Last week, the Accounting Professional & Ethical Standards Board (APESB) closed submissions to its consultation paper on the post implementation of APES 230 Financial Planning Services – which were a set of standards introduced in 2013 for accountants who provide financial advice.
In the post-implementation paper, APESB raised the idea of transitioning its accountant members who provide financial advice to a fee-for-service only remuneration model as it is “a way of enhancing the independence and quality of financial planning advice”.
However, In its submission to APESB last week, the FPA said the industry is not ready for such a drastic change to remuneration and such a model would put consumers at a disadvantage.
“We would encourage the APESB to focus on access to advice for consumers. Limiting remuneration to a fee-for-service basis could cut off remuneration options that make advice accessible and affordable for consumers.”
There is also a strong need to understand the difference between accounting businesses and financial planning businesses, the FPA said.
“Accountants’ services are more transactional in nature and are limited to tax matters. Financial planning businesses can manage millions of dollars for their clients – the larger the client portfolio, the more time is needed to appropriately service the client, and the higher the risk,” the FPA said.
Should the APESB consider the initiative further, a separate and detailed consultation should be undertaken to identify the implications for the profession and consumers, and the detail of how a fee-for-service only policy would work in practice across the breadth of the profession, the FPA said.
the old fee debate. I’ve fallen asleep at my desk again and woken up in 2002.
Yes, reality check, it’s like watching a bad movie…but it’s not popcorn but rotten tomatoes that may be more appropriate. Fee for service charges out in a totally transparent way, with clients paying directly (or signing an authority for their agreed fee to be paid from their super fund, each year or for each fee charged) is the only professional way to deal with the nexus between costs, service and client awareness of it all. Whether the fee is calculated based on a % of funds or on an hourly basis or a mix of them – and you’d think that a sliding scale should apply if FUA is used – is up to the client and the advisers to determine and agree. What’s NOT acceptable is any lack of transparency such that client is unaware of what and how fees are charged. ASIC is doing its best to guide/cajole us into doing the right thing, but they shouldn’t have to act as nanny – we should extract the digit and just do the right thing. Personally, I’m embarrassed by many in our industry who just can’t or won’t grow up and charge for what they do, openly and (maybe even) proudly. The only excuse not to would be if you’re hiding something from the clients you claim to serve.
Philip, interested to know what you would say to a potential client who needs insurance but doesn’t have the cashflow to afford upfront advice & implementation assistance, plus first year’s insurance premium, in one hit.
Anonymous, while I still provide the option for commission on insurance I have provided fee for service insurance to clients where the fee has been broken down to monthly payments over 2 years. These payments amounted to about the 30% saving they benefit from when winding down the commission to zero and after the fee has been paid in 2 years, they benefit from insurance costing 30% less. Any reviews or fees to process a claim easily covered from the 30% ongoing saving.
Fee for service can work great once people come around to giving it a try, just like everyone did with super and investment.
So you are incurring all the upfront costs while providing the client with interest free extended payment terms?
Then you are charging them separate fees if they ask for any help with administration or policy adjustments or need to make a claim?
Basically, yeah. Generally speaking clients will pay an upfront SOA fee at once (its actually not that hard to get most to pay it once they 30% saving is communicated) but for those that really cant afford it the above is something I have done.
And yes, additional fee charged for review/adjustment/claim however yet to come across a time where the fee was anywhere near the 30% saving they have received by not paying commission.
Keep in mind, I am not saying commissions are 100% bad. They are suitable for some of the market… I just find it frustrating when some people say fee for service isn’t in a client’s best interest… That is clutching at straws.
To equate accounting work to financial planning means that there is a fundamental misunderstanding of what the relevant professionals actually do. An important part of planning is seeing the world through the clients eyes, there perceptions, their biases, there often UNSTATED needs. It is not about recording what has happened. Some accountants do provide the advisory piece but again its generally limited to just tax planning and doesn’t address the clients lifestyle, personal, testamentary or other family needs.
This level of understanding of what a client actually needs in these broader areas only comes when you spend a lot of time with the client and more importantly, when the client is unafraid to call, send an email or ask for a meeting as they know the clock doesn’t start ticking as soon as they pick up the phone.
