At a recent conference on impact investment, I got talking to someone from a well-known funder over lunch. The conversation soon turned to whether it had used the services of impact investment intermediaries. He said it had and wished to use more, but he believed intermediaries to be “incredibly greedy”. In the past, it had been charged up to £1,000 per day – a sum he considered indecent.

As my own company ClearlySo is an impact investment intermediary, I need not bother to declare an interest — and I saw his point. It is challenging to justify payments of this magnitude in a world where so many people are living on less than $2 a day.

The figure of £1,000 per day is also relevant as many government-related contracts directly impose such limits.  It seems eye-popping amount and how many people really deserve £200,000 a year, and if so, should they be in this sector?  But let’s look a bit deeper.

Nobody is “billable” 100 per cent of their work day.  If we assume that a professional does client work 60 to 70 per cent of their time, then expected annual revenues amount to about £130,000 a year. Behind each professional is a team who do HR, administration, finance, legal and so on but who you don’t bill for their time. In addition, there are sales teams which generate costs, and do not win every pitch, and even if successful, cannot bill that time to the client.  Nearly half of the £1,000 a day is eaten up this way.

This leaves £65,000, which means you can pay about £50,000 in salary after adding around 30%  for national insurance, pensions, training and other staff benefits.  This leaves no surplus, which the organisation requires to be sustainable and invest for growth.

To become sustainable the intermediary must charge more, become more efficient, or pay less.  Now £50,000 a year feels a decent wage, and is nearly twice the national average, but unfortunately, most intermediaries are based in London, where most deals are transacted, and costs are substantially higher than in the rest of the UK.  Furthermore, financial transactions in the impact space are no less complicated than in the mainstream—they need to accommodate standard financial trickiness and the added complexity which comes with social impact tweaks.  These skills demand individuals with significant financial acumen and their alternative market value is many multiples of the figures above.

When I explained this to the funder, he was not impressed.  He accepted the maths, but he still felt the figures too high.  I asked him what it pays its lawyers a day, and he said, “Well, that’s different”.  “OK,” I said, “what about your accountants?” He argued that too was different.

Maybe transactions will become simpler, or London will become cheaper—but these seem unlikely.  Admittedly, intermediaries need to better articulate and demonstrate the value they add, and funders, investors and entrepreneurs should be transparently explained the maths above.  As an alternative, these three groups need to better explain to intermediaries why impact investing is so unlike mainstream financial intermediation, and that their skills are worth significantly less than those of lawyers and accountants in the impact domain.

It would be utterly indecent for impact intermediaries to earn the packages rampant in the City, but this is far from the case today.  If we want the sector to “work” we have to first talk about and second, try to tackle this challenging issue.

First published in Third Sector in December 2014.