The evolution of adviser charging models in practice

2. The evolution of adviser charging models in practice • Dennis Hall – Yellowtail Financial Planning • Adam Young – Dragonfly Planning

3. Objectives for the Business • To develop a valuable client centric proposition • To provide services that a client wants and needs at a commercially viable price

4. Understanding your target market • Positioning your suite of services (and skills) around opportunities and threats that your target market are facing • Becoming the “go to” specialist in that sector/market • Building a trusted relationship and community to enhance your services

5. The Solutions ...... • Avoiding product noise.......

6. Dragonfly Evolution

7. Attributes for Success VALUE Source: JP Morgan

8. Dragonfly’s Journey & Perspective • The world is changing, and we must adapt to survive • Working on a pure fee basis has removed perceived conflict of interest • Our primary operational model is based on flat fees renewed annually

9. Yellowtail story – fees version 1.0 • Single (value based) fee - our wish list • Easy to understand • Rewarded us for advice on other assets • Removed any product biases • Alignment of interests • Attractive to long term client relationships • Sustainable • RDR ready • Market advantage • Removed from commission model

10. Yellowtail story – fees version 1.0 • Single (value based) fee - results • Lasted less than a year • Existing clients initially accepted it • Prospective clients sceptical • Nobody liked it (including us) • Raised more questions than it answered • ‘Horse’ trading over value of other assets

11. Yellowtail story – fees version 2.0 • Range of tiered fixed fees • Sign on fee • Negotiate from £5,000 • Annual fees based on AUM • Broadly 0.5% or less • Focus on Financial Planning • Annual or more frequent reviews • Capped • Calculated on an underlying hourly rate

12. Yellowtail story – fees version 2.0 • Range of tiered fixed fees – the results • Easier to explain • Too much negotiating on the initial fee • Too much emphasis on Financial Planning • Sold lots of financial plans • Didn’t build AUM quickly • Difficult cash-flow position • Trouble with value proposition during credit crunch • Doing more work than we were being paid for

13. Yellowtail story – fees version 3.0 • Fixed, Hourly and Value Based Fees. • Financial Planning Fee 50% up front - 50% on completion • £2,500+VAT initial • Implementation fee based on hours spent (VAT exempt) • Value based fee 0.5% AUM (+VAT) • Introduced Satisfaction Guarantee • Created value proposition for financial planning • Sample menu of charges for implementation

14. Yellowtail story – fees version 3.0 • Fixed, Hourly and Value Based fees – Results • Attracted financial planning work • A barrier to people wanting long term relationship • Better cash-flow but long time before AUM increased • Clients nervous about hourly fees • Happy to pay fees for each stage • Still not making decent profit

15. Yellowtail story – fees version 4.0 • Fixed, Value and Value Based Fees • Kept the initial fee the same • Changed to value based fees for implementation • Increased the ongoing AUM from 0.5% to 1% on first £1m • 0.35% funds in excess of £1m • Additional project fees for planning

16. Yellowtail story – fees version 4.0 • Fixed, Value and Value Based Fees – Results • Increased revenue – best ever half year results • Lost some clients who wanted cheap work • Appeals to our HNW clients • Better client engagement • Moved everybody across

17. Yellowtail story – fees version 4.1 • Fixed, Value and Value Based Fees – next • Reduce the costs of entry • Speed up the pace of engagement • Refine the menu of additional services • Sell higher value planning

18. Professional Partnering

19. Freedom....