Fee-for-service vs commission: the debate moves on

Fee-for-service has been in the news a lot lately, for better or for worse, and this is reflected in the diverse views of some Top 100 dealer group heads.

The heads all agree that adviser remuneration should match the value of advice provided to clients, but differ on whether they should pay for it up-front as a fee-for-service or later through commission structures.

Dexx&r director Mark Kachor, co-ordinator of the Top 100 survey, says fee-for-service could be a “double-edged sword” in that lower-value clients could pay more and higher value clients less.

“If an adviser has got low-value clients, and say his or her minimum bill is $2,500, and say the adviser is only getting $1,800 in commission, then the adviser could ask the client to send a cheque for $700 to make up the shortfall,” he says.

Count managing director Barry Lambert dismissed the fee-for-service debate as a beat-up by some of the major bank-owned groups to curry favour publicly with the regulator.

“We have been fee-for-service since last century, and the reality is most people went fee-based a long time ago — notwithstanding that there will always be commissions built into financial products.

“Unfortunately, what happens under the fee-for-service-based system is that advisers have to take these product commissions into account in setting their fees.”

AMPFP chief operating officer Neil Macdonald says the “fundamental issue for debate should be how a client and a planner can agree what is a fair payment for the value that the client will receive”.

“It’s less about fees versus commissions and more about an explicit arrangement and understanding between the client and the planner, which will vary depending on what works for both parties.”

Macdonald says AMPFP research revealed clients “really don’t care how they pay, whether it’s explicit fee from out of their product, a separate fee for service, or a pay-as-you-go charge from their product. What they do care about is exactly how much they are going to have to pay and what services they are getting for that price, and then they don’t care.”

ANZFP general manager Mike Goodall says he is “surprised at the extent to which our advisers have taken fee-for-service on board” since the bank moved publicly onto a fee-for-service model last November, the first of the major bank groups to do so.

“We now have 191 out of our 352 advisers at present operating in fee-for-service in addition to the commission model, and we’ve aligned our incentives to reflect and encourage the move to that model.”

He says he believes the group was still on course to meeting a prediction made last November that a majority of its advisers will have taken the model on board in the entirety of its provisions within two years.

Wealthsure director Darren Pawski said an overwhelming majority of new adviser practices joining the WA-based group are opting for a fee-based relationship.

Pawski says “seven or eight out of every 10 advisers are going on a flat-fee schedule once they join Wealthsure”, which he says now offers a fee-for-service as well as a percentage-of-revenue remuneration offering.

“I think you need to be able to offer both, although some groups don’t want the flat fee because it puts more pressure on their cash flows,” he says.

“They don’t benefit when there is a lot of upside and our businesses are growing very well.

“But if you’ve got a practice with a very strong trail base, where you are not reliant for income on advisers having a great year or a poor year, the flat fee is an ideal situation for you.”