A Premium for Advice

True fee-for-service financial planners are only a minority of the advisory profession in Australia, according to Stephen Prendeville, co-principal of consultancy firm Kenyon Prendeville. But, as with many commodities, that rarity brings with it a higher price tag. Prendeville says his firm, which specialises in valuing and helping financial planning businesses through the sales process, puts a premium on fee-for-service practices.

“We do value true fee-for-service businesses higher – their fees are not linked to FUM [funds under management] and therefore do not move due to economic or market forces,” he says. Kenyon Prendeville defines a “true” fee-for-service model as a business that charges clients directly for an agreed level of service.

Separating the value of a financial planning practice from the more traditional FUM measure takes a fair degree of courage from the business-owners but the rewards can be substantial.

The concept is more highly developed in the US, where a recent survey of practices has found ‘fee-only’ practices generate higher revenue on aver­age than ‘commission’ and ‘fee-based’ businesses.

The Brisbane-based Westwood Group sells itself as a fee-for-service financial planning practice. Dominic Cronk, Westwood Group director, says that because the firm grew out of an accounting practice there was an “inherent bias” towards the fee model.

“The model evolved purely out of our instincts and it was what the clients wanted,” Cronk says. The group has operated under the fee-for-service approach for about five years, with the price ne­gotiated with clients upfront based on a “strategic review” to ascertain the scope of work required.

“We agree on a fixed retainer with the cli­ent, which is a quarterly fee paid in advance,” he says. According to Cronk, this approach enables Westwood Group to act quickly on behalf of their clients in certain situations, without the need to negotiate new fees, as opposed to advisers working on FUM fees or the accountant/lawyer timesheet models.

“The goodwill of a franchise is more valuable when you have a strong linkage with the client,” Cronk says. “If your value is just based on managed funds and platform FUM that is not enough. If your clients depend on you for more, then the value of your business goes up.”