Recent Wealth Insights research found that almost a third of financial advisers have managed to grow their profit levels back to a point that matched pre-GFC levels. This figure was commensurate with the number of advisers who used the GFC as an opportunity to reduce their operating costs and reengineer or diversify their business models, according to Wealth Insights.
Furthermore, financial advisers who successfully reengineered their businesses to turn a profit had fully embraced a fee-for-service model, according to the research.
There has been a lot of resistance from the financial planning community about a move away from commission-based business models towards fee-for-service under the Federal Government’s Future of Financial Advice (FOFA) reforms.
Even though FOFA is just around the corner, many financial planning businesses are still operating on a commission basis. A recent ASIC report, for example, found that the 20 largest licensees (representing around 70 per cent of the country’s advisers) still relied heavily on commissions. In fact, they earned about 90 per cent commissions and rebates from product providers, while only 10 per cent was made up of client fees and neutral product payments.
It is human nature to resist change, but if the Wealth Insights research is to believed, fee-for-service is a pretty attractive incentive to change. However, it would seem that the financial planning industry has a long way to go in embracing the fee-for-service model – and not just for the purposes of compliance – but for the sake of the bottom line.
