It’s the million-dollar question – how should financial advisers charge for their time?
Each financial adviser uses their own unique calculation process to decide on the right fee to set for clients, and a conference in Hobart last week heard that the price charged to clients remains a critical issue.
While some advisers sat in silence and didn’t partake in group discussions or share their fee structure, other more outspoken advisers were more than happy to share how they charge. The general consensus in the room was that fees need to be increased, but how those fee increases are calculated appears to be a mix of both science and art.
A survey of the 60-odd financial planners who attended the Boutique Financial Planners conference held in Hobart last week revealed that one of the most important challenges they faced was pricing and value proposition. So, the topic was thrown open to conference delegates to discuss.
Advisers consider the costs involved in running an advice business, including licenses and insurance, calculating the years of experience and then developing an internal pricing model that takes into account the financial complexity of the client. Some advisers don’t charge clients for the first meeting, while others do.
The discussion followed the release of research from Investment Trends last week which revealed Australians considering advice are only willing to pay $800 to help start a retirement income stream. The research showed there are 1.3 million Australians still seeking financial advice in the next two years, but only 3 per cent of them would be willing to pay more than $2000 in fees.
One outspoken adviser told the room he charges every 13 minutes in increments: “It boggles my mind that you guys don’t log time, it does my head in. How can you run a business if you don’t calculate your time,” he said.
“You need timesheets. It’s too easy not to do. It’s very academic, but no one appears to be doing the academic side of things here.”
Another adviser added: “Our mantra is a fair days work for a fair days work. If you’re spending time with a client, then you need to be careful that you’re not giving someone too many hours unpicking their finances, which can be just as damaging as not giving your clients enough hours,” he said.
Some advisers admit to using a spreadsheet to calculate cost, while others use digital timesheets. One said: “We have a fee structure matrix that works in the favour of clients some years, and not in their favour other years.”
Fees charged ultimately rests on the value of the client relationship. “There’s also an element of whether these people will be hard work or not,” one chimed in.
Another adviser agreed: “I also consider how a client likes to deal with us, how reactive and responsive they are to the advice given, and how much formal reporting they need.”
Meanwhile one adviser was keen to point out the difference between financial advice dished out by banks and professional financial advisers. “Banks are more transactional, but financial advisers approach it about being here it for the long term,” he says.
Pricing models that incorporate cost of staff and how they use their time and the strategies implemented for a client are important. Discounting was also discussed. Surgeons wouldn’t discount, so why should advisers? “Our time and our expertise is worth something, and what’s what it’s worth, there’s plenty of other financial advisers out there,” one adviser shared.
Another adviser piqued up: “What type of client you’re targeting is relevant to the fees you charge,” another pointed out.
A couple of advisers spoke up, urging their peers to have confidence in the service they provided by charging what they’re worth. “Advisers need to have confidence in themselves and their own pricing model,” one adviser told his peers.
Whether or not one-off clients ultimately cost more than long-term clients was also hotly debated, with some suggest that it makes no difference.
Either way, being ahead of the price curve by letting clients know about price hikes before they see it on the invoice is also important. Annual rate reviews, and increases alongside CPI are critical, others shared.
Members also revealed that the outcome of the Quality of Advice Review could ultimately impact the cost of doing business, which one member conceded may force fee increases.
