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.
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.