As we wait for Royal Commission into misconduct in the Banking Superannuation and Financial Services Industry (to give it it’s full title) to hand down its findings, I wanted to provide service for no fees, i.e. offer a viewpoint in relation to the discussion around fee for no service.
To recognise the root of this issue, we need to examine how the industry developed over time. Much of what is recognised as the modern Financial planning industry came about as an adjunct to the sale of products. Investment and Insurance products were sold which led to the payment of commissions to the “adviser” (really a sales agent) who had made the sale. This commission comprised an upfront component for making the sale, and on ongoing component whilst ever the product was still held by the end client. This meant that it was in the interests of the “adviser” to ensure that the client maintained the investment or insurance product. Ongoing relationships with the purchaser of the products thus became paramount, and advisers began to widen the service they provided to more than just the investments held by the client.
With the advent of FSR and FOFA, commissions on investment products were largely removed. A real advice business model emerged which meant that real advisers were providing real ongoing service to clients in exchange for an ongoing fee. Very often this fee was deducted from the balance of the investment product, but was not necessarily linked only to the product itself but in the best cases, was charged for advice in relation to the client;s entire financial situation.
It needs to be asked, what is the service that the client actually wants and is prepared to pay for. There appears to be a school of thought that unless a face to face meeting is held with a client, then no advice can be given and therefore no fee should be charged. We have read many articles decrying the fact that a particular client was charged fees despite never having seen their adviser for years. The nature of the relationship between an adviser and his client is as diverse as the nature of the relationship between any two people.
Consider a number of somewhat arbitrary categories of client
1. the delegator
This client wants someone to look after whatever financial issue it is that they have sought advice around. They want to have little or no input, preferring to trust their adviser to look after them and let them know when something needs to be done. in my experience, these clients will want to meet with their adviser less regularly but will want to hear from their adviser that everything is OK. It is quite foreseeable therefor that a delegator client will not necessarily have a formal face to face meeting with their adviser very often at all, but an occasional check in call, together with a true review of their investment portfolio is what is needed, and is the service that they are prepared to pay for. Should an adviser be required to force this client to attend a face to face meeting in the name of not falling foul of accusations of “fee for no service”? Surely a properly documented review process, together with notification to the client of the need for or otherwise of portfolio adjustments should suffice and entitle the adviser to charge a fee.
2. the validator
This client is liable to come up with their own financial ideas but seeks advice or expert opinion before taking action. They want to be able to consult with an adviser on an ad-hoc basis who can help them to make decisions. The key for this client is being able to consult with someone that they trust, who know their circumstances, and the way that they think so that they reduce the danger of making mistakes. A regular review for this client is not important unless something is happening. is the adviser to be forced to only charge on an ad-hoc, rather than retainer basis for this client in the name of not falling foul of accusations of “fee for no service”?
3 The “busy” client
This client leads an extremely busy life, with little time for an extraneous activity. They can be either a delegator or a validator, but have a lot of stuff going on in their lives outside of their financial world. Whilst they appreciate a face to face meeting, they are unlikely to attend one each time it is scheduled, they operate to their own timtetable not that of their adviser. Sometimes it can be a couple of years between meetings, though the adviser will have offered a meeting more often than this. The “busy” delegator, wants and is prepared to pay for regular communication form their adviser in connection with their financial affairs, and a meeting when they (the client) gets a chance. The busy validator is more likely to want ad-hoc telephone contact rather than in-person, but again at a time of their choosing rather than their adviser’s.
I firmly believe that the arrangement between a client and their adviser is a matter between them, provided it is properly documented in a transparent way and agreed to by both parties, with appropriate regular disclosures. Post Royal Commmission, there is a danger that the wants of the client in connection with how they pay their adviser will be restricted, and surely this cannot be in “Client’s best interest”
In a previous article I offered a viewpoint on the related “fee for dead people” issue which you can access here.
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