Speaking exclusively to ifa, Lifespan Financial Planning chief executive Eugene Ardino said that the more the industry goes down the path of charging for everything an adviser does for a client, the higher the cost of advice.
Now that advisers have to be degree-qualified and spend a minimum of three years at university on top of a professional year, Mr Ardino thinks advisers will not go through all of that to earn the average wage and, as a result, will charge higher hourly rates to clients.
“The unintended consequences of all of this is the entry to advice is going to be higher in terms of what it will cost to pay,” Mr Ardino said.
“If you’re expecting advisers to charge a fee every time they do something for a client, I expect fees to go up dramatically, like maybe two or three-fold, if that’s how you have to run your business rather than having a sort of retainer arrangement.”
Another consequence, according to Mr Ardino, is that if some advisers have more passive income streams such as grandfathered trail commissions, then they will need to make sure the rest of their business is generating enough income for it to be viable.
“Look at all your client relationships. Look at your service agreements, and just make sure they are commercial. Make sure that you can provide that service for what you’ve quoted to be the fee,” he said.
“There are a lot of reasons why advisers might have an ongoing fee arrangement where they’re over-servicing the client relative to what they’re earning, and some of those reasons are going to be wiped out because of FASEA and the royal commission.”
Mr Ardino also said it was more important than ever that advisers be able to demonstrate their value to clients.
“Despite the royal commission headlines, my experience with advisers indicates that most advisers don’t charge their clients anywhere near enough for the time, effort and service provided,” he said.
“So, just as important is to ensure that your service agreements are commercial and that you are not promising too much for too little and as a result not living up to what you have promised because it is unrealistic.”
The cost of providing advice on an hourly fee basis is a fraction of the lazy retainer model.
Anton, No – it’s not. I know this because I went through the process of breaking down the hourly effort involved for the team to provide Financial advice both from an initial client experience through to an on-going experience.
We found through the process that despite having a higher cost model than most Advisers around due to the complex nature of most of our advice – we were undercharging at least 30% – and this wasn’t even incorporating the conversations and communication that took place outside of the regular program that the clients were on.
Some advice businesses might be, but it doesn’t hold true for all businesses and certainly none that I’ve been involved with.
Correct, on this note a practice down the road still charges for SOA’s etc for ongoing retainer paying clients… They think theyre entited to the ‘retainer’ just because they bought the book of clients. Its pretty disgusting and exactly why we are getting put through the ringer right now.
That’s an incredibly generic statement Anton and plainly incorrect for most advisers. The more likely issue is that some clients subsidise the cost of others. The extent to which this occurs then affects the overall service model.
Anton, when a legislative change comes in do you spend time reviewing it to understand how it works, checking the likely impact and best action to take for each of your affected clients, then contacting them to discuss it? Do you send them an hourly fee based bill for that work? Do they willingly pay that bill even though they never requested you to do it? Or do you wait until they find out about the legislative change through other sources (if at all) and specifically request your assistance?
The cost of providing advice is the same either way. I don’t think you even understand your own comment.
Once the banks finish cleaning out their current advisers, get ready for the banks & Union Super Funds to return to tied agency advisers. The bad old days of AMP & National Mutual tied agency forces (pre 1988) are not far away. Its what they wanted all along. This is not about financial advice. This is about doing whatever it takes to reduce competition. See the 50% increase in admin fees from Australian Super this week. Do yourself & read the new book “The Myth of Capitalism”. They want to drive the bulk of the advisers out, so they can control the market & jack up all their fees. This is a massive scam from the Union Super Funds & other product manufacturers to screw consumers for doing nothing.
same thing is happening in the mortgage broking industry. brokers now originate 59% of home loans. in more mature markets like the uk and u.s. the figure is 75%. but the uk and u.s. does not have the market concentration we have. in an oligopoly you don’t want to compete.
