Imagine if advisers could predict exactly when a client or prospect needed advice on a specific matter. Imagine if they could magically call or appear in their inbox at that moment. Johnny on the spot. Not only would they have a highly motivated client with a problem, they’d have the solution.  Would the client value that advice? Yes. Would they be willing to pay handsomely for it? Definitely.

This scenario poses the questions: What if advisers only provided and charged for advice on an as-needs basis?

What if they only provided one piece of advice in Year 1, no advice in Year 2 and three pieces of advice in Year 3? Could this be classified as an ongoing relationship?

You bet and an extremely valuable one at that.

While this type of relationship may not meet the definition of “subscription” – the industry’s latest buzzword – it has the power to yield strong returns.

But in order to turn this scenario into a reality, advisers need three things: great relationships, confidence and data. They can learn a lot from other professional services firms.

Professionals bill their clients regularly for the work they do and their clients pay.

They pay because they have complex, pressing needs that they can’t meet themselves.

It’s a straight-up, timely value exchange.

Yet the advice industry’s fearful reaction to draft legislation requiring explicit client approval for advice fees to be deducted from accounts annually suggests that advisers think some clients may not pay or renew.

The ongoing fee model needs a rethink.

To me, the industry’s resistance to annual fee contracts is akin to a sailor running south on the deck of a ship travelling north at 40 knots. No matter how fast that sailor is running, he or she will still end up north (and exhausted). Similarly, advisers need to accept that ongoing advice fees are close to expiry, due to changing demographics, consumer preferences and professional standards.

As an investor and business partner in over 60 professional services firms including a number of accounting firms, it is clear that Australians have increasingly complex needs and they’re prepared to pay a reasonable price for good advice.

Tax, superannuation, lending, social security and survival in general is complex stuff and it’s only getting harder.

People need advice but they don’t necessarily need it on tap. They need it when they need it.

This argument is supported by changing demographics and work patterns, not to mention increasing economic uncertainty, meaning that paid full-time employment, job security and regular superannuation contributions are a pipe dream for the majority.

Many people, particularly younger people, have never – and will never – have a full-time job. Part-time and casual work; freelancing, consulting and contracting (often involuntary) is becoming the norm.

According to global jobs website, Indeed, 60 per cent of hospitality workers and more than half of retail jobs are part-time.

In fact, in every industry, except finance and real estate, businesses are relying more on part-time workers, according to the Australian Bureau of Statistics (ABS).

Across almost every industry from stockbroking to journalism to manufacturing, people are being forced to reinvent themselves and accept insecure work. Digital disruption, regulation and progress in general demands it.

Demographic change also demands it.

According to McCrindle Research, Australians aged 65 years or over currently represent around 15 per cent of the country’s population, or 3.8 million people, and that figure is expected to hit 5.2 million the next five years.

By 2055, it is estimated that there’ll be only 2.5 workers per retiree, down from 4.5 workers per retiree in 2015.

This poses a significant challenge for advice firms (and the government).

For the average advisory firm, retirees and pre-retirees represent the bulk of their client base.

As the baby boomers adjust their lifestyle and spending to reflect their new stage in life, how many will continue prioritizing ongoing advice fees?

Retirees may need an ongoing advice relationship, but do they need to pay an ongoing subscription for advice?

In the same way, people typically only see their solicitor when they need timely advice on specific matters such as buying a property, estate planning, or getting married or divorced, advice firms need the capability, capacity and confidence to deliver advice on an as-needs basis.

Fortunately, when it comes to profitability, frequency is irrelevant. Strong, lasting client relationships are built on value, trust and history – not number of interactions.

The professional advisory firm of the future will not charge ongoing advice fees.

Instead clients will be billed for work completed.

They will have an accounts payable and receivable department, and potentially the facilities to process payments on the spot, like doctors.

They’ll also be data-mining experts that use technology to store, record and retrieve data and produce reports that enable them to proactively market to clients at critical times in their life.

Business buyers will place a higher valuation on firms that understand this because they’ll have much stronger client relationships than those with a subscription-style model. They will be well-positioned to deliver sustainable growth.

Right now, these professional advice firms aren’t fighting to preserve business models that are out of favour with consumers and the regulator. To them, this is akin to running south on a ship that is sailing north. You can find these businesses on the ship’s bow, leading the charge towards professionalism.

13 comments on “Time to rethink the ongoing fee model”
  1. Avatar Brett Schatto

    Paul,
    A very timely article and I agree with you. Is it in a client’s best interest to allocate them into one of 3 or 4 pre-designed service packages on offer by a practice? Or is it in the practice’s best interest to provide what could be seen as a cookie cutter piece of ongoing servicing, back ended to justify ongoing fees charged? The old “we’re here to help you with Centrelink if the need arises” where a retiree couple has over $2m in assets is simply a bad look. Or how about the “we will assist with any insurance claim that may arise” but the clients are in their 70’s with no cover for at least 5 years? Even worse is if they have been a client of yours during that time and you know they don’t have insurance. I see examples of this time and time again where the services offered to a client for a particular subscription don’t reflect their personal goals, objectives or needs. I understand the need for an ongoing relationship and to meet at least annually. Continuity of advice is an important and efficient piece of any ongoing relationship. This allows the planner and client to map out and design goals and strategies over periods of time but other than a potential rebalance (getting lesser with SMA’s etc), top-up of cash and a chat why does a client need to pay a large fixed fee to include ongoing services not reasonably expected to be needed? For me it comes down to hours spent on each client for services used over the year. The only fixed cost should be the annual review and all other services agreed to in advance and delivered throughout the year. As a clients circumstances change, even their desire to take back some of the work you have typically provided to save them money (to do it themselves) our engagement with clients needs to be adaptable.
    Through this article you are starting a discussion which is great. Time will tell whether the “one size fits all” ongoing service packages survive or the modularised “as the need arises” will be the new norm. My belief it will be the latter.

  2. Avatar Lawrence Lam

    Hi Paul Barrett,
    The medical and legal sectors would love to copy our ongoing fees and ongoing advice business model.

    I think the FP world suits well for this business model.

    In Ontario, Canada, family GPs are allocated a group of patients, say 500 of them, and the Government gives the GPs an annual lump sum to take care of that group of patients so as to improve their health, wellbeing and medical outcomes. The GPs may not want/need to take on a new patients during the year. I guess Leanne may consider moving to Ontario.

    The big legal firms and accounting firms would love to ditch their fees for tranasactional service, with constant invoicing, payment chasing/negotiating and bad debts write-off. They love to sign on an annual retainer package to serve corporates. It is so much more efficient and easy to plan for all parties concerned with better outcome for all.

    Hence, long live ongoing fees and ongoing care to our clients!

  3. Avatar Jason McFadden

    One model is not better than another. It depends on the firm. The costs of providing advice is prohibitive now and you’re talking about debt collection departments, account receivable teams. The model you speak of is workable in Accounting firms only because tax returns are largely compulsory with time frames to lodge BAS & tax returns. Large industry super funds will implement this model because they have a pool of thousands of clients, but more importantly the advice and these accounts teams you speak of are subsidized by a wide member pool loyal to a brand. Get them in, get them out is the approach, providing piece meal advice and don’t worry about them when markets falls or legislation changes because your firm is making money on the funds under management and there is always another super member waiting. Typical of the authors background, where large institutions only have customers, not clients or more importantly a personal relationship. Tailored personal & proactive advice covering all aspects of a personal financial life is best served by an ongoing relationship.

3 of 3 >
Leave a comment