I officially launched Fairhaven Wealth in March 2017. (Here’s the blog post that started it all.)

A year and a half in, the venture has been a success. I’ve worked with dozens of terrific, candid, switched-on clients. By my own assessment and the assessment of my clients, I’ve helped a lot of people.

A brief history of Fairhaven Wealth’s fees

From the start, I’ve charged my clients fixed fees. This is because I think it’s the best way of aligning my interests with those of my clients.

Heck, here’s a video where I explain why I charge fixed fees:

To begin with, I tailored my scope of services and fees to each client. Fees varied, but they didn’t exceed $900.

Eventually, I became confident of an advice process that worked with all clients, and charged the same fee, across the board. For some time, I’ve been charging $879 including GST.

On 1 September (tomorrow), I’m increasing my fees substantially.

I’m extremely ambivalent about increasing my prices. Writing this blog post is a way of being transparent with readers and clients, and getting my head (and my feels) around this decision.

$879 was cheap

I don’t believe there’s a single Authorised Financial Adviser (AFA) who charges anywhere near $879. (I’d argue that this is the case even at my new rates.)

If they do, they’re almost certainly being remunerated in some other, conflicted and/or opaque way.

The only other AFA I’m aware of who has charged in a similar way to me is Martin Hawes, who is no longer taking on new clients. He was charging $7,705 including GST.

Most other AFAs charge a percentage of funds under advice, which can start to get pretty pricey. For example, 1% per year on $300,000 is $3,000. I’ll let you do the sums for portfolios of $1 million or more.

Of course, there’s price and then there’s value

But value doesn’t necessarily relate to what other people charge. Value relates to… the value clients receive. (Pricing is a separate, but related issue.)

In narrow terms, I’ve saved many of my clients thousands of dollars in unnecessary product fees or insurance premiums. In those rare cases where I’ve recommended that they spend more, it was because it was in their best interest and was likely to put them in a better position or better help them manage the risks to which they’re exposed.

I’ve made investment recommendations that mean clients are likely to support a higher quality of life during their retirement, and/or sustain their capital for many more years than they otherwise would have without my advice.

These quantitative benefits don’t even factor in the more important benefits clients receive of gaining better insight into their situation – and the confidence, comfort, and empowerment they’ve received from going through the financial planning process with an external, independent, qualified person.

I spend a LOT of time on each client

I spend a huge amount of time on each client. In most cases I spend at least 3 hours face-to-face with each client or on the phone or Skype. On top of this, I spend hours tailoring my reports for these clients. My reports are highly tailored – they’re not cookie-cutter, tick-the-box, computer-generated documents.

I don’t think I could outsource the preparation of these reports to someone else without losing something significant in the process. My guess is that I spend at least 15 hours on each client – and sometimes much more.

My back-of-the-envelope calculation is that I generate about $50 per hour from every client I work with.

Is $50 per hour a lot? Not if you put it into perspective:

  • There are costs and risks associated with running a business. I keep my costs as low as possible. But there are costs associated with being licensed; dispute resolution schemes; professional indemnity; subscription services; travel costs; professional development. All of these costs need to come out before I get anything. And then there’s tax.
  • There are opportunity costs to my time. I’ve got enough experience, valuable skills, and letters after my name to earn more than this as an employee or contractor. When I factor in opportunity costs, I’ve probably given up tens of thousands of dollars to get this business off the ground.
  • For most of my professional life, I’ve been charging hundreds of dollars per hours for my time. At one point I was charging nearly $400 an hour for my services.

In many ways, charging a fixed fee of $879 was a way of getting clients while Fairhaven Wealth was new and I was still working out my service model.

In this sense, it has been successful. I’ve averaged more than one new client per week for more than six months. As I get busier, more people seem to show an interest.

Why I’m increasing my fees

The simple answer is demand. The last few months I’ve been too busy. It’s taking me longer than a month to prepare draft reports for my clients after having our first detailed meeting. I’ve been upfront with clients about this, and haven’t had a single complaint. But it’s not how I want to operate.

I also haven’t been able to work on other projects, such as developing this blog, and cultivating the many free resources I make available.

