In most service propositions, firms make dispensation for an annual review. The frequency differs depending on circumstance, but the practice is mostly the same. A review each <insert period of time here>.
But I don’t understand why anyone would want what we all call a review, delivered on the anniversary date of their plan being implemented, as opposed to:
- A review when it’s requested;
- A review when the client believes it’s needed;
- A review when the adviser believes it’s needed; or
- A review when some serious stuff has gone done and it’s obvious to everyone that something needs to get fixed fast.
So, the question I’m asking is this: what’s stopping us from delivering reviews on an as needed basis?
There’s a good reason for me asking this question, borne from personal experience
Like many coaches, I once believed there was only one way to do coaching; via ‘regular’ meetings where each month we’d turn up and either:
a) Get some great work done at the exact moment it was needed;
b) Realise we’d actually covered everything in the “need help now” call two weeks earlier; or
c) Go through the motions because everyone was clear on what came next until it was done but this was how we engaged.
Then some really smart people showed me how to help people on a “just-in-time” basis. When it’s needed, we get together and create a plan.
When it’s not, we all get on with making it happen until:
a) The next step isn’t clear; or
b) Someone gets stuck.
So, why can’t we just have a review as and when it’s needed?
In other words, when either you and/or the client think/agree it’s needed, you go ahead and book it.
Because, frankly, unless you’re dealing with some seriously detail-orientated high-net-worth CFOs paying you a motza to actively manage their affairs, I question whether most clients or firms actually need or want it.
Is it really efficient to do it this way? Is it really the only way of monitoring a plan over time? It most definitely can lead to service fatigue, both for you and the client. You can have too much of a good thing.
OK. Fair point. There’s a pricing challenge in there. Having an “as needed” review offering opens you up to correctly estimate what might be needed.
Frankly though, when I do pricing, estimation is pretty much what we’re doing for a lot of the inputs anyway (e.g. time, expenses, percentage of your time that is actually client-related). Truth is that unless you want to do timesheets, estimation is inescapable. You’ve got to make some assumptions.
Maybe another relevant concern might be that if we’re not going to do an annual review, how can we rely on the client to know when it’s needed?
Well yes, and this is one massive opportunity to get better at communicating with your client base.
One of the many tools on ‘The Leveraged Advice Firm’ program we have is a PDF flyer called the “LET US KNOW list”.
It’s an infographic, listing 16 life events that may necessitate clients making contact with their adviser to assess whether a plan remains relevant. I suggest sending it out to each and every client every six months, preferably via an email marketing tool that can track activity.
Similarly, we’ve built service models based on systemised personal touch points – with you, your team or even outreach via SMS, email, video, whatever – to provide a way to check where things are at. Around 90 per cent can be semi-automated.
In this environment, wouldn’t it make more sense to say to clients, “If we need to sit down and review your plan, we’ll do it. But you’re not paying me for my time, you’re paying me to help you get an outcome. Plus you’re busy. So, let’s maintain quality communication and contact, and keep an eye on the events that may necessitate a review.”
In other words delivering value, instead of stuff.
Thing is I don’t actually know if it’s possible in this environment of heightened fear of non-delivery on ongoing service requirements.
I hope so, but I worry intent has been swamped by the frenzy to regulate, regulate and re-regulate.
I get the need for reform, but this idea that everybody has to sit down on an annual basis to “review”, whether it’s wanted or not; is that really in the client’s best interest? It seems like forcing someone to pay for a three-course meal and eat it all just because it’s 7pm.
If you’re in the know about this, I would love your input. Is there anything to stop advice firms offering annual reviews on an as needed basis, supported by an effective communication program, so both the adviser and the client are fully aware of the circumstances that would necessitate having a review?
I hope the answer is in the positive, because for all the talk of the evolution of advice, I worry that it’s the evolution of legislation may be the bigger problem for more progressive firms in our industry who are ready for the future of advice.
Stewart Bell is the founder and principal of Audere Coaching and Consulting.
Ad hoc is fine as long as no reasonable basis, nor know your client is required.
