25 – When to use project fees… and when not to

When to use project-based fees

The simple answer here is: whenever you can. Project fees tend to have advantages over both time-based and FUM-based fees. In preference to time-based fees, the adviser can leverage his or her own efficiency and generate greater fees for a given contribution of time. This may involve things like delegating tasks to junior members of staff, or outsourcing them altogether.

In preference to FUM-based fees, project fees have the advantage of being appropriate where a client’s assets are not suited to FUM-based pricing. This might include situations where the client actually needs advice on things other than investment (debt management, cash flow management, aged care, etc), or where the investments that are held are not in the managed equity market and thus are harder to price and re-price.

In addition, because there is no percentage calculation, the adviser avoids the appearance of being ‘on commission.’

When not to use project fees

There is really no bad time to use project fees.

That said, project fees may be resisted by some clients. It is perhaps unlikely that a client would prefer a FUM-based fee over a project fee. But clients may prefer time-based fees to project fees. This may be particularly the case for clients who are used to paying time-based fees to other professionals.  Financial advisers who are also accountants, or whose practices are linked to accounting practices, for example, often find that their clients are more comfortable paying their adviser on the same basis that they pay for other services from the accountant.

The Dover Group