In yesterday’s blog I discussed why alternate revenue models will be critical for the financial planning industry with a ban on commissions under the government’s proposed Future of Financial Advice (FoFA) reforms. A move to charging for advice on an hourly basis is likely for many businesses, however, 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.
However, getting clients to understand this is another thing altogether, and there is a considerable gap between what clients are prepare to pay for advice and what advisers think they should charge. ANZ research has found that it costs $3500 to provide a client with a holistic financial planning solution, yet clients are only prepared to pay $300. This advice value dilemma is a perplexing challenge for the financial planning industry, and one that must be addressed in the move to fee-for-service.
Financial planners are very interested in what their competitors are charging for advice. While this might provide some competitive advantage and also help in determining market rates, there is a missed opportunity in adopting this approach to fee establishment. There are a range of remuneration models available to planners, and FoFA presents planners with the opportunity to seriously reevaluate the value of advice and how this is articulated and communicated to clients in order to bridge the gap between they are prepared to pay.
