Simon McGrath, senior financial planner at Westbridge Securities, implemented a fee for service system over past months but has since run into problems with this revenue model.
McGrath told ifa that a particular client has refused to pay for advice on wrapping up his self-managed superannuation fund, despite a fee agreement being in place.
“I’m now in a situation when I’ve given the client a date by which to pay and if he doesn’t I’m going to have to go to a debt collector and if the debt collector doesn’t have any more luck than me then I’m going to have to take it to small claims court,” he said.
“I’m now seriously considering bringing a debt collector into my business model and referring all debtors to them.
“I didn’t set out in the world to be in a position where I have to sue my clients just to get paid, but this might be the reality of the situation.”
Describing the issue as the ‘underbelly of FOFA’, McGrath said he is now worried about the administrative cost of chasing debts and enforcing fee agreements.
“Some advisers could be one debtor away from administration,” he said.
In hearing of McGrath’s situation, Brian Boggs of the Leading Minds Academy has reminded advisers they need to be prepared for all facets of the new regulatory regime.
“In the new world post-July, advisers are now price-makers and not price-takers which means they now will come into contact with creditors, debtors and issues relating to cash flow,” he told ifa.
He says advisers who run their own practices will now need to have processes in place for these situations and should consider tasking a staff member with chasing clients’ debts.
This is just one of the problems FOFA will deliver, wait until those wanting to retire are told there client base is only worth 1 to 2x max, would you pay for 200 clients to opt in or not in 2 years? if they rope in risk in the next few years Im out of here…
Yep….and it’s not like we have bargaining power. When an accountant doesn’t get paid they can hold back on lodging tax returns, doing BAS etc…all stuff that is required by law. Plus their fees are subsidized by the govt, as are doctors fees. how many GPs have been caught with Medicare fraud by the way….ummmm quite a few.
A financial advice client could march off to FOS and lodge a complaint rather than paying their fees….
No wonder accountants are favoring the monthly direct debit service arrangement. I even know a solicitor looking at that sort of charging method.
Spot on B Real.
Clair, Simn states a fee agreement is in place. Fofa will bring massive admin burdens on us going forward once any client questions what their FP has done when markets fall. Its hard for them to sack a Fund Manager but very easy to sack a planner & see a crystal clear saving. Huge problems going forward & there is no way i would value any FP practice at more than 1x revenue at best! Thanks labour yes. Well done for doing nothing to help needy clients who may benefit from seeing a FP. Disgraceful bowing to industry fund pressures.
This experience underpins the importance of having engagement letters in place which clearly set out the client’s obligations to pay fees.
The apathy of many people is also a problem. How many letters/emails do you send or phone calls do you make to ensure an opt-in notice is signed and returned. This administration nightmare will cost and this will put advice further beyond the reach of many, and that many will be the many most in need.
we have been operating on a fee for service model for some 15 years. In that time we have had 2 clients who have not paid an invoiced fee, both early days and both my fault as I did not get them to sign an engagement letter to agree to the fee before doing the work.
We have learnt a lot of lessons along the way. Becoming fee based has been brilliant for our firm, we have a steady predicatable cash flow not based on market fluctuations, and a steady predictable workload with a relatively low number of clients.
Yes, thank you Labor. Our business life is about to become infinitely more complicated and costly – that must be a better outcome for consumers???