Strategic Consulting and Training (SCAT) managing director Jim Stackpool told ifa that the premise underlying an hourly rate remuneration model is “worse than [a commissions-based model]”.
“[This model] rewards inefficiency and rewards hording of work and pegs an adviser’s entire value proposition to their hourly rate,” he said.
“If you’ve been giving financial advice for fifty years you might be able to do something in half an hour that adds more value than your hourly rate.”
“The hourly rate is as dead as the retail bookstore.”
Stackpool, who consults to financial advice practices on a range of management issues, rejects the idea that the hourly rate fee-for-service model has worked for other professions and is therefore right for the advice industry.
“The more progressive accountants and lawyers are abandoning this model anyway,” he said.
He advises that businesses adopt a hybrid model, providing a flexible annual retainer for long-term clients with an ability to offer one-off fees for one-off transactional services.
“We have a strong preference for job-based pricing – we think that’s the future of advice,” he said. “Advisers need to help clients manage their behaviour, not just their money to really help them reach their goals.”
Lets face it Steve is a moron, who will never engage a professional to help himself with anything, be it engaging a lawyer to help him in a business deal, keeping an angry ex wife taking all his assets, or engage an accountant to help him do his tax return, or help him out sorting out an enquiry from the ATO about the income he forgot to include in tax return or engage a financial planner to work out how to provide a better standard of living for himself in the future or protect his family or income. Minimise his income tax, reduce the taxes in his super fund or build a better portfolio for the future. There are lots of dumb “Steves” in the world. But smart “Steves” understand the value a professional adviser can bring to improving his life, wealth and happiness. We have heard here how dumb “Steve” doesn’t like paying for anything. If that his choice so be it… I welcome the smart “Steves” to my business anyday and relish the opportunity to demonstrate I can in fact improve his life
Further, Steve are you suggesting that it makes financial sense in every occasion to pay off a 5% mortgage before investing in something earning 10%? Or that it is better to use the $0.615 cents some gets to keep from $1 wages (after tax) to pay off the mortage instead of directing $0.85 to super? Where even if the return was nil they would still be $0.135 cents better off? I’m glad you are not an adviser and god I hope your family and friends ignore your ‘advice’.
Steve, I presume you are just a ‘troll’ (someone who joins online forums for no reason other to take the opposing view and try to stir up trouble) but I’m curious about what your occupation is and why you chose to look at this ADVISER website when clearly you are not one and have little knowledge of how the advice industry works and/or little experience with any adviser (or at least with a good adviser).
I wish you all the very best for your future, which of course will be wonderful and financially abundant even without finanical advice. Just as I am sure you will live a long and super healthy life in spite of presumable never going to the Dr’s… Further, I’m sure your teeth are in great shape in spite of never going to the dentist… And of course your car would be in A1 condition also in spite of never getting serviced…
Any aspect of ones life that has no expert input is unlikely to be as good as it otherwise has the potential to be. PERIOD.
Deb, you highlite my point even more. Financial planning was born out of simple life agent business hoodwinking clients who didntbhave thevknowledge to find out the truth themselves. In this day & age every client with a mortgage should focus on slashing that before investing & every retiree’s steategy is really just templated versions of 3 or 4 strategies your paraplanner has saved on a hard drive. You know it, i know it everyone knows it. 90% of Clients can sack their planner & be no worse off for decades. This industry will be chasing the 10% who neec a FP & ripping off everyone else with motherhood statements & curveball feel good simple hand holding. Just sign this engagement letter please….lol
BOB, comment #3 has no idea about what financial advice is all about, but he does raise a good point about the financial status of the adviser. I know far too many advisers who don’t walk their talk or manage their own affairs differently to how they manage their clients. Most advisers should earn a decent income and given the benefit of time should be relatively wealthy. I’d worry if my adviser didnt have up to date estate planning documents, adequate and comprehensive personal insurances, a healthy super balance, a pretty good house and car, saviangs for the kids education, some personal investments, etc. I’m a relatively young adviser at 31 and so have not yet amassed the wealth most of my clients have, but over time, sticking to my own strategy, I certainly should have more than many of them when I reach the same age.
Bob and Steve, unfortunately it would appear that you have never availed yourselves of the services of a quality financial planner. The true value of advice, in my opinion, lies in the peace of mind and comfort we bring to our clients (along with keeping them on track to achieve their goals when life’s curve balls come along). This high degree of quality management of a clients overall position is simply not possible with a 1 – 2 hour meeting once a decade. Clients deserve and need more. I have just received the following email from one of my grateful clients – “Thanks Deb. Knowing we have you looking after our affairs give us peace of mind.” – note that he is not thanking me for his investment returns (or portfolio management) but rather for taking care of him and his family. This is what quality financial planning is all about.
Doug – do you think that a client can call their accountant as much as they like without incurring the costs – bunkum my friend.
All window dressing and smoke & mirrors to increase fees.
If I call my accountant 20 times with questions that he needs to work on, then I assure you my bill at the EOY will be higher. Not a charity.
Based on your view of your worth, if you spend 10 mins and point out a standard item to a client that saves them $5k a year do you expect a large reward for your efforts. Your example is far too simplistic.
If I want a senior partner (accountancy or legal) to deal with e then I expect to pay a lot more than a junior. This is how the dude with 50 years experience gets their worth and if not good value to the client then no repeat business -dead easy.
I agree totally, clients complain regularly about paying accounting fees – they dont want to call the accountant because they charge on a hourly rate, for the phone call etc. Anyone charging for advice should be rewarded for the value they provide a client – eg a client doesnt care about fee’s if they understand that a piece of advice that saves a client just $5,000 pa or increases incomes or pension payments etc over 10 / 20 years therefore they are $50,000 to $100,000 before off.
I totally agree with this, many investors will be paying much more for advice under the FOFA rules than under the pre FOFA arrangements. Previously many advisers were carry clients small clients that could not afford to pay the post FOFA fee rates. The FPA says it costs about $3600 to properly deliver a Financial Plan, how many small investors are going to pay that?
I run a financial planning practice parallel with my Chartered Accountancy practice and we have been doing “job based pricing” for years, it rewards eficiency and reflects the “market” for work performed, it is easy for clients to understand and is effective in niche markets such as aged care. Clients are also very tired of “the meter being turned on” every thime they call our accountants to discuss their tax queries. We have an annual fee retainer for long term clients who need that level of service.
hourly rates are in most cases to expensive if advisers were any good they would all be multi billionaires. as they are not then why should people use them little enough pay for advice that is only benefiting the adviser.
Fofa will do little to protect the humble mum n dad investor or retiree from the overcharging financial planner shark. Oh, it will now sound nicer, sound professional, look like they are towing the line legally & compliant wise but they (the client) will pay through the nose and be overcharged for the most basic (or even complex) service/advice thanks to fofa, the fpa & government box tickers with no clue of this industry. Fee for service is just commission in disguise and in most cases a lot worse and far more immoral. The clients paying a yearly fee for portfolio service should leave you in droves & only need to see a financial planner for 1 or 2 hours a decade. End of story & you all know it!
Totally agree, as an accountant, that the hourly rate is so inefficient. It doesn’t reward value given, let alone it can encourage inefficiency. I hope they don’t require an hourly rate style billing to be given to clients, because this is so anti-quated. Value pricing is the only way to go and puts the onus on the planner to actually provide value to match their price