Hourly rates reward financial planner inefficiency
A one-size-fits-all pricing model is not appropriate for the financial planning industry, according to an advice pricing model research report conducted by Elixir Consulting.
The research showed that a pricing model needed to suit a firm’s client base and style of advice.
"You simply can't have one model that suits everybody," said Elixir Consulting managing director Sue Viskovic.
The research was based on 120 advice firms nationally ranging in size from large through to boutique firms. It also drilled down into 15 business models across five states in city, suburban and regional locations.
The research showed hourly rates were rare, with most advisers charging a 'job rate' or annual retainer.
Advisers charged up-front fees that would recover some or all of the cost of providing advice.
Initial fees ranged from 0.5 per cent to 3 per cent, while ongoing fees ranged from 0.5 per cent to 1 per cent per annum.
It was argued that hourly rates discouraged client contact, rewarded inefficiency, limited revenue by human hours and advisers found it difficult to charge clients for time spent analysing strategies, which resulted in advice to 'do nothing'.
Meanwhile, one of the biggest challenges in changing to a set pricing model was fear.
Advisers feared changing their pricing model might "reduce overall revenue to their business", Viskovic said.
They were also concerned as to how they were going to prove they were adding value and, more recently, "how they would explain to clients that they were happy to share in the uptimes but couldn't share in the bad times", Viskovic said.
Advisers also questioned whether they would miss out on some upside when the markets recovered.
AUTHOR
Corrina Jack
Recommended for you
Wealth Data has examined which advice business model has seen the most growth since the start of the year including those that offer holistic advice.
Research conducted by Elixir Consulting and Lonsec has quantified the efficiency gains of using managed accounts in financial advice practices in hours per week saved.
WIth only one-quarter of advice practices actively seeking feedback from clients, the Financial Advice Association Australia has emphasised why this is a critical tool for client retention.
As the government announces a public inquiry into the collapse of Dixon Advisory, risk adviser Richard Silberman has detailed the three areas that typically lead to an AFSL's collapse.