A financial planning is a relationship, a professional one to be sure, but a relationship nonetheless. It is NOT a transaction. I don’t give a flying whatever what ANZ or any other stock is doing. What I do care about is what is going in my clients lives, what are their priorities, do have the right strategies in place, could it be arranged better?
It’s like estate planning, so many advisers say”go get your will sorted”, tick the box and move on. A true adviser understands the complexity of modern day families, the tax system, asset protection and other matters that make it obvious a will is only the first small piece of advice needed for a true estate plan.
The degree of in depth understanding of a clients situation requires a deep knowledge of not only the clients situation from a technical perspective but also their emotional needs, their priorities and also an understanding of the risks and opportunities they can’t see. How you do this from a distance and on an ad hoc basis is beyond my understanding.
That’s why we see our core clients every six months, 12 months is too long.
You are otherwise just an order taker….get a job at McDonald’s.
Many clients are prompted to seek advice in the years leading into retirement. This is a big transition from working life to non-working life. An annual review (minimum) over several years as they lead into retirement makes sense that they stay on track for what is a major life decision. Admittedly, once things settle down, than an “as needed” basis might be all they need.
Annual reviews are a crock. A box ticking excercise that is rarely needed or warranted. It’s a compliance obligation at best. Why does a year make any difference? Why not 8 months? Why not 4 months. This pathetic FPA forced compliance regime is a joke.
You should be contacting your clients when needed and charging accordingly. If they hold ANZ shares directly, you should know about it and today call every single one of them and explain what happened and why to it’s shares this morning. This is service and advice you have to do. To this box ticking time wasting review you all pull their file out the day before and have a quick glance so your song n dance at the meeting justifies your yearly fee.
You all do it and you all have clients who don’t need it.
Time for radical change.
I agree with everything you say there except for ‘you all do it’… We dont all do it. Some have been contacting everyone about ANZ today and have tactically tilted to be underweight banks for some time leading up to the RC.
Why do your clients need to pay you for a running commentary on what has already happened to ANZ’s share price? What value is that adding? Too many direct share traders confusing activity with value adding. The amount charged for these updates significantly outweighs any value they might provide. Not that I think they provide any value at all, except to try and justify your ongoing fees.
Ummmm nah… They need the advice as to whether it is a hold, buying opportunity or whether the news breaks down the investment case and they should sell. Thats what ongoing investment advice is. Not just sticking people in a fund and tacking on an asset based fee as if you actually manage their portfolio.
Why do boards have “annual” meetings. Why does the Government have the Budget in May? We do these things to; To check in, to report to clients, to benchmark, to check progress, to see if goals are being hit, to revisit goals…to celebrate goals. to plan for next year, the year after that and the year after. You think advice is a transaction based relationship. You think/expect People to come to see you when there is some need or some transaction to be done and hence we should charge for that once off transaction.
The ongoing advice relationship is like having your car serviced. I’m going to have to get my oil changed and water topped up on a regular basis, which involves taking my car in at a set mileage to the mechanic. Hopefully by having my car serviced regularly will avoid unpleasant surprises. Sometimes the mechanic will say I need a new fuel filter replaced which is a bigger job and they’ll need more time and it will cost a little more. Occasionally I might need to go just because there’s an odd squeak or rattle. Having the set annual service works well for the mechanic and I know I have to take my car in on a set date. However I’ve got a relationship with the mechanic where I know if something odd was to happen he’ll be there for me. I also know, at time I might have to pay a little more because it’s a bigger job coming up.
While I agree, do you pay your mechanic an annual retainer or do you just pay him ADHOC when you take your car there?
I think I got Ripped. He didn’t give me any consumer protection documents initially like a SOA explaining all the work he was going to do. He didn’t even give me a letter of engagement discussing whether it was going to be a change of Oil or a complete overall. He didn’t even give me a Record of Advice for the switch of Oil. Plus it’s not compulsory for a financial health check up, but it’s compulsory for a motor vehicle check for Rego and as it’s a car used for business purposes I can claim my bill as a tax deduction so I’m happy to pay. Maybe when it’s compulsory to go see a Planner, plus it’s tax deductible and there is no cumbersome compliance regime…maybe then we’ll be able to charge Adhoc payments..
