Evidencing ongoing service and fees before a transition
Before a sale or handover, each ongoing fee needs a record showing what the client agreed to, what they received, and that the price is fair.
Before a sale or handover, each ongoing fee needs a record showing what the client agreed to, what they received, and that the price is fair.
An ongoing advice fee is a payment for a service. Before a transition, whether it is a sale, a handover to another adviser or both, each of those fees has to be backed by a record: what the client agreed to, what service they received, and why the price is fair for it.
Under Consumer Duty, a firm has to be able to show that the price a client pays is reasonable relative to the benefit they receive, and that the client understands what they are paying for. That applies every year. A transition makes it urgent for three reasons.
Due diligence looks at the record behind each fee. Fees without one are treated as at risk and priced accordingly.
A transition gives each client a moment to reconsider. A client who knows what they pay and what they get is better placed to stay.
Whoever takes over the client takes over the obligation to deliver the service the client has been paying for.
Every client paying an ongoing fee should have a written agreement that sets out what the fee buys. Check for each client that:
Where the agreement describes a service the firm no longer provides, change one or the other. Either deliver what the agreement says, or agree a new service and fee with the client and record it. An agreement promising two reviews a year to a client seen once every three years is a liability on the file.
The service a client receives is shown by what is on the file. For each client paying an ongoing fee, the file should show:
A review that happened but was not recorded cannot be shown to have happened. Write a short file note on the day of each review. A full report written months later carries less weight.
The letter or report sent after a review is the client's own record of the service. It should confirm what was discussed, any changes to their circumstances, whether their arrangements remain suitable, any recommendations, and what they paid over the past year, in pounds. It should give the date of the next review. Keep a copy on the file. A client who receives that letter each year knows what the fee buys.
Some clients do not want a meeting every year. Some do not reply to invitations. If they continue to pay for a service that includes a review, the firm needs to show it offered one.
Record each invitation, the date, the method and any response. After repeated invitations without a response, write to the client to explain the service they are paying for and offer them a choice: take up the review, move to a lower level of service at a lower fee, or stop the ongoing service. Record their decision, or the absence of one, and act on it.
The firm should assess whether its fees represent fair value for each group of clients it serves. That assessment looks at what the client pays across all charges, including platform and fund costs, and at the service they receive. It should be written down and reviewed at least once a year.
Pay attention to clients whose fee is high relative to the work done for them, such as a client with a large investment who needs little advice, and to clients whose fee is low relative to the work, who may be receiving a service the firm cannot sustain. Both need a decision. Record the assessment and the decisions that came from it.
Records for clients with characteristics of vulnerability need particular care. The file should show what the firm knows about the client's circumstances, how the service has been adapted for them, and how their consent has been obtained for anything recorded about their health. A buyer or the next adviser will need this information, and the client will expect it to be handled with care.
Where a fee covers a household, such as a couple with accounts in both names, the agreement and the review record should cover both people. Record which accounts the fee applies to, and who attended each review. If one partner has never attended, offer them a meeting of their own. They are paying for the service too, and one day they may be the only client in the household.
The work will show that some clients are on a service that no longer fits them. Some need more than they pay for. Some pay for more than they use. Change the service at a review meeting, explain the change and the new fee in pounds, and confirm it in writing with a new agreement.
Do not change service levels in bulk by letter in the months before a transition. A client who receives a letter changing their service and then a letter about a new firm will see the two together.
The work can be done within a year by a firm that sets out to do it.
Produce the list: every client paying an ongoing fee, with the fee in pounds, the date of the last documented review, the date and name on the service agreement, and how the fee is paid. Sort by the date of the last review.
Decide what to do for each group. Clients reviewed within the year need only their agreements checked. Clients reviewed within two years need booking in. Clients without a review in longer than that need contacting, with the choice of service described above.
Work the list. Book reviews, hold them, record them and send the follow-up. Replace out-of-date agreements at each review. Write to clients who do not respond.
Write the fair value assessment. Deal with the clients who have not engaged: move them to a different service, refer them elsewhere, or stop the fee. Rerun the list and check that every client paying an ongoing fee has a current agreement and a review in the last twelve months, or a recorded reason why not.
In due diligence, a buyer will ask for the list and then sample files from it. For each sampled file, they will check that the service agreement matches the fee, that the reviews happened, that the suitability reasoning stands up without you there to explain it, and that the client was told what they paid. Files that pass are valued as recurring income. Files that do not are discounted, or the price is deferred until the buyer has seen whether the client stays.
The buyer will also look at patterns: the number of clients with no recent review, the number of agreements naming an old firm, and the number of fees taken from clients the firm has not spoken to in years. Those patterns tell the buyer how much work the firm will need after completion.
The record has to be maintained once it is built. Set a monthly check of clients approaching twelve months since their last review, and book them in before they pass it. Rerun the full list every quarter. The next adviser inherits a file that stays in order only if the routine continues.
Under Securo, this work happens in the second stage, after joining and before the handover. Trainee advisers work through clients who have gone quiet: they make contact, update the file, get the review back onto an annual cycle, and hand each client back to you or your team for the advice. Compliance, including Consumer Duty evidence, sits with Equity & General, and paraplanning writes the review packs.
That means the record behind each fee is built while you are still the client's adviser, and the improvement in the file is reflected in the market value on which the exit is based.
The order in which to bring client files up to date in the eighteen months before a sale.
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When to tell clients, what to say, and how the timing affects whether they stay.
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Read itSteven Bates, Director of Advisory at Equity & General, takes the first call with every adviser. Ring him on 020 8396 0486 or send a short note about your firm.