so you use regulation to kill off the competition. most brokers are one man bands. they won’t be able to cope with the best interest duty which hayne will recommend and labor will implement
this is going to be really interesting to see. The best interest duty was ditched for mortgage brokers in a prior review, because banks realised they’d never be able to hold their mobile lenders and home loan consultants to that regulation. As in, I walk in to CBA and the CBA staff member tells me about ANZ’s home loan specials. Banks would fight that tooth and nail. I can see the wording for suitability being increased, but the brokers and non big 4 will act with a lot more fury than the FPA/AFA ever has
easy fix. best interest duty only applies to mortgage brokers not employees of a bank selling their own product. just watch
the aggregators (equivalent of dealer groups) are really sweating it as they survive on volume bonuses, and the % of monthly trail commission the broker gets. if there is no volume bonuses and only up front comms, and no trail, aggregators won’t survive
they are really sweating it the big time
CAPITALISM can be such a disgusting word sometimes.
A lot of planners are now charging a fee for that so called white elephant “an initial free meeting”. That’s the only way forward now. Yet ASIC still advertise on their website to consumers that Planners will provide this at no cost. Hahaha Good Luck.
that’s crazy why would you meet a client for free.
The final report from the RC will make very interesting reading. If constraints really are placed on clients paying for on-going advice from super a/cs – I can guarantee that it will result in more than 30% of advisers leaving the industry. More like 60%. If we fast forward 5 years from now – my crystal ball tells me that the number of advisers on FAR will total no more than 10K. They will be highly educated and the vast majority will be non-aligned as the large licensees no longer exist. The clientele will be those who can afford to pay a minimum of $10k pa for on-going advice with minimum investible assets of $1M. Those clients who are not able to afford the services of the afore mentioned highly educated adviser will need to source this from either their super fund (general advice) or AI. Don’t believe me? Study the results from the UK RDR. As a result of FARSEA, RC, PC and all other vested interests with an agenda Australia will have an ‘advice gap’ similar to the UK. The number of retirees who will have to rely on the AP will rapidly increase as they have not been able to afford quality holistic advice. All in all, we will be a worse financial position as a country. Well done to all involved in this fiasco. Your short-sightedness and desire to be seen as doing something will exacerbate financial in-equality the likes of which has never been seen in this country. An old proverb comes to mind – ‘ye shall reap what ye sow’ (Galatians 6:7-9).
totally correct. with one exception, the remaining number of advisers will be no more than 5,000.
AND, this has never been about making financial advice affordable to all Australians that’s just a guise. it’s a fight for control of the superannuation industry which is a minuscule 2.7 trillion now but is projected to grow to 7 trillion within the next 20 years (ohhhh sweet honey pot)
I can’t wait. I should have a very profitable business then.
i think people optimistically believe only 50% of the advisers are going to be gone. it will be more like 90%. only about 5,000 will remain. that’s nearly 20,000 gone
good maths
you’ll be gone pal. you will be one of the first ones.
totally agree. 90 per cent gone. opportunity cost to rather build your life around a new sector where you not at risk. asic and the unions won killed advice in Australia well done.
they killed it good.
Has Eugene Ardino just put Lifespan in the ASIC crosshairs?
ASIC aren’t interested in business practicalities. ASIC are on record as stating they expect the personal financial advice model to die and will be replaced by roboadvice. ….but still the industry agitators have pushed & pushed for a loaded gun style Royal Commission. Where advisers en masse were on trial – but only one adviser was put on the stand.
…and he didn’t exactly cover himself in glory…
yeah, they are gonna get him.
they dont want the advisers – they dont want advice – they want the bulk of the population (sheeple) to have their retirement savings in the GOVT or ISN world – we are pesky – we offer choice – and clear options – so obvious – and it has nothing to do with what is best for the client – thats is so sugar coated BS – its straight out of the lefites play book.
80% of the advisers are aligned to the large institutions – do you really believe they offer clients choice? The only choice they offer is which one of the in-house funds to invest in……
Compliance Boffins, FoFa, Best Interest,red tape all critically and severally injured advice to all Australians in 2013. Advice to all, was officially put out of it’s misery & declared dead in 2018 when the industry took stock of ASIC’s announcement made in 2016 (re the fee for service issue) when they officially dictated the meaning of what a “service” is. Yes the Government has now dictated what Service is.
