“The important distinction is that they free up the cash flow.
They drive the process, because it’s not up to me to say you’re spending too much on bottles of wine. That’s up to them.
“Then it’s about giving the actual strategic advice of what they should be doing.
“It’s about sitting down with each client and saying, if you do these things, say you have $30,000 in surplus cash flow a year after tax, well that might be worth $45,000 to you pre-tax if we get it into super; if you do that, this is where we’d expect you to be, using a reasonable rate of return – 5 per cent say, over 10 years – and this is how much you’ll have in retirement. And this is how much you said you were going to need.
“It may be that they’ve only got $700,000 and they might need $1.5 million, based on their current spending habits. It’s about using this information to educate the client about how much, or what they need to do and what they need to change if they really want to reach that goal.”
Howlett says he’s learned that it’s vital for the client to make the decisions.
“I used to be the guy who’d say, ‘I think you should cut back here; I don’t think you should go on this holiday; I don’t think you should do that’,” he says.
“But it doesn’t work, because it’s their money and it’s their life, so I think it’s about presenting the facts to the client and then they can make informed decisions about what impact their current lifestyle is going to have on their other goals.
“Whatever the most important goal is to them, they need to understand the impact of that. That, ultimately, is what I think financial planning is.”
Howlett has weathered some financial pressures to get his business to where it is today. He started it when he had “a six- month-old child, and a wife not working”.
“It’s taken probably 18 months to get it to a point where it’s profitable enough that I am able to support my family, support the business and put some money away,” he says.
“And now the other issue I’ve found is trying to grow the practice. I’ve got a guy who comes in and helps out with the admin, which is great, but I’m finding I’m spending a lot more time with these clients on an ongoing basis, which is great…but it’s always a balance as to whether I put on another employee to free me up again.
“Trying to get through these growing pains and those issues – there’s six new clients, six SoAs, that I have got to get through and get the advice out to these clients; so I’m flat-out at the moment, which has meant I’m working long hours, and so at the moment I think I should probably have someone on full-time to help me with this work, coming to the client appointments. But it’s always a balance.”
Howlett says an important reason for establishing his own practice was so he could structure his remuneration correctly. He charges a flat-dollar fee upfront, and a flat-dollar fee, linked to inflation, for ongoing service. The fee is set according to an estimate of how much time and work each client will take, based on an hourly charge-out rate of $250, plus GST.
“I use a spreadsheet [to work out] how many hours I’ve got for this client, and then extrapolate that out; it gives a figure, and it also needs to be commercial – I might come out with a figure that’s massive, and sometimes I’ll discount it depending on how keen I am to win the client,” he says.
Howlett monitors the actual time spent on each client over the course of a year to ensure he’s quoting accurately. It does not always go quite according to plan.
For example, he says one client has taken up about $17,000 of Howlett’s time, but has paid about $6500 in actual fees.
“I’ve just got to wear that,” Howlett says. But the fee will be raised next year.
“I’ve already told him and shown him the spreadsheet,” he says.
“He’s happy with that because he’s seen the amount of work that goes into it.”
