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Clients often appear to be irritated about our charging and fee philosophy, more particularly with the principle that while we are usually paid a retainer fee, certain services attract a so-called “non-standard service fee”. In one instance this practice has even been discredited as being unprofessional! Typically, clients take the position that all fund management services must be covered by the ‘retainer’ fee.

The Code of Ethics and Professional Responsibility of the Financial Planning Institute defines a pensions practitioner’s practice for determining fees for professional services. It requires of a professional member of the Institute to “..explain in writing, the precise range of professional services that the fee is intended to cover, the basis on which the fee is computed…” and that “…the main criteria are fairness and equitability for the client and the member…”.

This means that a professional service provider should not charge for work it has not executed. By implication, the principle requires a service provider to charge for services carried out.

The services we carry out in return for a ‘retainer fee’ agreed upon with our clients, are clearly defined in our service level agreement, and in addition, our service level agreement clearly demarcates our mandate from that of other service providers and also clearly defines services we will provide on an ad-hoc basis as and when required, for which we would then raise an additional “non-standard service fee” as agreed upon with our client in advance. If a service provider were to include all conceivable services that a fund might require in the course of time, clearly provision would have to be made for the unknown requirement for ad-hoc services. This would entail charging for services not rendered on an on-going basis and applying the over recovery to recover the cost of ad hoc services should they be required at any time in future. In our view this is inconsistent with the Code of Ethics and Professional Responsibility.

An analogy ‘closer to home’ for most, is building a house. The only two possible arrangements with the contractor consistent with our professional obligations are, firstly that where you add to the original plans you pay extra and where you deduct you get a price reduction. Alternatively, you agree with the contractor that whatever you desire to be changed must be changed without reference to the costs and that the contractor then informs you only upon completion, what the actual cost is. At this stage we apply the former approach which we believe is the right approach.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

 

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