Planners struggle with how to value and price advice
Financial planners are struggling with how to value their own work and what they should state about how their fees will be set under the Future of Financial Advice (FOFA) regime.
Radar Results principal John Birt said under FOFA that FDSs will require planners to tell clients what they do and how they are charging for it but many planners he has dealt with in recent months are still confused about what to put in an FDS.
“Many don’t understand their own value proposition and can’t price it which in turn comes from the reality that they have not been servicing their clients,” Birt said.
“They cannot see what services they should be delivering, nor how they should be marketing themselves as a planner because they do not see themselves as a service provider.”
“It would be good if planners could measure what it costs to look after that client for the year, and then going forward, determine a fee based on costs. I know it sounds difficult and complex, but for most of the 90’s that’s exactly what went on with accounting firms I worked with.”
FOFA’s requirements to move from commissions to fees is also being resisted in some quarters according to Birt who says some planners see the move as difficult because it requires them to crystallise what they do for their clients and at what cost.
Birt said much of the resistance was expressed in terms of added compliance costs, and while this was a reality, it was also related to the grandfathering of commissions under FOFA.
“If planners move into fee-based advice as FOFA requires there will be more compliance around the creation of an FDS and opt-in which is why many planners are holding onto commissions and trails for as long as possible,” Birt said.
“However this actually leads to a failure of FOFA to create a better financial advice system that is supposed to provide advice at a cheaper level.”
Birt said the while there was some concern about some planners and advisers struggling to meet their obligations under FOFA he believed a generational shift would come through under the new regime.
“Newer fee-based practices are not struggling with these issues and many have been FOFA-compliant from day one but this shift from one generation to the next will be a significant issue for the industry over the next few years.”
AUTHOR
Jason Spits
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