Advisers told to charge what their advice is really worth

Financial advisers should not be unilaterally cutting fees in a race to the bottom. They should instead be charging fees which accurately and profitably reflect the value and complexity of the advice they are providing.

At the same time as the Australian Securities and Investments Commission (ASIC) is conducting its affordable advice review and as Government ministers have canvassed broader use of general and intra-fund advice, advisers have been told that too many of them are simply not charging enough to ensure they are sufficiently remunerated and profitable.

What is more, the advisers have been told that they should be regularly reviewing the adequacy of their fees in circumstances where some are doing so as infrequently as every five years.

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Speaking during an AIA Australia adviser forum, Peloton Partners chief executive, Rob Jones said that there was a tendency by advisers to want to push costs down when dealing with hard-pressed clients, but that they needed to understand and explain the cost of the advice they were providing.

He said there was a need to properly cost the service, value and complexity of the advice that was being delivered.

Jones said that advisers needed to understand that clients were not being forced to obtain financial advice and were doing so on the basis of a “self-selection process triggered by specific events or needs including a lack of understanding of financial-related matters”.

“Therefore, they are electing to invest in their financial wellbeing, financial security and financial improvement,” he said.

Jones said there was both a cost and an investment inherent in the adviser/client relationship.

“We must understand the cost of delivering advice so we can attach a reasonable profit and for too long we have neglected profit,” he said.

“Clients can always find an adviser who will undercut another adviser – so focussing on cost only or trying to cut fees to make it work for a client is a ‘flight to the bottom’ and only the client will benefit,” Jones said.

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Advisers undercutting other advisers? A race to the bottom? Really? I would like to see evidence of this, because my experience is the complete opposite. If there are low charging advisers around, please publish a list so I can refer a bunch of low value clients to them.

Yep, advisers should be "charging fees which accurately and profitably reflect the value and complexity of the advice they are providing." Then they should be adding on another 50% to cover the costs of regulatory overhead.

Advisers should also specify the regulatory overhead component on their invoices. Eg...

Our advice and service costs $2,000
Regulatory overhead $1,000
GST $300
Total cost $3,300

Spot on Anon, see my comments below. You should also mention that for your $3,300 you'll be responsible for the next 20 - 30 years and any lookback will use future rules and regulations applied to today. Great fun.

I'm guessing $3,300 is the upfront cost. Is there then a set up cost ? If so, how much ? .... and then ongoing service fee ?

I think some people may be missing the point of the example. It doesn't matter what the absolute amounts are, whether it's upfront or ongoing, or what the scope of advice is. The point is that about one third of most advisers' costs now are due to regulatory overhead.

Every industry has some regulatory overhead, which is quite appropriate in a fair and modern society. However in most industries it is less than 5% of the total product/service cost and is readily absorbed in the price. When regulatory overhead contributes more than 30% of the total cost then it's time to explicitly separate it out for consumers to see.

take whatever your price is currently, then double it, then add 10% then you will be right where it needs to be. you won't resent clients, and they will love you.

that's where everyone needs to be. straight off the bat, and learn to say, delivering that advice upfront only will cost $4,500 plus GST, then there is the implementation fee, and then ongoing service - take it or leave it -

m.fin.plan, cfp (the real one not the grandfathered version), fasea passer (1st time)

CFP, don't think I'd be advertising that.

This is an ideal world they are describing here. Where clients have the means to pay the cost spoken of. I note these consultants all came from Shadforths, a noted HNW client business, where clients can pay. But most general practitioners have broader client bases than this, and a real commitment and empathy toward their smaller clients. They can no more pass on the costs that are only rising given the legislative requirements. They are not passing on injustice to their clients. As for their quote ' and only the client will benefit' well that sort of sounds like best interests! The reality is we are hoping that regulations ease and/or technology catches up - but many businesses may only have a year or so of that left before either closing the doors or moving to salaried roles. It's interesting that all of the big dealers and others now prefer the salaried adviser model. i.e. we control your employment - we put you under production pressure and if you can't cut it out you go, we'll find more cannon fodder. Big wheels at play.

I just checked our figures against Anon above and $1,000 for regulatory is spot on. Add qualified and competent staff you can actually trust to not only do their work properly but also check yours and 3 grand total doesn't even create a profit. The reason for the large exodus in advisers isn't just education, although that's the favourite scapegoat. If I came into this now instead of 30+ years ago, I'd do the math and run like hell.

Good views here. I agree with the line being suggested - why undercut the value of advice. Maybe more needs to be done by the financial advice industry to demonstrate to clients the long-run cost-benefit of good financial advice. Maybe take a leaf out of those industry super funds' advertisements and do a comparison between those who receive and take financial advice and those who dont.

'and only the client will benefit' I would argue this is wildly inaccurate, it's actually the clients who suffer from undercharging as advisers become too busy and under-resourced to do the work properly. If you have clients who can't pay appropriate fees that's fine, each firm needs to determine how many pro-bono clients they are willing to take on, however it should be understood that that is what they are.

