With a ban on commissions under the government’s proposed Future of Financial Advice (FoFA) reforms, alternate revenue models will be critical for the financial planning industry. A move to charging for advice on an hourly basis is likely for many businesses, but is this approach a real reflection of the value that financial planners can add to their clients?
Out of hourly fees, flat fees and asset-based fees, industry pundits believe that hourly fees are simply bad for financial planning business because this approach rewards inefficiency and clients simply don’t like the idea of being charged for picking up the phone to their planner.
It could be argued that hourly fees do not reflect the value that good, professional and experienced planners can add for clients. Charging by time does not necessarily recognise the expertise that a planner can bring to the table – and the subsequent difference they can make in their client’s lives.
While FoFA presents financial planning practices with a significant number of changes, there are also opportunities for those who take the initiative and explore revenue models that not only comply with new legislation, but are more reflective of the expertise that financial planners can add. Greg Bright, Director of Binalong Advisory Services, makes an interesting analogy to the travel industry in terms of its revenue models and how it articulates the value that it creates for customers.
In any case, financial planners really need to know their customer, understand their needs and provide truly tailored service. In this way, FoFA is more about evolution for forward-thinking planners who are willing to think about different ways of articulating the value they bring to the table.
