FOFA starts in eight months, and for most of us that means as commissions go we will need to move to a fee-for-service model, if we have not already. Here are some tips for making this transition and capitalising on SMSF advice in the process.
1. The key to success in a fee-for-service model is to first provide the service. To provide service you must integrate yourself into your client’s affairs, nicely, and in a way that demonstrably adds value. Some advisers have been doing this successfully for years. For others it is new and unknown ground.
One strategy is to create a series of set plays that can be used over and over again for recurring client presentations. Each set play relies on a standard and simple limited scope SOA that can be produced quickly, and at low cost, looks professional and works as a client communication.
Each set play must recommend an ongoing role for you, as the adviser, the service provider. And the set plays must contemplate ongoing fees for your ongoing role. Think 30 years, not 30 days.
2. SMSFs are perfectly positioned for these ongoing 30-year integration service strategies. Clients love the idea of being in control of their own money, and are well disposed to SMSFs. The SMSF boom should not be a surprise, and it’s not something that’s going to stop any time soon. Expect SMSF numbers and FUM to increase significantly.
SMSFs are terrific for fee-for-service financial planners because they require ongoing financial planning services. Think about it. You have to initially advise on the set up, and the interplay between the SMSF strategy and the client’s wider financial planning strategy: think 30 days. But then you have to advise on the ongoing situation: think 30 years.
The 30-year plan has to be monitored and this includes:
- estate planning, particularly for older clients;
- risk insurances, and the advantages and complications created by SMSFs owning insurances;
- the ongoing annual SMSF compliance function (yes, you should provide this, as the CRM, and subcontract it out to a low cost provider)
- regular meetings to review the underlying investments, (which should be direct investments, ie bank deposits and similar, shares and properties, because this is what your SMSF clients will want) and recalibration as needed.
3. Low ball the fee: never make cost an obstacle to keeping in touch with your client. Dover encourages regular adviser SMSF meetings. Your meeting should focus on the immediate issue of what the SMSF is invested in, and whether this needs to change, and also discuss the client’s wider affairs and concerns. It’s likely your client will ask you do something else at the meeting, and, being happy with your services, they will recommend you to friends and family.
Dover has advisers with more than 100 SMSFs set up on this basis. Dover provides the SMSF back office at a fixed fee of $800 a SMSF, including audit. The advisers charge $2,500 a year (plus consulting fees, insurance commissions and other fees) creating a guaranteed profit of at least $1,700 for acting basically as a SMSF CRM.
100 SMSFs at $1,700 a year is $170,000 a year of extra cash flow, and perhaps $500,000 of extra CGT free goodwill – just for adding in the SMSF administration function. That’s how you create a great fee-for-service practice.
