What financial advisers can learn from estate agents
The financial services industry should take a leaf from the book of this new breed of estate agency, says Merryn Somerset Webb.
If you drive around Edinburgh, Fife or the Borders these days, you see an awful lot of signs from an estate agency called Mov8. Five years ago, you didn't see any. It's been a very fast expansion. And like all fast expansions, it's been driven by innovation. Mov8 doesn't charge you a percentage of the sale price of your house to flog it. It charges you a flat fee of £600 wherever it is and whatever it is valued at.
You will say that this means Mov8 has no incentive to sell your house at the highest price possible. After all, a traditional agent gets more commission for nudging the price up than he does for just flogging it at the asking price or less. But the truth is that most estate agents don't really have an incentive to sell high. It isn't price that gets them going. It's turnover.
Say they have a house on the market at £200,000 and are charging 1.5% to sell it. For them the difference between getting £195,000 and £205,000 is £150. Big deal. They just want to sell it fast and move on to the next sale sharpish. That's what Mov8 wants too.
It wants a shopfront full of houses on at the right price that sell quickly so it can collect as many £600s as possible. As far as Mov8 can see, this makes sense for them and it makes sense for the sellers: note that the £200,000 house above would attract fees of £3,000 if it sold on a fee of 1.5%, and only £600 with Mov8. You can sell like this in England too more cheaply as it turns out. eMoov.co.uk is an online-only agency (which is why it is cheaper than Mov8), and charges a one-off fee of £395 to help you sell your house.
You might find that the interesting thing about this is the fact that it is possible to sell your house for what sounds like an entirely reasonable fee. For me, the most interesting bit is the flat fees. Both these agencies could have sold themselves on being cheaper than the competition, and stuck with a fee based on the value of the property sold.
They could have said they charged 0.75% where others charged 1.5%; or 0.5% where others charged 1%. But they haven't. They've gone for a clear, transparent and flat figure in pounds. Anyone who hires them knows exactly what it is going to cost. This is the kind of transparency that the financial industry has been rejecting for years.
Independent financial advisers (IFAs) won't give you a flat price to review your portfolio once a year, to search for an annuity for you, or to set you up a Sipp. Instead, they like to charge you a percentage of your assets. The same goes for fund managers.
They won't charge a flat fee that reflects their costs and the work they do. They insist on taking a percentage of all the assets they have under management. It's obvious why they do this (if you have a portfolio of £200,000, 1% sounds like a little, but £2,000 sounds like a lot).
But at a time when they are publically agonising over losing our trust, I think they are missing a trick: pricing transparency is working really well for Mov8 (and for Wonga which also quotes prices in pounds), and I suspect the rest of the financial services industry might find that we trusted them more if they too were totally clear about what costs what in pounds and pence.