Ordinary Mum and Dad Australians can’t afford advice NOW, whether that be once off transaction or ongoing. To make matters worse, Financial Advice is still not tax deductible. This is all despite the fact that advice is truly valuable and much needed.
As for those in the lower quartile of Hi Net worth clients, that still can afford an adviser, advice to them will be killed off when grandfathered volume bonuses are banned in the RC and dealer groups increase your dealer group fees. Just ask the simple question to your licensee…What’s the actual cost to service an adviser and then you do the maths.
They have not only dictated what a service is but they are now also dictating what you can charge for your service as well. It has to be reasonable- yet that definition is undefined so it will be up to ASIC to define that for you all. So be careful how you cost your service.
Stating the obvious!? Less experienced advisers higher costs for customers and impossible to get advice for most (especially for risk) unless the customers are rich. Fantastic result O’Dwyer, FSC and our pathetic industry bodies. Well done!
I recon the many advisers that already have degrees will just keep doing what they are doing… Those without education can raise their fees and become completely irrelevant.
The cost of advice has escalated since FOFA was implemented. FASEA and the RC will ensure that there are less older and experienced advisers left after the next 3-5 years.The average client will not be able to afford advice given the increasing cost to serve including the cost of education built into the new fee structures. The industry will become elitist and only the wealthy will afford advice. All this comes at a time now where 700 Australians turn 65 every day now. What is just as difficult is the succession planning for advisers who bought client bases of ongoing income with a loan from older advisers who have retired. These businesses existed pre-FOFA and the income was grandfathered and most likely being serviced now to grow the business. This is causing much anxiety for younger advisers, and less of an issue than doing extra study, if your income is under threat by people who have never worked a day in their life in an adviser’s office and are clueless about the advice process and compliance.
no sh*t Einstein!
If planners have done their numbers, they know what to charge. The ones on the ball have a fixed fee which covers agreed service and the unknown additions. Simple and it works, just ensure the agreed service is honoured. Clients refer if they are happy with the service and see value. Price gouging aka greed will hurt the business.
Fees are going to go up and insurance advice is going to decline. So the sum total result of the Commission will be less affordable and accessible advice to those who need it and can benefit from it the most; fewer advisers and more salespeople will be in the industry as it won’t stop sales but will encourage corner-cutting; and greater underinsurance. Well done Government, well done AFA/FPA, well done ASIC, well done Hayne!
Got to love the do gooders that put down advisers.. we have a track record of what happened in the UK.. now you would assume that these over educated administrators would have arranged a tax payer funded juncket to validate this problem and to work out the best course of action
You only see what you want to see
Actually the annual retainer will double. And those clients who have been brainwashed to think you can get something for nothing by various journalists & book authors, get ready for high on-off transactional fees. Otherwise you can join the waiting list to see an adviser, that currently exists in a number of cities around the UK, after they went down this route. Hourly fees (expressed as dollars) still translate to a percentage of the client portfolio, at the end of the day. Its basic maths.
I’m genuinely asking, do you have evidence or a link on this? It would be interesting reading and a quick google search hasn’t helped me
Try a thorough google search. Steve is right and the info is pretty easy to find.
It was a lefty pro-union super journalist who drew this fact about the UK to my attention. At least he was right about that. We are now warning our clients to think long & hard about turning off our retainer, as we won’t be taking them back again if they do. The UK is a big warning for those who want something for nothing.
that should read one-off transactional fees (my typo)
Absolutely right, spot on Eugene.
Because clients are just itching to pay higher fees already? Even if there’s only 2000 advisers left, the average Australian isn’t going to willingly fork out $10k per annum for non-conflicted and product ambivalent advice.
Last survey I saw suggested average Australians were willing to pay approximately $600 for advice. This would take it to $1200.
Before the replies below state that all their clients happily pay $20k per annum because they value their advice, I’m going to reiterate that we are talking about the average Australian, not just the HNW crowd, and we’re trying to get the average Australian engaged about their future.
You’re spot on, unfortunately the average Australian won’t be able to afford financial advice at all, and they’ll end up getting scaled advice from an industry super fund.
