Remuneration is not a black-and-white issue

There is a common misconception that professionalism in financial planning means advisers should only charge a fee for service. But in my opinion nothing could be further from the truth.

It should be an adviser’s aim to act in the best interests of the client – always putting the client’s financial well-being first and foremost in all recom­mendations. In light of this, a planner’s remunera­tion can and should be a combination of both fees and commissions.

If we take commissions out of the equation, it is the clients who may ultimately suffer, as there is a risk that a percentage of the population could be denied access to a financial planner due to their economic situation.

If a client requires a specific service but can’t afford the out-of-pocket costs associated with a fee-for-service model, what are their options for accessing financial advice?

I do not think I should be expected to work for nothing, and it does take a considerable amount of time to prepare a Statement of Advice (SoA), but when people do not have the money to pay upfront fees, should they miss out on getting good advice?

Remuneration is one issue; the other is the professionalism of the adviser.

In my opinion there are, generally speaking, two types of advisers: strategic planners, who offer true advice that may result in a product sale; and then there are “sales people”, who disguise themselves as professional planners.

A strategic planner does not focus on product. They focus on what the client is trying to achieve.

A strategic planner has the training, educa­tion and experience to be able to recognise clients’ situations, and to define strategies that fit those situations.

If a strategy results in a product sale, so be it. If it doesn’t, then it doesn’t. Often there’s no product sale. In these cases I am compensated for my time, experience and education by charging a fee.

A strategic planner, such as myself, works for the client and is paid directly by the client/investor for the services that I provide. I purchase research and other information that enables me to make an informed decision about what is best for my client. I can choose from a range of potential product so­lutions, including risk insurance products, managed funds and direct equities.

I choose to be paid by a mixture of fees and commissions. Many articles I read, and fee-for-ser­vice practice models that I have studied, promote the idea that a client would be better off being charged only a fee, implying that commissions are necessarily exorbitant.

However, on every occasion (and there have been many) that I have dug deeper into these fee models, I find that commissions are rebated and then the client is charged at least the same, and in most cases more, than the original commission cost.

In the end, however, the matter is simple: if the planner is professional and ethical, and the fees and commissions are clearly communicated, then the method of remuneration ceases to be an issue. The client’s best interests will be put first and the remuneration will be fair and reasonable based on knowledge, experience and time required.

Ross Cardillo is a director and senior adviser with Ross Cardillo Financial Services, Mareeba, Queensland. The views expressed in this column are his own.