In a new opinion piece published on ifa this month, financial adviser and founder of digital solution Scientiam, Nigel Baker, argued that there could be long-term consequences to the “record rate” of termination letters being issued.
Mr Baker wrote that while client numbers have dipped since the Future of Financial Advice reforms, activity has continued to ramp up resulting in long-term clients being dumped because they can’t be looked after “cost-effectively”.
“The institutions are leading the charge. They bore the brunt of ASIC’s ire, paying out over $3.15 billion in compensation for misconduct and fees-for-no-service, so there’s little-to-no appetite for flexibility,” Mr Baker wrote.
“Yet, many abandoned clients remain in life insurance, superannuation and investment products originally recommended by their former adviser.
“The uncomfortable truth is that C&D clients have collectively contributed to the success of many advice businesses.
“Dumping them en masse is a bad look for an industry trying to regain consumer trust.”
The Arch Capital adviser suggested that firms should find creative ways to meet obligations and manage risks, including taking the focus off high-net-wealth clients.
He wrote that a broader value proposition would assist advisers in being able to help more clients and build confidence in the sector.
“Part of the solution must lie in being able to legally and seamlessly transition clients from the realm of personal advice to the realm of general information,” he wrote.
“Over time, as a client’s circumstances and needs change, they should be able to flick back and forth between both worlds, guided by their adviser.”
Read the full opinion piece here.
Mr Baker’s comments come only weeks after he appeared on the ifa Show podcast, where he called on the industry to directly address the issue of attracting new talent.
Mr Baker said the businesses he speaks with are “flat out” but that the real challenge is attracting new talent and advisers into the sector.
“We’ve got this real gap of people who just haven’t been in the industry and fair enough. For the last 10 years, why would you join an industry that’s been bashed around?” Mr Baker said.
Listen to the full episode with Mr Baker here.
We took the view that annually ASIC would expect a “No Advice SOA” despite no fees being charged. We expect that ASIC would expect us to consider whether products still remained relevant and appropriate to ‘clients’ even though no fees were being charged.
We felt it would be better to simply increase annual fees to a point where the client sought another adviser or opted NOT to sign our 12 month sevice fee agreement. Most C’s and D’s made the decision themselves to leave. If they paid our fees we kept servicing them to the best of our abilities. We dropped client numbers by 30% and find ourselves 40% more profitable, 6 weeks ahead of where we need to be in terms of reviews and compliance. Yes, we replaced some C’s and D’s with A’s.
I now have a life beyond ‘just’ living at the office…so great to be able to spend time with my own loved ones.
Yep. Had a simular experience like you. Good work. It’s nice when us little guys have a win… Especially when every day we put it all on the line, for our clients, staff, familes and ultimately ourselves.
Mr Baker…….late 2018 we sent termination letters to all low value clients advising them we are no longer charging ongoing fees (which at the time were below cost of service delivery) and thus returning monitoring and responsibility for their investments to their care, but remain at their service on a Fee for Service basis if and when they require us. If and when the clients require us, we re-engage on a strict Fee for Service basis (as directed by Commissioner Hayne), albeit, at commercially viable levels….which ultimately means clients pay more. Regardless of how it “looks”, Financial Advisory practices are a business and must operate profitably, otherwise they won’t survive….simple economics 101. Do lawyers provide services below cost of delivery ? I doubt it. They all wanted us to be a “Profession”, so here we are….a profession…..and so we now Fee for Service accordingly.
Sorry, to tell you this Nigel however adviser business are not a charities. We have invested in our staff, business, ourselves, additional education etc.. so as professionals we have every right to be remunerated for these additional expenses. So if the NIC (Non ideal clients) don’t want to pay, we’ll thats just fine, we’ve since moved them on as they were NIC’ing our time, money and increasing our risks by staying on our books anyway!
I don’t think Nigel is saying you shouldn’t be remunerated. Instead, clients should easily be able to “remain clients”, but not have to pay you a fee (and not receive a service) until they need it.
I am trying to do this now, but it is harder than it should be as ASIC/AFCA could come back and say they were still your client, so therefore you should have advised them about [legislative change, product changes, etc]…
Bahahahaha… You must be joking!! What a ? business model. ‘Clients should easily be able to “remain clients”, but not have to pay you a fee’.
This is a big part of the problem. As long as you have any relationship whatsoever with the client you are exposed to the risks of ASIC and AFCA’s “guilty until proven innocent” persecution. The only way to minimise these risks is to do comprehensive fact finding, advice, and disclosure, regardless of how minimal the client’s requirements may be. Of course this is just not economical for some clients.
Advisers aren’t ditching C & D clients through preference. They are doing so as a result of regulatory persecution. “Fintech’s” like Scientam are no more efficient or cost effective in servicing low value clients. The real Fintech differentiator is immunity from regulatory persecution.
Let me guess – he has a product to flog to advisers that can do just that! Mass general information is the job of government, Centrelink and Super funds, not boutique wealth advisory firms.
Spot on, many advisers businesses were successful when you could have the industry funds current fee set up of charge all a small fee to everyone and have clients cross subsiding eachother, This of course is what happens at ALL super funds now but its for some reason allowed, however of course we are not. Nigel needs to take this up with the powers to be, we are hamstrung, there is nothing we can do Nigel, take it up with those can can change it. Most of the c and d clients are still on our adviser codes, they are just reactive clients now as we cant charge them an admin fee like others can.