Compliance costs force firms to consider select clients

While firms are seeing client enquires increasing, the high cost of compliance means it is crucial they ensure they work with clients who will ensure it is a mutually-beneficial relationship.

Marshall Brentnall, director and financial adviser at Evalesco, said he had seen between “nine to 12 client referrals over the last six weeks” which was higher than average for him.

“That tells us either our comms strategy is working or that people put off getting advice during the pandemic but now they realise it is time for them to get guidance,” Brentnall said.

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While the number of advisers had been dwindling in the market, demand for advice from consumers was increasing with an estimated three million households expected to seek advice by 2025.

According to the Financial Planning Association of Australia, the average initial cost of setting up a financial plan was around $3,300 and then about $4,300 annually to receive ongoing advice.

This was the reason, Brentnall stressed, that these enquiries were from “good quality” clients which and were likely to be worth the firm’s time and cost. There was a high level of upfront work for a new client and Brentnall estimated each one cost $1,600 before they even had the first meeting.

“You have to be selective as the time we have invested even before the initial discovery meeting would be around $1,600,” Brentnall said.

“This includes phone calls, two members of staff collecting information from them, collating their existing financial position, putting together a presentation… we try to do it all beforehand so we can get straight to what’s important when we meet them.

“The meeting would then typically take 75 minutes, or a bit shorter on Zoom, and then we would produce a terms of engagement which would take two to three weeks and then they would sign it and we would implement it.

“This means you have to be very clear on the type of client you want to work with, there is a lot of heavy lifting, so it needs to be a mutually-beneficial relationship.”

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FPA have got no idea. Nobody can profitably provide initial advice for $3,300. Current research suggests double that amount. Do your cost to serve work and you will be increasing your fees.

I think the FPA numbers are based on surveys of what members charge, not actual cost to serve. Arguably the real costs to serve should be higher for initial advice but lower for ongoing. Many advisers use initial advice as a loss leader and recoup their costs over time from ongoing fees.

In fact there are some advisers who don't charge anything at all for initial advice, but charge a % FUM of ongoing, which has little to do with cost to serve. These sorts of advisers really skew survey averages away from cost to serve reality.

Lets face it upfront advice fees are.usually discounted to get a client on ongoing service.

If you're not profitable at $3,300 your business model sucks and you have a bloated expense rate

Billy Bob, do you have any spare capacity you would be willing to contract out? I will do the client contact - you do all research/compliance/soa's etc. What's your price?

We all have bloated expenses these days. If you are operating compliantly in the current environment, $3,300 simply won't cut it. Although each to their own, if you are happy working for peanuts in this high risk, high stress profession, that's your choice.

Anon, you are probably correct. But I think the issue is why is the advice so expensive? We keep saying this is an issue and it appears no one is believing us. I find it staggering when there are so many statistics around the cost of advice.

It's a great question. from the first meeting i've got a pretty good idea on what is needed for each client. A few hours of work and calcs and I can be certain. We then spend another 30 hours to format this advice to provide the client with a document they have no interest in. There are too many mouths to feed in licensee and compliance and product. Have a think about the time you spend on working out the best action for the client and then all the other hours from that point.

If you're profitable at a $3,300 advice fee in the current compliance world I'd suggest you're cutting corners.

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