If reports are to be believed, consumers are paying up to three times more for financial advice now than they were, and the reason is that planners are now charging fees based on a percentage of assets under advice/management instead of receiving product commission.
Well, d’uh! And anyway, is that automatically a bad thing?
Nowhere is it suggest that the consumers concerned think they are paying too much for advice. Nor is it suggested that consumers think financial planning services are not value for money. And it isn’t suggested that the services they’ve received have not led to a material improvement in their financial position.
Planners charging a percentage-based fee, and conforming with FPA and FoFA requirements, are telling clients explicitly how much they’re paying. And clients are paying; isn’t that how a market for professional services is supposed to work? It’s not so much the charging mechanism that should be the focus of this article – though there is a debate to be had about whether percentage-based fees are truly “professional” fees. Rather, the data underlines what the true cost of advice is.
There’s an old saying: Be careful what you wish for.
Consumers, consumer advocates and media have been pushing for the abolition of commissions for years – and now that’s what they’ve got. A by-product was always going to be that the commission payments received by planners would have to be replaced. It was also obvious that they would be replaced by flat fees, hourly fees or percentage-based fees.
And it was also always obvious that consumers would have to pay what the advice cost – it could not longer be subsidised by product manufacturers.
So it’s a bit churlish to then complain, having got what they thought they wanted, that the cost of advice has gone up.
Financial planning is a valuable service; it should be valued by those who receive it and who pay for it. If they’re prepared to pay three times more for it now than they were in the past, as seems to be the case, then that is a clear signal that the service is both valuable and valued?
Is this really bad news for an industry striving for professionalism and to demonstrate that it offers a valuable service to the community?
Add your views and opinions to this debate.