I haven’t been as fully present for my family or committed to maintaining my health as I’d like.

The only practical solution for me is to raise my fees.

(I’ve entertained other options – like limiting the scope of my services; trying to be less tailored with the reports I prepare; or operating with a waiting list. A number of people have encouraged me to adopt a more traditional advice business model, which might include receiving commission, or implementing advice and charging an ongoing fee that is linked to the size of the client’s investment portfolio – but for reasons I’ve discussed elsewhere, I refuse to do this. Having a business model that aligns my interests with the interests of clients is non-negotiable.)

Fees are now $1,800 including GST

From 1 September the costs of my service are rising from $879 including GST to $1,800 including GST.

I’ve also formalised my review service for clients who have engaged me in the past 24 months. The review service will be $900 including GST.

More information is here: www.fairhavenwealth.co.nz/fees.

Some miscellaneous points about these new fees

  • I entertained charging $1,798 for the initial service, and $899 for the review. However, I’ve chosen a round figure, which is inclusive of GST, because it reflects one of the core philosophies behind my business – transparent and honest pricing.
  • One thing that concerns me about charging at this level is that it will rule a number of people out of receiving my services. These are exactly the sort of people who might benefit the most from receiving financial advice. Many of the clients I’ve enjoyed working with so far probably wouldn’t have engaged me at this price. This weighs heavily on me. The main consolation I have is that by charging more, I hope to be in a position where I can dedicate more time (and potentially resources) to providing high quality, free resources to everyone, on this blog and elsewhere. It will also help me better agitate for better consumer outcomes in the financial services world.
  • (This is much a pep talk as anything!:) I’m worth these fees. I’ve had a lot of people tell me that I’m undervaluing myself by charging $879. I’m a professional. I’ve charged hundreds of dollars per hour in a number of previous roles. I didn’t just meet the minimum standards to become an AFA and hang out my shingle without any real-world experience. My work is informed by many years of unique professional experience. I’ve seen, first hand, the advice provided by hundreds of financial advisers (in New Zealand and Australia). I know the difference between excellent quality financial advice and financial advice on the other end of the spectrum. I’ve got the confidence and competence to know that I’m providing excellent advice. I’ve worked with a number of clients who have engaged other AFAs and their feedback has been consistent with this.

$1,800 is incredible value for money

  • For many clients, my advice will probably result in them being able to sustain their lifestyle for more years in their retirement, or have more flexibility in their lives.
  • On a more mundane level, for a huge proportion of my clients, I save them more than what they pay me in unnecessary fees. And the peace of mind, confidence, and comfort I provide to some clients is worth many times these savings.
  • Consider the cost of other AFAs. If you’re paying less for an equivalent service, there is likely to be some other incentive – whether that be incentives related to commission or being affiliated with certain product issuers, or the incentive to lock you in to an ongoing service arrangement. Most AFAs, charging a percentage of funds under management, are charging many times what I charge.
  • It’s important that I convey that I’m a professional, and that includes in relation to my pricing. I’ve already had a disproportionate number of clients who are doctors, dental specialists, and lawyers. My suspicion is that they’ve gone ahead with me not because of my price, but in spite of my price. For many people, price is an indicator of quality. (They might not realise this isn’t necessarily the case in the finance industry… but that’s the way we often think.)

For clients who engaged me before today, I will be offering them a special discount on their next review. Otherwise, my fees are my fees.

If my intuition (and hopes) about the market for my services are correct, this won’t be the first time I double my fees. If other advisers are charging many times what I charge, and Martin Hawes can charge $7,705, there’s a lot of room for me to increase my prices further.

You might want to get in before my fees rise again 🙂

Related:

Sonnie Bailey

Sonnie is an Authorised Financial Adviser (AFA) and former lawyer with experience in the financial services and trustee industries. Sonnie operates Fairhaven Wealth (www.fairhavenwealth.co.nz).

2 Responses

  1. Brian Hill says:

    Hi Sonny
    I always thought your fee was incredibly low considering the time you dedicate to each client. I think $1800 is still good value for money for the service you provide.
    Regards
    Brian

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