Money Marketing RDR Invitational -2011

2. Money Marketing RDR Invitational -2011 How to Create a Profitable Charging Structure Paul Harrison – Head of Business Consultancy Prudential

3. How to Create a Profitable Charging Structure - Context Many firms are already looking at their current remuneration models…. • What are the cost challenges within our business? • How do we identify the cost of delivering advice? • How do we get paid for more of what we do – What do we charge for? • How do we deliver an effective and profitable service? • How do we implement this within our business? UNDERSTAND YOUR COMMERCIALS What makes you money & what doesn’t? For Adviser Use Only - not approved for use with clients

4. How to Create a Profitable Charging Structure- The Process For Adviser Use Only - not approved for use with clients

5. Understanding Your Hourly Rate - Stage 1- Your Operating Fundamentals Which pricing model is likely to be most attractive to your target clients? • Hourly Rate? • Fixed Price or Project Fee? • Fee based on % of investment / Assets / Tax saved / Value added? • Combination of…..? ….. Even if you don’t intend to specifically charge by the hour understanding your hourly rate will help you to price profitably. Unlikely that ‘One size will fit all’ For Adviser Use Only - not approved for use with clients

6. Understanding Your Hourly Rate - Stage 1 - Your Operating Fundamentals ….Hourly rate - rough calculation £150,000 (target turnover = income + costs) = £150 per hour 1,000 (billable hours available pa*) And what about…. • Profit & reinvestment into the business?? + 20% Profit margin? • Different rates for different roles? (* 25 hours per week ‘client billable’ X 40 weeks worked) For Adviser Use Only - not approved for use with clients

7. Understanding the Cost of Advice - Stage 2 For Adviser Use Only - not approved for use with clients

8. Understanding the Cost of Advice - Stage 2 - The Advice Process Stage 1 - Engagement Conversation • Clearly defined Advice Process • Work out how much time it takes to deliver this process • How much do you currently get paid for this? • How do you ensure you are profitably paid for this in the future? Stage 2 - Factfind Stage 3 – Research & Analysis Stage 4 – Present Recommendation Stage 5 - Implementation Stage 6 - Ongoing Service + For Adviser Use Only - not approved for use with clients

9. Understanding the Cost of Advice - Stage 2 (NB Example for Discussion Only)

10. Understanding the Cost of Advice - Stage 2 (NB Example for Discussion Only) For Adviser Use Only - not approved for use with clients

11. Understanding the Cost of Advice - Stage 2 (NB Example for Discussion Only) For Adviser Use Only - not approved for use with clients

12. Understanding the Cost of Advice - Stage 2 (NB Example for Discussion Only) Minimum £1500 ‘Cost of Advice’ Charge??

13. Understanding the Cost of Advice - Stage 2 - Options…..Which one is profitable for your model? For Adviser Use Only - not approved for use with clients

14. Understanding the Cost of Advice - Stage 2 - Options…..Which one is profitable for your model? For Adviser Use Only - not approved for use with clients

15. Understanding the Cost of Advice - Stage 2 - Options…..Which one is profitable for your model? For Adviser Use Only - not approved for use with clients

16. Understanding the Cost of Advice - Stage 2 - Options…..Which one is profitable for your model? For Adviser Use Only - not approved for use with clients

17. Understanding the Cost of Advice - Stage 2 • Consider charging for different stages of the Advice process • Where do your charging points need to be? • Post Factfind? • Recommendation meeting? • Implementation? • Work out your minimum charge for each stage • Shape and adjust your pricing to reflect differing client needs: • Focused Advice on a specific issue or need i.e. Investing a specific amount • Full financial planning • Transactional support • More complex financial solutions For Adviser Use Only - not approved for use with clients

18. Understanding the Cost of Delivering Ongoing Service - Stage 3 Stage 1 - Engagement Conversation • Clearly defined Ongoing Service Proposition • Work out how much time it takes to deliver this process • How much do you currently get paid for this? • How do you ensure you are profitably paid for this in the future? Stage 2 - Factfind Stage 3 – Research & Analysis Stage 4 – Present Recommendation Stage 5 - Implementation Stage 6 - Ongoing Service + For Adviser Use Only - not approved for use with clients

19. Understanding the Cost of Delivering Ongoing Service - Stage 3 - Align to Your Proposition PROACTIVE SERVICE REACTIVE SERVICE For Adviser Use Only - not approved for use with clients

20. Understanding The Cost of Delivering an Ongoing Service - Stage 3 (NB Example for Discussion Only) 0.5% Ongoing Service Charge – Min £150K Invested!! NB; above is an estimate and doesn’t include other costs of running the business + travel etc For Adviser Use Only - not approved for use with clients

21. Understanding the Cost of Delivering Ongoing Service - Stage 3 - Options…..Which method is profitable for your model? Price based on: • Service your clients want • Frequency & Nature of contact • Your capacity to deliver profitably • VAT??? For Adviser Use Only - not approved for use with clients

22. Getting Paid for More of What you do - Stage 4 – Charging for Ancillary Services • Are you getting paid for the work that you do? • Do cross subsidies mask the true extent of ‘Pro bono’ work? • Where are you not receiving revenue for work undertaken? • Is this work of real value and benefit to the client? E.g. Trust work • Could you charge for this Advice / Value? • Determine its worth For Adviser Use Only - not approved for use with clients

23. Implementation of Charging Structure - Stage 5 - New Clients & Transition for Existing Clients Which is easier? • New Clients – ‘This is how we do things around here’ • Well practiced Client Proposition – ‘Benefits 'of working with you. • Support materials • Clear Proposition • Menu of Charges / Services • Fee Agreements • Are you ready?............Go! For Adviser Use Only - not approved for use with clients

24. Implementation of Charging Structure - Stage 5 - New Clients & Transition for Existing Clients Which is easier? • Existing Clients – Know you & Value you • Visit over next 12 – 24 months • Opportunity to review relationship & ‘re-launch’ more appropriate level of service • Emphasise value received • Discuss service available & required - upgrade or reduction in service? • Provide real clarity of what to expect & future costs involved Is this a ‘four inch’ challenge? – the ‘four inches’ between our ears! For Adviser Use Only - not approved for use with clients

25. How To Create a profitable Charging Structure- Summary • Know your Business - Its capabilities & Costs • Your Advice & Ongoing Service Proposition – Cost to deliver? • Charging for Value – Proposition demonstrating real value for money • Profitable Charging Structures – For what & when should you charge? • Clients – Your lifeblood - What do they need / want? Plan it! – Start it! – Review it! www.pruadviser.co.uk Support For You www.pruadviser.co.uk/content/support/bcc/prof_char_struct/ For Adviser Use Only - not approved for use with clients

26. Money Marketing RDR Invitational -2011 How to Create a Profitable Charging Structure Paul Harrison – Head of Business Consultancy Prudential