Pay Day
The majority of Australian financial advisers do not overly favour the Future of Financial Advice (FoFA) reforms, yet significant proportions are pragmatic towards the impending changes and are positioning their businesses accordingly.
From a fee perspective, just over half of advisers (54.8%) are against FoFA while 36.5% are for the reforms and support the notion of abolishing commission based payments, according to initial data from the CoreData 2010 Wealth Management study.
8.7% of advisers are undecided if they are for or against the Government’s proposed ban on potentially conflicting remuneration structures, including commissions and any form of volume based payments.
Initial insight from the above study reveals just under one in five financial advisers (17.3%) deem received commission from product providers as their primary source of remuneration compared to almost one in four (38.5%) who receive the lions’ share of their remuneration on a funds-under-advice fee basis.
However, when advisers are quizzed on their likely future fee structure, from a primary revenue generating perspective, a move away from product provider commissions is noticeable.
Only one in 10 (11.5%) anticipate continuing to generate their primary income source from commissions in a year’s time (down from 17.3% in 2010).
So looking ahead, which fee structure is likely to remain or become the primary source of revenue for Australian advisers?
Advisers expect, at an aggregate level, to shift their primary sources of revenue by the end of 2011.
Interestingly, the move in an annual retainer or flat fee as a primary income source will increase from 14.4% this year to 19.2% by end of 2011.
Other shifts suggest an increase in fees determined by the service provided (e.g. writing financial plan, providing consultation) as a primary income source – up from 17.3% to 22.1% in 2011.
Finally a creeping growth in fees based on the number of hours worked for each client - up from 8.7% to an expected 10.6% in 2011.
Generally speaking the changes imply a move towards time and fee based services and therein scope for greater accountability, at least from a client perspective of what they get for their payment or deferred payment.
This can only bode well for the industry so long as clients are prepared and able to stomach a change to how the advice they receive is paid for.
For those advisers yet to participate in the CoreData 2010 Wealth Management Research you can do so by clicking here. )
2 Comments on “Pay Day”
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Greg F says:
Why should a client be prepared to receive a bill for, say, seven hours work, when 4 or 5 of those hours are doing nothing more than satisfying government dictated compliance requirements. Does this mean that if the government gets their way, and clients pay only for actual services they require, then can the client state that they don’t want a 60 page SOA produced? Or is the government saying they must pay for something that they don’t even want to receive. Quite ironic that all the debate s focussed on how muchadvisers are paid but we are forced to perform over the top compliance tasks for even the most basic advice (except if you an industy fund giving ‘intrafund’ advice. What a crock of shit!
alleycat says:
This fee for service v’s commission debate has sadly been highjacked by ignorance and stupidity.
Both methods of payment are flawed when abused.
Examine the fee for service promoters.
What justifies anyone charging $100, $200 or $300 per hour for advice?
Does someone with 3 University degrees give 3 times better advice than someone with one degree and therefore entitled to charge three time more?
How are billable hours verified ?
Does anyone believe that those sanctimonious promoters of fee for service who used to receive commission now receive less ?
It’s a rhetorical question!
Is there a solution?
Well yes, the FPA or the government should have set a scale of fees for each service and only the “quality of advice” should have been the determinant of who does the business.
Wasn’t that the catchcry from all those pushing this agenda ?
The method of payment, fees or commission should have been a choice option offered to the client to decide.
Commissions don’t produce bias?
Most in the industry use wholesale platforms and payment is not determined by asset class investments.
FACT
Bias is when Dealer groups owned by Banks, Fund Managers and Life Insurance companies where 75.0% of products on Approved Product Lists are owned by the Licensee of the Dealer group.
Charging a fee for service doesn’t change that!!!
Whilst the next chapter hasn’t been written yet, I wonder how many advisers will go to the trouble of suing their ex-client/prospect
who hasn’t paid their invoice.
Will the answer be that the client pays upfront?
Well good luck with that one, maybe some will but many won’t until they see what their buying.
I think the next chapter will be that many financial planners will not stay in business if they have to carry a debtors book. I’ve already seen it happen with a couple og good accounting firms who are struggling to keep their doors open because clients just are not paying their bills.