Don’t forget that the Mechanic probably charged you for 5 hours work, but in reality it only took him 2 hours. This is how ADHOC billing works.
Similar, but not the same. Your mechanic isn’t monitoring your car on an ongoing basis between services. He won’t be contacting you to come in earlier to get something important fixed that you did not realise was wrong. Nor will he be contacting you to provide reassurance about the loud noises when you drove on a gravel road which were just due to the conditions and nothing to be worried about. Mechanics can’t do those things and that’s why they charge on an adhoc basis when you request service, rather than charging an ongoing retainer.
Good financial advisers can provide ongoing monitoring. They do contact their clients proactively about important issues the client wasn’t aware of, and to reassure them about bumpy conditions that are no cause for alarm. That’s why they charge ongoing retainers, and most clients are very happy to pay them. Why would anyone want to stop consumers from choosing such an arrangement?
In essence the “best” Financial Planner is the perfect “mechanic” . One that calls you in for known things… the annual grease and oil change to ensure all is going to go smoothly for your trip, a quick glance over the types to ensure their road worthy etc etc. but also will be there for you riding along those roads when the trip gets bumpy. Therefore one could say the perfect fee/charging is something that reflects this. An annual retainer (with the flexibility to move up and or down) plus an adhoc fee…
This is a pretty good article Stewart. And I tend to agree with Wayne Leggett and Andrew with their approach around having both on offer – and both are required for some clients. I am seeing more and more ” ad hoc ” relationships forming in our business, as well as the ongoing review/ retainer model. I think the last few years have taught me to be more open minded and more flexible. I also understand so much better what clients value most and don’t value much at all (ie, for them to be able to come in at a random time throughout the year, unplanned, and ad hoc to discuss something – very valuable. Reading our blogs and lifestyle newsletters, not so much).
Stewart there are two points of view – without a designated annual review you get ‘fee for no service’. Apparently you get that either way – I’m sad to say.
The other point of view and I think this is closer to the truth and needs a deep understanding of the evolution over the past 20+ years to understand – the annual review has just been a justification for the fee that was going to be charged anyway.
There have always been VERY good financial advisors – but the financial advice profession is in the future – ‘it won’t happen overnight but it will….’.
I think you have both services
Adhoc ongoing where the client or the adviser will follow up when they see the next key event – this is paid on fee at appointment basis – like your doctor relationship
Vs ongoing advice and a paid retainer – where client has unlimited ongoing advice and access to planner governed by FDS structure
Offering both allow choice for the client
Stewart, with us, other than with our retired clients, we treat the annual review as a “default”. Other than that, our clients effectively have us on a “retainer”, which allows them access to our advice and assistance whenever they feel the need. Yes, there are some pricing issues, but we manage that by an annual adjustment to the retainer. It seems to suit both parties and the clients perceive value in knowing they can utilise our expertise whenever the need arises without being concerned about “bill shock”.
The primary issue in my opinion is that the regulator is dictating terms & removing choice from the consumer.
Different clients want different things which can trigger innovation in service delivery for a switched on adviser that is perceptive to client wishes. However the regulator is hampering this innovation with their cookie cutter one-size fits all view of the financial advice market.
Stewart. the industry (and the regulator) needs to develop a better understanding of the distinction between ongoing advice and ongoing service – then your review question solves itself.
Service is the stuff we do for clients like updating banking details, sending a newsletter, posting a report to an accountant, providing a referral etc etc – all have a value and cost to deliver.
We also do other things which I believe are services that make it possible to provide advice ongoing and satisfy our legislative obligations – these services include offering a review, keeping a client file, maintaining PI (including run-off) as well as maintaining the ability to provide advice.
We should be charging clients a modest ongoing fee for service – I don’t know what this is but I would say between $500-$2000, not the $5k, $10k, $15k, $20k pa you hear about and that advisers are sweating about justifying.
Ongoing Advice should be billed on top of the ongoing service fee, whether it is reviewing a strategy or implementing a new one, like the initial advice, it should be billed based on the work involved – not just based on the super fund balance like so many are.