The cost of advice has risen incrementally as new legislation and regulations are introduced. In 2021 it takes 59 steps to deliver just one piece of ADVICE in Australia without breaking the law. Ten years ago there were just 6 steps to provide advice.

and which industry association has directly contributed to that over regulation by being in the pockets of large institutions? Which industry association sold there members down the drain so they could get compulsory memberships from CBA? Which industry association was ruled incapable of being a code monitoring body at a Royal Commission? You're part of the problem Julie.

Hey George, you can't be a planner; can you? We are charging about 30-40% of what bank planners were charging clients 12-15 years ago. I know, I was one. The true cost to provide advice to a new client is far more than the $3,300 that most planners seem to be charging upfront. They do that in the hope that they will get the client and charge more in ongoing fees, but that is not true fee for service in my view. In most cases it costs a lot more to bring on a new client than it does to look after an existing one. The problem is that the media keep telling everyone that advice is too expensive, when in reality, as the article mentions, it should cost far more in many cases.

ah .... the good old days of the 5% Entry Fee to pay the 3% commission (plus volume bonuses). That's why we are at where we are at at the moment; couldn't self regulate !!

Ah, the brilliant new deal where over $100 million pa. in ongoing fees are being paid to intra-fund marketing reps, without having to seek informed consent or annual opt-ins from fund members, for charging these ongoing fees (for no service). This leaves volume bonus for dead. The ultimate racket, with complete legislative protection. It would make the mafia blush.

Perhaps AIA could lobby ASIC to reverse their instructions to super fund trustees, whereby they are now imposing ridiculous low fee caps that advisers can now charge (via retail super funds). Too much talking with forked tongue at the moment.

We would all like a Mercedes but most of us opt for the Ford? Why because that's what we can afford ! If the mum and Dad clients that really need the advice but struggle with Mortgages school fees and just everyday living then they cannot pay more than they can muster or borrow.
Thinking from your end of how valuable you are to your clients is a little" conceited" don't you think ?

One size does not fit all and if we are truly looking after the client we need to be able to move accordingly to the clients best interest { And yes a commission structure would make it affordable to many more } Even a mix is going to be more preferable and affordable to most that need help but don't seek it because they are told by media its a rich mans option only.

Screw that, literally just bought myself a Mercedes of late. Over last 18mths we've majorly increased our fees, in some case by 300%. We figure even if we lost 2/3 of our not massive client base we'd be better off.

Sort of not surprisingly, only 2 clients left (one who was a pain, so we celebrated his departure).

We don't rip clients off, but have factored in our value, the increasing risks we face each year with a rogue hostile regulator, and an increasing demand for a dwindling supply of advice availability and now charge what we believe is a true commercial rate. Interestingly, client referrals and new inflows also have never been higher.

As one of my most successful and astute clients said to me, 'When you're in business, regardless of what business you are in, it is only for one purpose; to increase the wealth of you and your family".

We're not social workers or charities. I am sure that a number of you will see this as opportunistic or offending your sense of self righteousness and desire to help everyone. I would suggest to those that either you are in the wrong industry or else you will be a wagon wheel manufacturer in the advent of the motor vehicle. You will either have to be commercial and adapt and change or go silently into the night.

I'm with ritz.

far-out people, you think lawyers give a rats ass about defending the level of their fees? nope, and they all run around with a measly bachelor degree, and 10 hrs cpd pa (in NSW), I have a few master's degrees and do 40 hours of cpd per annum so my fees should be (justifiably) higher than theirs (and they are).

I don't get out of bed for less than $10k per day. I provide excellent advice, not one single client has not succeeded with my advice in 21 years. not a single one.

Therefore, I am not expensive, I am excellent value. whatever you charge, double it, then add 10% then you'll be right. all of you people charging way too little.

if you really need an action to substantiate your worth, just go and knock on a lawyer's door and meet them, you will instantly increase your price, trust me. it'll give you instant confidence knowing how even useless and retarded people that become lawyers can charge high fees when they don't even provide 1/10th of 1% of the value we provide in financial security and control to clients.

I feel that the sense of self righteousness you refer to is an excuse for industry-wide insecurity. We all hide behind the idea of 'helping everyone' to avoid discussing the actual value in what we do, because that's easier than accepting some people just won't see value in what we do.

We operate in a sector where everything - your money, your house, your family, your ability to earn a living, your reputation - can be taken away from you because you failed to comply with a fuzzy law at the back of a cloud of nonsense.

Given this, and the inherent complexity in what we do, plus the value we can add to peoples lives - making anything less than 40% EBIT on every single case is insanity.

The risks are so utterly high in this game; the return needs to justify it, or else why do it?

Hear hear

I can see a time in the future where the cost of providing advice will actually be more than the benefit provided to a client. Then we will be breaching the "fair value" aspect of FASEA.

As an example, who would currently recommend a co-contribution strategy for Superannuation? The maximum benefit to the client is $500, but the cost of the work involved to even include this as an extra strategy in a Statement of Advice is higher, once you take the time to research, documentation, risks etc, etc for this to be added.

It's simply a lack of benefit for the cost involved, so... discount, or exclude?

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