Financial planners need to be doing more right now to prepare for the transition to a post-Future of Financial Advice (FoFA) world because “going fee for service isn’t as simple as waking up one day and starting to talk in a different language”, according to Paul Barrett.
Barrett, general manager of advice and distribution at ANZ, says advisory businesses must be proactive and assess how they will satisfy the mandatory requirement, applicable from July 1, 2012.
“You actually have to have a very good, long look at your existing client base, your business model, how you actually drive revenue and the cost in that business model,” he says.
“We’re experiencing unprecedented change in terms of regulation of financial planners and the financial planning industry…and it’s obviously getting to the pointy end with draft regulation coming out.”
He says the financial planning industry itself has failed to understand the cost of advice.
“We’ve done various research that tells us it costs $3500 to serve a client holistic financial planning yet clients are only prepared to pay $300.
“That’s the advice value dilemma – there’s a gap between what people are prepared to pay and what it costs.
“Moving to fee for service, you somehow have to address how you bridge that gap and it’s not a simple equation.”
Andrew Lowe, head of technical sales strategy at OnePath says that the most frequently asked question he is asked around transitioning to fee for service is, “What are my competitors charging?”
“Advisers are acutely interested in what their competitors are charging,” he says.
“It is entirely possible in a post-FoFA world to replicate the existing remuneration and mechanisms that advisers have, at least in terms of the amount that’s received.
“I think in those circumstances, there’s a missed opportunity to really ask the question, ‘What should I be charging?’”
Lowe says advisory businesses need “a reevaluation to your right price”.
The array of pricing and service structures within the advice industry has left many advisers with “an element of doubt” rather than conviction, says Barrett.
“They want to check in to see what the range of different pricing services around their local community looks like.”
While advisers start to feel the pressure of the remuneration transition, they need to remember that “there is no perfect fee charging model; it must suit your client base”, Lowe says.
“There [is] a range of remuneration models that is completely viable for advisers.
“Certainly, we’re seeing a lot of discussions around the pros and cons to each of them and I think advisers are landing on positions that agree to their clients.”
He says once a business has determined the right pricing model, executing the change and putting it into practice is the next step to consider.
“The implementation phase is a really important one,” he says.
“There are questions like, ‘Do I apply this arrangement to my new clients? Do I apply it to my existing clients?’
“In terms of the prospective nature of the FoFA reforms, there has been perhaps an assumption that fee for service need not apply to existing books of clients.
Lowe says it’s a matter of “weighing up the pros and cons of that decision”.
“Advisers that haven’t transitioned to a fee for service environment might be looking to FoFA as the reason for transitioning new clients but might look to grandfathering and also the general comfort of their existing clients [with their current remuneration structure].”
In order to assist advisory businesses to transition to a post-FoFA world, particularly in the fee for service aspect, OnePath has launched the FutureReady initiative.
Aimed at the independent financial advisers (IFA) market, its three main components of the initiative are providing real time updates of the reforms, practical toolkits to implement change and half-day workshops to execute the changes.
As advisers adapt to the realities of regulatory change, they also need to be more proactive about other major changes going on around them. As the baby boomers reach their mid sixties, they are (as usual) looking to have things done differently. A growing pre-occupation is their potentially increasing longevity (their remaining lifespan). Advisers who are skilled in understanding longevity and in helping clients adapt their lives and finances accordingly will have a clear edge – regardless of the regulatory changes. For financial advising, longevity will be a far greater change agent than regulation.
Here we go yet again some head of “whom-ever” telling us the obvious like… “You actually have to have a very good, long look at your existing client base, your business model, how you actually drive revenue and the cost in that business model,”..and they get paid for this stuff!!!!! Like you think?