Financial planning firms that undertake a structured and robust process in transitioning to fee-for-service routinely generate fee income 25 to 30 per cent higher than firms that do not, new research has found.
The 2012 Elixir Consulting Pricing Advice report found the average engagement fee across respondents was $3241 – which puts into context research that purports to show the average fee clients are prepared to pay for initial advice is closer to $600 (earlier research put the figure at $300).
The Elixir research found the average ongoing service fee was $3710 a year per client.
“What that tells you is… that when the advice goes to clients who need it and the value is articulated, they will pay for advice,” says the managing director of Elixir, Sue Viskovic.
Viskovic says the survey shows that 95 per cent of businesses can determine an appropriate fee level and transition their client bases to the new revenue model within a 12-month period.
She says this holds a clear warning for advisers who are “doing nothing until they see what happens with FoFA”.
“They’d better get going,” Viskovic says.
Structure your fee process
It is firms that approach the task properly, and use a structured process to determine appropriate fee levels, that do the best, she says, and the majority of planners who have moved away from commissions and asset-based fees “have already seen, or expect to see, an uplift in revenue”.
“They do not all see that,” Viskovic says.
“Some say it will be line-ball, but [that] we are happier with the advice we are providing [and] clients are more engaged.”
One respondent to the research said: “Fees have allowed us to help a wider range of clients.”
“As we are not asset-based, we have built a good client base in high-income, low-asset clients; SMSF advice without investment advice; doing a lot of work with direct property investors; and debt management,” they said.
“It has allowed us to advise these markets profitably without the need to find products for them to buy.”
Another respondent said moving to fee-for-service meant they were no longer “spending [or] wasting time on clients who aren’t paying us appropriately, and [we are] comfortable to charge them for the extra services”.
They said the transition had given them “confidence to charge for the value we provide and not undersell ourselves, especially with new clients”.
The definition of a fee in the survey is straightforward. Elixir says it is determined by the adviser, not the product provider, and that they can be switched off at any time by the client.
“Beyond that, for the purposes of the research, they may be flat, asset-based, hourly rates or any combination,” it says.
The research found that 29 per cent of respondents use a flat fee for both engagement and ongoing service.
“I didn’t do an analysis on how many used flat in the last [survey] and it was a smaller sample group of 120 businesses, but it was around 10 per cent at that stage,” Viskovic says.
“Again, probably too small a sample number to draw quant conclusions, but certainly anecdotally, there are a lot more advisers using a true flat-fee model nowadays.”
Click on the following names to watch a short video interview with each on pricing financial advice: Scott Graham, Sue Viskovic and Deen Sanders.
