With the compulsory transition to fee for service pricing within the financial planning profession by 2012, many commission-based financial planners are left wondering how they shall make the switch to fee-for-service. Commentators within the business have focused on the difficulties that planners shall face within the logistics of creating this transition, but what regarding the impact on clients?
When our firm decided to release fee for service financial planning it was due to the fact that we felt that it provided a greater position of holistic services to our clients, plus enabled us to give a more technical position of financial planning based on strategy and with fewer bias on recommending products sequential to obtain paid. Becoming fee for service allowed us to focus more on the wants of our client, and gave us the freedom to release advice in more grassroots parts of about insurance planning for example budgeting – something which we did below a commissions-based model but we did not get paid for this advice.
We have noticed however, an actual resistance within the Australian consumer to the fee for service model. Whilst it is true that the well-informed client returns to us specifically to seek fee for service advice due to the fact that they trust it is better, there seems to be a large proportion of clients who have grow to so used to the commissions model, that when faced with the prospect of paying their financial adviser for their advice many baulk at the prospect. Whilst it's true that the commission-model client ends up paying more in premiums etc to close the cost regarding the commission to their adviser, there is something more challenging within the prospect physically handing over that you own money to pay for advice. Within the lead up to the fee for service transition in 2012 this poses some concerns.
In a recent learn conducted by GESB, they located that 44% of Australians trust that a five-year financial plan should cost fewer than $500. When you think about that the time it takes for a financial planner to meet with a client, studies and formulate a financial plan, write a financial plan, then consult and implement that plan is like a minimum 8 hours work that is well below what a financial planner should possibly afford to charge if they should wait in business!
Why is it that many Australians aren't prepared to pay a reasonable sum for financial planning advice? Perhaps it is due to the fact that the true cost of advice was hidden from consumers by commissions for so many years.
With the profession transitioning to fee for service by 2012 this raises a concerning issue. Unless consumers change their stance toward paying a realistic quantity for the cost of a financial plan, we trust there shall be a significant decline within the many people who shall seek professional financial advice. This is of course worrying for the viability regarding the financial planning profession, but of greater concern is the prospect that the overwhelming majority of Australians shall not hold a financial planner to help them.
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