Sometimes reviews will involve updates of insurances, buy and sell of assets in super etc etc demanding a higher fee. Other times it will be a hold – this still has intrinsic value and should be paid for, just not as much as the former.
In my mind this is what is required. ASIC appear to hold the position that service can’t be charged for without advice having been provided – this is wrong. One the other hand though, someone paying thousands of dollars for hold advice is also hard to justify.
Ongoing between $500-$2000? Just because your expertise doesnt warrant a significant fee, doesnt mean others expertise should be cheapened. Creating a fixed range for fees is nothing short of moronic. Many advisers are only worth $500 for a review, but there are many that can easily justify a fee of upwards of $20k.
We dont sell time, we sell expertise. The length of time and effort it takes me is irrelevant to the price i charge, i know what my expertise is worth and i know the value i am adding.
Medicare will give you give you free consultations with an Oncologist in the public health system or you can pay tens of thousands to see the most skilled specialist in the country. You get what you pay for and creating a range like that would see this industry drained of all it’s top talent – none of the top advisers in Australia would charge as little as $2000 for a comprehensive review.
I would like to see the sort of review advice that justifies a $20,000 fee. A client accepting it doesn’t mean it actually has that value. I have seen a few very HNW clients go with those sorts of fees, but its just a stitch up, a large client subsidising smaller ones.. A medical specialist charging 20k for is probably for a life saving Op…
Yes, fees vary but in plenty of cases your client could get the same review advice from Anon for $2k. A client would barely break even from his investments with 20k annual advice cost on top of product costs. Please tell us the outcomes that justify this 20k ongoing fee? And what makes your expertise 10x greater than the average Adviser? What is your education level?
I actually agree that in most cases a fee of 20k is not justified, our fee cap is lower than this… However saying a client would barely break even from investments with a 20k advice fee is nuts… Someone who is a HNW client probably has a couple million or more invested, 20k is only 1% of $2,000,000…
yes youd hope Indepndant-A (but dont forget more % for admin & fund fees). Nevertheless, Anon clearly made the ‘tens of thousands’ and Oncologist reference to infer its what he generally charges, not 1 in 250 clients youre talking about.
These ‘services’ are all things that your client could do themselves… if they want you to do them, then bill them. How is charging the client an ongoing fee just in case they want something done for them in their best interests??
The end of regular and reliable monthly revenue streams is a going to be a tough pill to swallow, but it is the medicine that this industry/profession needs.
exactly.. if your service has real value people will pay adhoc for it. just like people do every year to their accountant, doctor.. the money for jam is nearly over with..but industry mags are generally just a pat on the back excercise in the comments section.
“as needed” is not clear cut or black and white. Without regular annual reviews, clients can cancel their insurance policies due to cost, when an insurable event can materialise at anytime. Clients can canel their insurances without contacting their adviser. We’ve had a lot of these situations, thankfully for the regular review that the adviser convinced the client to retain insurance as the insurable event actually did occur several months later.
ongoing insurance commissions are not in question here – whether you provide ongoing advice or not a commission is still paid. Most advisers offer the review as they feel obligated to ensure the best for their clients whilst they receive a commission (some don’t). It would be different if you charge an ongoing fee for ongoing insurance advice that this fee would need to be justified, under the current ASIC thinking this would be the provision of some kind of advice (could be a hold).
The post had nothing to do with receiving insurance commissions so that’s an interesting response.
Stewart you are spot on. Managing client meetings around real issues rather than a date in the calendar is a much better model. The challenge is enabling the communication to facilitate this approach.
Agree. Client contact should be pro-active & ad hoc. Conducting a review annually & expecting all matters to be addressed in a timely manner at that point is ridiculous. That’s ticket punching, not service or advice. ASIC’s position on this was a move in the right direction, but should be considered first draft. If you can demonstrate you have reasonably delivered on the agreement with the client that should be enough. In all cases review will be necessary, but the outcome of that may be that there is no need for discussion with the client, unless the client specifically wishes to meet. If the strategic advice provided was good & the underlying asset management is doing what is supposed to what is there to discuss? Providing updated investment balances & small talk should not be what a review is about. Reporting by exception is an accepted business practice.