business, which led her to identify four discreet categories of clients that make up her client base. “We looked at how we could devise a fixed-fee model for the client base and came up with a matrix that allows me to segment clients by category and fee type,” says Salway. The matrix works on the basic principle that the more complex the client’s portfolio, the higher the fee. “If a client’s portfolio increases in complexity, the fees rise accordingly,” she explains. Clients are also charged per portfolio to reflect the additional work extra portfolios produce – so if a client has a SMSF and a direct share portfolio, two separate fees are charged. Salway acknowledges introducing the new fee structure to new clients can be easier than switching existing clients to the new fee model. “I share the matrix with clients so they understand the fee structure. Given that the way I have structured the fees means no existing client has had a fee increase, no one has yet baulked at the new structure.” As they have been locked in at a fee while markets have been flat, clients also appreciate that as markets go up, they won’t be charged more. Another important consideration is the way the new fee structure will be communicated, not just to clients but also to the staff who will need to explain the fee system, as well as the redefined value proposition, to existing and new clients. There are risks as well as benefits attached to whichever choice you make. The crucial thing is to be aware of the consequences of your choices. Says Salway: “My advice to other planners thinking about changing their fee structure is to get help. I needed someone to challenge my thinking and give me a fresh mindset on the way I set my fees. Getting outside help was also invaluable in assisting me to develop a model that doesn’t restrict my earning capacity and to help me work out how much it costs me to service each client. In turn, this will deliver me the right information to help me increase my profits.” McCarthy says when it comes to reconsidering your fee structure, the essential thing is to come to grips with the pros and cons of your choice. “There are risks as well as benefits attached to whichever choice you make. The crucial thing is to be aware of the consequences of your choices.” Macquarie Practice Consulting We can help you work through the process so you are clear about what your business offers and its value proposition. We’ll also help you understand the trade-offs you will need to make when developing a new fee model, as well as help plan the rollout of the new fee system, based on rigorous analysis of your business. It’s all about looking at the business from every angle possible and then making strategic choices to maximise your profitability and business sustainability.