When Phil Thompson started his own business in 2004, his former boss and mentor gave him one piece of advice: charge enough fees to stay in business.
Thompson has stuck by this in the 12 years of running his business and says it’s a model that has only improved from year to year.
“My now retired old boss/mentor told me in no uncertain terms when I started my business that I had a responsibility to make sure I charged enough fees to stay in the business, otherwise my skills and ethics would be lost and would be of no benefit to those seeking financial advice,” he says.
“I am a firm believer in keeping it simple and making it easy for clients to use my services. So I have a very transparent fee structure and I charge all clients the same flat fee, depending upon what stage of an advice process we are at.”
Sticking point for many
It is this fee structure that can be a sticking point for many. Thompson’s flat fee means a person starting out will be charged the same rate as a long-term high net worth individual.
His rates range from $275 for the first step of a financial check-up, and are stepped up as the process goes along to an ongoing annual fee of $3300 for wealth management services.
Although it has gone through several iterations to find the best model, this one works well for Thompson. It’s enabled him to live the kind of lifestyle that many of his clients would be trying to emulate.
“I stick to what I do best and keep things simple. I have no staff, I work from home, I have school holidays off with my family, and I look after 82 clients on an ongoing basis. You can certainly operate an enjoyable and viable business being independent.”
Independence is key for his brand of financial advice and he would like to see it become the “norm” for the industry. He sees quality advice as being advice truly free of “any conflict of interest”.
“It never made sense to me that an environment of potentially conflicted advice was any good for clients,” he said.
Not owned by a product provider
This means not being owned, in whole or in part, or licensed by a product provider, not receiving any incentives from a product provider, and charging flat fees for advice rather than asset-based fees.
“Flat fees means that an adviser will not, now or ever, be in a position to encourage a client to invest more with them, rather than pay off a mortgage or contribute funds to their existing superannuation fund, whether retail or industry,” Thompson says.
“To the extreme, we have seen the examples of advisers recommending double gearing strategies with home equity and margin loans which put clients in a disastrous position, but the adviser was paid more for increasing the size of the investment.”
He sees the solution as simply removing the environment that allows this type of advice to prosper, but acknowledges that is politically difficult to get to.
“Ideally it would be illegal for a product provider to own or license a financial advice business and hence any financial advisers. And remove asset-based fees.
“But, realising that it would take a lot of political will to get to this point, I would like to see an environment where independent advice is better understood, better promoted to the public and a more attractive option for new financial advisers, which I believe will only be of greater benefit to clients seeking financial advice.”
An environment free from conflicts
As for the future? Back in 2004, Thompson believed the industry would move quickly towards a more independent model. He still hopes an environment free from conflicted interests will take over.
“While I can say that the interest I have had from clients in seeking advice has gradually increased, I am disappointed to see that the number of truly independent financial adviser options has not changed a lot over the years.
“My aim for the years ahead is to help more advisers choose the independent option by providing a suitable home for them.”
