(L-R) Daniel Brammall and Heath Hebenton

As more clients move into retirement and start to run down their assets, advisers have been encouraged to examine their fee structures and ensure an over-reliance on asset-based fees will not jeopardise their long-term business performance.

While asset fees are a perfectly legitimate way of businesses and salespeople to receive revenue, the Profession of Independent Financial Advisers president Daniel Brammall tells Professional Planner that “this is not the provision”.

“This is not the simple provision of a service,” he says.

“We are talking about what is supposed to be impartial advice, and you can’t restore impartiality by simply disclosing a conflict. It doesn’t work.”

To maintain impartiality, Brammal says, advisers must eliminate structural conflicts – such as incentives – and this is where fees become problematic.

Brammall adds that PIFA has been a long advocate for no conflicts of interest in the provision of advice.

“Advice is supposed to be impartial, otherwise it’s not really advice – it’s a sales pitch,” he says.

To maintain impartiality, according to Brammal, advisers must eliminate structural conflicts – such as incentives – and this is where fees become problematic.

“Proponents of the asset-based fee are tending to oversimplify the options and say, ‘Well, looking at these hourly rate fees, that doesn’t work for anybody’, or that that will warn… that conflicts of interest can’t be avoided in service provision,” Brammal says.

“Therefore, you’re damned if you do, you’re damned if you don’t. If you want a financial service, you’re going have to accept conflicts, end of story. Neither of which is true. It doesn’t actually survive a reasonable inspection of critical thinking.”

But Brammal says there are plenty of options for advisers to charge fees.

“You can charge a fixed fee for the provision of a service, you can charge a retainer,” Brammal says.

“Sure, you could charge an hourly rate, you can charge a retainer that stocks up if you have an account – the adviser’s account – from which time is debited if you wanted to go down a hybrid route.”

Changing the game