We have been annual fee for service for over 10 years, on a per client basis sometimes we make a very high margin in some years, in others for that particular client we may struggle to recover cost. For us its part of the relationship and environment that we share with the client. Trust me they understand the difference.
I therefore disagree you can’t charge a fee for service however I have to admit our model does not work for lower value clients who ironically would benefit more in quantum change to their circumstances compared to the wealthy clients who can easily afford the fees.
We also highly value the accountants input as tax is very important, it is however just one element of the multidimensional picture that is the case for most clients lives.
Just remember that the typical meeting with a client in an accounting firm is 15 to 30 minutes, and it’s “”would you like a SMSF deed with that tax return”” and or “”just stick your money in the big four banks shares and a term deposit””. Accountant gets up and walks out, onto next person. Hence the logical argument is why not just charge hourly rates. Same meeting with planner and it’s punishment time for years of cowboys, FSG,PDS,SOA,file notes, best interest checklists, evidence of strategy, the file is going to get audited etc etc. Very different environments.
True fee for service can be effectively charged and justified by very capable financial planners who actually actively manage a client’s portfolio and total situation.
I highly doubt most accountants have the knowledge and experience to do so in the financial planning space.
So is the FPA effectively saying the “independence” model as prescribed by s923A is not in consumer’s best interests? If so, they are quite correct. But this is the opposite of what they were saying earlier in the week when they endorsed ASIC’s hardline anti consumer position on the issue!?!
Let’s get you started then reality check.
“…….. the industry is not ready for such a drastic change to remuneration and such a model would put consumers at a disadvantage”. This comment is both true and false.
That industry is not yet ready for the change is true because the legacy of the remuneration environment for planners is that most ( not all but most ) are very over remunerated via their on-going service fees relative to the work they ACTUALLY do. Consequently the second part of the statement is incorrect. The consumer will not be at a disadvantage, It will be the advisers who are because they will never be able to earn their current incomes based on charging out for actual work done but will still be bound to offer even the most basic of on-going services.
This common misconception really annoys me. If you look at the facts, very few financial planners earn high incomes. Yes the ongoing fees or commissions may seem high in some cases. But the costs of running a financial planning business are also very high.
Couldn’t agree with this more. The ongoing fees charged by SOME planners where all they have done is set up a super fund for a client and invested it in the default balanced option are heinous.
So many clients paying pre-opt-in ongoing service fees never got spoken to yet they continue to pay each and every year. These same advisers wouldn’t earn 10% of what they do currently if they had to actually service their client base to get paid. There are some advisers out their with thousands of clients…
Have you heard of Opt-In? It became law more 3 years ago. So this can’t happen any more. On top of that, FDS’s are going out to clients every year so those who aren’t getting service will eventually be picked off by better advisers or the clients will go direct. It’s happening. I have half a dozen new clients since FOFA who were shopping around for this very reason.
But it can happen mate because those arrangements were grandfathered, as you would know.
Every adviser knows there are others out there sitting on huge books of clients that they don’t service just collecting a pay cheque. Yeah they lose some ongoing, but they also retain a huge amount too as Australian’s are lazy when it comes to this type of thing. I also get clients come to me as they are ‘shopping around’ etc. Some don’t even understand they have been paying a fee for so long.
Not to mention clients in horribly uncompetitive ‘legacy’ products paying an ongoing commission… Wont change them out of there as they would have to start charging a transparent fee and justify their existence.
Lets not kid ourselves and say this kind of stuff doesn’t still happen plenty, we need to get rid of those people in the industry.
As I said, fee disclosure statements deal with this problem and it is working. I suspect you are just trying to stir us up. But if you are serious and you are aware of clients who are not receiving an annual FDS, please encourage them to report this to ASIC and also note they are entitled to a full refund.
Its very simple. An adviser can apply admin efficiency, thousands of hours of research and decades of experience to hundreds of homogenous clients all at once and monitor etc on behalf of those clients, so for investment portfolios there is a huge efficiency that can use a % of portfolio service fee and include people with small portfoiios. Whereas every persons tax story is unique unless it is so deadly simple that they dont need an accountant in the first place. Fee for service on the typical hourly rate method of an accountant is not appropriate in the above example so to make it the only allowable method does not make sense.
Hang on…I’m grabbing my popcorn…I’m here to watch the comments. 😀