Consumers paying more for advice - time to rejoice?

October 5, 2010

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.

clients, commission, fees, professional

9 responses to “Consumers paying more for advice – time to rejoice?”

Les

October 7, 2010

Those clients that want advice will pay more, those that do not will pay less. In some cases advisers will make less, lets hope that when the kickbacks stop funds managers will also charge less!!!

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William Mills

October 5, 2010

I agree that fee for service is here to stay and it will benefit both clients and advisers.

We have been charging fees for over 10 years and our fees are 3 times higher than commission.

The difference is performance, we earn our fees and clients are always happy to pay for good service.

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Andrew

October 5, 2010

If rejoicing means that more Australians are getting what they are paying for then yes.

Hopefully Chris Bowen’s industry adviser / H&R Block / union rep / other is charging him 6x more as he deserves to pay…even though he is no longer the minister for FS thank goodness!

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Jojoba

October 5, 2010

Agree that Consumer Advocates, media AND some holier than thou advisers have been demanding the end to commissions BUT I don’t believe that in general, consumers had been demanding it.
This is an overstatement.
People should pay for service. that’s a given.The important thin g should be that the advice is appropriate, the service agreed to and payment clearly outlined. The issue really is that professional bodies or the regulator needs to make sure that people are protected. Charging by the hour doesn’t protect the consumer.
Storm was fee for service. Did that help clients?
Thank Goodness we are moving to banncommissions and go only fee for service. At long last ALL consumers will get good advice, pay a fair price, and have recourse where this doesn’t happen….Won’t they???????

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Jacob

October 5, 2010

I don’t think the reports should be believed
Of course consumers are happy to pay any amount if they believe they are getting good value.
The main reason why a lot of consumers don’t pay, or don’t seek, or reject the offer for financial advice is that they don’t value what we do. And they don’t value what we do because they don’t know what we do or ‘how it all works’
That should be apparent by how many ‘off the street’ people contact your office asking to speak to a fiancial adviser.

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1. simon b
  
  October 6, 2010
  
  “Storm was fee for service. Did that help clients?”
  
  I know Storm was critisised for taking 7% on funds invested (hence the proposed limitations on margin lending). Are you saying they were charging discrete fees for advice as well?
simon b

October 5, 2010

Point 1. Of course people receiving advice are now paying more for it, they are no longer being subsidised by those who received (and/or required)no advice, but paid for it anyway via commissions. For every consumer who is now paying triple for advice, there are 10 who are paying infinitely less for no advice. This is a good thing.

Point 2. “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.” When were consumers ever subsidised by product manufacturers, except by the payment of commissions to planners which were then charged to the consumer! That is not a subsidy, it is simply a fee collection service. This has not changed, just the manner and transparency of the fee.

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Bob

October 5, 2010

Dont show this to the regulators. They will want to invent a new way to stuff it up.

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1. Jacob
  
  October 5, 2010
  
  I strongly agree with point 2
  It’s a shame that the true facts get buried within all the hype and fluff that is thrown out there