The financial advice industry seriously needs to rethink its approach to charging for advice, with a number of recent surveys highlighting client dissatisfaction with the ways in which financial planners charge for advice.
For example, a recent survey conducted by consulting firm Leap of Faith found that 75 per cent of financial planning clients would prefer an alternate way of paying fees to that of the current industry standard. One third said they would prefer a success fee based on performance and taxation savings, while 29 per cent would opt for a flat fee and 13 per cent an hourly rate. Only 12 per cent were happy with a percentage-based fee on FUM.
In contrast, ASIC’s recent shadow shopper survey of financial advisers found that 78 per cent of advisers were paid through product commissions or fees that were based on a percentage of the client‘s assets or investments under advice.
Unsurprisingly, where advice fees were contingent on a product recommendation, advice often appeared to be geared towards recommending or selling financial products, at the expense of optimal strategic advice for clients.
Success-based fees are a sensible and reasonable approach as far as clients are concerned, and forms of success-based fee payment exist in many other industries. Of course, this ‘sing for your supper’ model does place more responsibility upon advisers if they are to make a nice living. Financial planners should keep these kind of stats in mind in considering what model they might adopt in a fee-for-service post-FoFA world.