The banks (despite their shortcomings) used to be an adequate place for many to receive some level of advice. I’m an IFA, but I have real issues with people lining up the bank wealth arms for not ‘selling’ their clients a competitor’s product.
Here is a question – do you think the ‘average’ Australian walks into a Kia dealership, inquires about the features then expects to be told about a Mazda with similar functionality as an alternate and walks out the door with a set of keys to one? I think the average Australian is far more intelligent than that.
Terrible analogy Felix! A car dealer does not purport to be anything other than a salesman for the cars they have in the showroom and the consumer knows if they go to a Kia dealer they will be sold a Kia. A Financial Adviser presents and defines themselves as a professional who will assist their client to make the best financial decision.
Bullcrap , “a licenced financial adviser ” at CBUS will only sell you CBUS So why don’t we have a licence just to sell one dealers product ?We cant say its General advice and sign them up , but we need this new type of licence clearly for those planners that want to and believe in one product . Low fees and a one page SOA .( some planners are doing this illegally as client directed advice!!!)
Haha I meant a real financial adviser Anonymous. I don’t think industry fund advisers should be able to use that title but that’s another argument. Regardless they are far from the worst, they generally deal with existing fund members only and don’t give the client the impression that they can or will consider other products in the market.
“they generally deal with existing members”. So how much damage does this cause?
Can’t believe Michael’s comment has got some thumbs down. Advisers who can’t see how silly that analogy is are why the industry is in the position it’s in!
You are right Michael. A financial adviser does have a duty to provide the client with the best information available to assist them to make the best financial decision.
However the car dealer analogy is correct. How can an employee of a company be expected to sell a competitors product.
This is another problem (on top of all the others) facing our industry as it is impossible to work for a product provider and act in the best interests of every client in every situation unless you recommend competitors products (unless you work for an industry fund who operate outside the law). It is also too costly to set up and start an independent financial planning business from scratch so advisers need to align to start with.
The only advice which can comply with all the constantly changing laws from aligned advisers is scaled-limited advice, similar to the advice provided by the ISA aligned advisers and this is going to be the only way clients (other than HNW clients) will be able to get any advice.
Opening up APL’s makes sense, however all the independent dealer groups already had open APL’s so this initiative changes nothing.
The advice industry is dead. Killed by a thousand (paper) cuts, add regulators who have no idea what they are doing.
General advice and buyer be ware all round!!!!!
Even Scaled advice requires a mountain of paperwork and compliance and won’t be affordable to Joe Blow
I remember a survey that was even lower then that say around $300 per year. Here is the total farse of trying to say that this was all in the clients best interest.
It would be interesting to see who charges $1200 or less now days let alone after all this, it isnt sustainable. Wonder now if people are going to click onto why the big players have all been pushing robo advice on everyone.
and exiting the industry as fast as possible.
Financial Advice is at best a boutique proposition to HNW and UHNW. It is no longer a mass market concept.
Heck even Macquarie has bailed and will only deal with wholesale / sophisticated investors. Retail financial advice is officially dead. Us suckers staying in the game are the 21st centuries candlestick makers. Relegated to dealing with people who have a nostalgic but outdated notion of personalised advice and service.
I have a home office, no staff except outsourcing paraplanning and I wouldn’t survive charging $1,200 for an SoA. The costs of even a small business like mine are just way too high. I don’t have a large book of clients though so ongoing revenue is too low to sustain such low advice fees currently.
Yep, same here mate, ready to shut shop by June 2019.
Current situation is untenable.
Yep, me too. it would be great to organise a collective as a lot of clients will still ring us and maybe we can pass the clients on to a remaining adviser
$1,200 will cover my time for a 1 hour meeting and then all the file notes, compliance and paperwork that goes with it after that
Mattie the average Australian doesn’t get advice now. They get barefoot.
Top quartile of households by wealth are about 33% market penetration. Yet total population advice market penetration in below 9%.
That means the bottom 75% has a market penetration below 4%.
The average Australian has already been priced out. ASIC is happy about this. They expect Robo to fill the void. Now the average wealthy person will also be priced out.
No ASIC want their pets, ISA who can do no evil apparently, to inherit the pile of wealth.