Client assessment required for switch to new fee structures

Independent financial planning practices concerned about moving away from a commission-based fee structure should speak to clients individually to work out a case-by-case solution, according to financial strategist Lap-Tin Tsun from E+W Strategic Partners.

Speaking at a Financial Planning Association (FPA) discussion group in Sydney, Tsun also emphasised the importance of implementing changes before the July 1, 2012 deadline.

Each of the available fee models — time based, asset based, fixed price, risk sharing and hybrid — has its own advantages and disadvantages, but the most important thing to keep in mind is that regardless of the practice there will not be a one-size-fits-all solution, Tsun said.

“A move to fee-for-service means more than just changing remuneration models,” he said.

He recommended practices perform a review of their business to assess what types of clients they were targeting and whether the platforms and processes they had in place were sufficient. Only then can the business determine which fee models are appropriate, Tsun said.

Practices also need to be able to explain their services to clients in a way that they understand, he said. “It’s no good listing 20 services that you [provide] if your clients don’t understand what they are,” he said.

The change in fee structure will provide planners with an opportunity to segment their client base, and to be more specific with their clients, he added.

It is also important to remember that there is help available for planners or practices who desire it in the form of workshops, other educational opportunities and specialist consultants, Tsun said.