Asset-based fees are becoming less prevalent among practices that bill clients on a fee-for-service basis, according to a study into financial advice remuneration conducted by Elixir Consulting.
The study drew responses from 275 businesses across Australia along with around four from North America.
It found 76 per cent of those surveyed charged a flat upfront fee, and only 7 per cent charged an upfront asset based fee. In ongoing fees, 44 per cent charged a flat retainer.
“Last time we did this, only 29 per cent charged a flat retainer,” says Sue Viskovic, managing director, Elixir Consulting.
“We’re finding that’s dropping off a lot, we’re finding there’s a significant shift towards flat fees,” she says.
The study showed that around 13 per cent of those surveyed were eliminating commissions from their businesses altogether.
Viskovic concedes that it looked only at advisers that provide full-service financial advice, and that “a lot of the fear [around Trowbridge’s recommendations] is coming from risk-only advisers.”
“The biggest thing is that it comes down to the mindset of the adviser…if they’re convinced that it’s the right way to do things.”
Can’t afford fees? Think again
One of the most commonly cited arguments against fee-for-service is its profitability. Many risk advisers in particular believe it is not possible to run a profitable business that charges only fees for life insurance advice. Such responses have inundated the comments pages of the Professional Planner website in recent weeks.
However, some of Viskovic’s findings may also point to a reason for this beyond the simplified view the overall fee model is flawed. A high rate of undercharging has emerged as an ongoing pattern, showing up in the latest study and in those conducted in previous years.
As an average figure, the research showed that $3,723 was the average engagement fee charged to a comprehensive advice client.
“But the average across clients that we know we’ve taken through a process to analyse what they’re doing is $4,316,” Viskovic says.
She believes one of the overarching things this tells us is that, though every business is different, it’s vital to thoroughly analyse the cost of running your business and the engagement that you have with your clients before setting fees.
Viskovic stresses that billing on time alone should be avoided, with this sending the wrong signals and potentially discouraging adviser-client interaction.
“It can still be a retainer, or an on-boarding fee, but the process we take advisers through to really thoroughly understand what it costs is a time and cost analysis. We find that when they do that, they usually find that it’s a lot more than they expected.
“[It’s important] to arrive at a fee that is of value to the firm and to the client, and where they don’t have a good thorough process to do that, they tend to default to undercharging,” she says.
