Discussions around advice remuneration need to become less focussed on prescriptive measures and more inclusive of flexible arrangements, according to the CEO of Fitzpatricks Private Wealth, Matthew Fogarty.
“We’ve got to think of the client preferences here as well,” Fogarty says.
He acknowledges that when it comes to the way advisers charge their clients, licensees need to balance oversight with adviser autonomy. You want consistency, Fogarty explains, but need to allow for advisers to run their own businesses – and charge for their services – as they see fit. What often gets forgotten, he continues, is that the client, in addition, should also have their own freedom to decide how they’d like to pay.
“The way we look at it, we want to run a consistent advice proposition, so if you think about running on rails and maintaining consistency, those rails probably bulge at points and get narrower at points,” Fogarty explains. “When it comes to the point of remuneration, you’ve got to allow for the adviser and their preferences, but also the clients.”
The remuneration debate has raged since the Hayne royal commission, where the fee-for-no-service scandal brought into sharp focus the way clients are charged.
Hayne recommended that service agreements become annual, service costs are made clearer and that fees should only be pulled from client accounts upon direct written authority from the client. Grandfathered commissions were also decried by Hayne, and are subsequently on their way out, while a cloud hangs over insurance commissions until a 2021 ASIC review.
Hayne didn’t proffer anything prescriptive on remuneration, but he did say that one of the “chief challenges” in advice is “devising some remuneration strategy that rewards good behaviour that doesn’t reflect in a dollar sign at the end of it”.
Many advice firms have abandoned percentage-based payments in favour of upfront, fee-for-service models in order to promote transparency and avoid perceived conflicts. Regardless of the remuneration method employed, Fogarty says, consumer choice shouldn’t be forgotten. They shouldn’t be forced to pay using either method.
“Client preferences are probably being lost in this,” he says. “You might have a preference either way but you’ve got to have some flexibility.”
Fogarty joined Fitzpatricks in June last year after previously running the Garvan and MLC financial planning team. The private equity-backed firm has 105 advisers on ASIC’s register and has recently moved into newly outfitted premises in the Sydney CBD.
He explains how senior advisers at Fitzpatricks get together and discuss what the right remuneration model is, but there is no firm consensus.
“A large chunk of our advisers charge fixed fee but some of them are offering a hybrid model,” he says. “It depends on the client.”
The remuneration debate should be taken back to first principles, he believes.
“You [need to] step back and ask, what problem are we trying to solve here?”, he says. “It’s all about doing the right thing for the client, and in this context it’s just about being clear on what you get.”