It got me thinking about what an ethical approach to this issue looks like. Here were my initial thoughts:
“I think relationships do often come to a natural end, and that includes business/advisory relationships. If you aren’t actually delivering any services (regardless of how many times you have tried to engage the client) then you really shouldn’t be taking any money from them. I think this expectation is really a hangover from commission days. When/if they need you again, they will get in touch at the time. You can still send them newsletters etc to keep them ‘warm’ but that’s different to collecting actual fees. I’m sure many will disagree, but I believe that if you want to be truly ethical, then you have to actually deliver services, not just take fees.”
I’ve been doing quite a bit of thinking off the back of the RC and just the general climate of distrust, and I’ve come to the position that I believe financial advisers should be as trustworthy (and held to the same high standard) as medical professionals. This doesn’t mean that I believe in hourly billing, not at all in fact! But I do think that advisers should operate under the same sort of expectations that doctors do. For instance:
- I would love to see a Hippocratic oath for financial planners, starting with the concept ‘first do no harm’;
- I am totally in agreement with the educational expectations, although I think the timeline to implement FASEA is ridiculous;
- I don’t think advisers should be able to implement a strategy that is clearly bad for the clients (regardless of how much the clients want it);
- I think the term ‘general advice’ is total bollocks and should be done away with. Either you are selling a product or giving personalised advice; and
- Lastly, while a retainer style pricing model is fine, I really do think that clients should be getting what they are paying for, primarily because advice fees tend to come out of retirement savings and the LAST thing we as an industry should be doing is reducing the retirement savings of the people that we are trying to help. Which leads me to…
You have to know when the relationship has run its course. Frankly, it’s pretty unreasonable to think that you will be able to add value to a client every year into perpetuity. Don’t get me wrong, I think financial advice is FANTASTIC, and I’ll rave about it to anyone who will listen, but I do think that there are times in a client’s life when they just don’t need the full service (for the time being anyway). And as a fiduciary, it is up to you to know when you can no longer add $3,000 or $5,000 or $10,000 (or whatever your ongoing fees are) worth of value to your client.
There are of course a few things to think about if you have a client in this boat.
Firstly, and I think this is really important, don’t take it as some kind of personal failing. In fact, often it’s quite the opposite. You can even look at it as an opportunity to ‘graduate’ your client onto a different service package.
Next, depending on how many clients are in this situation, you could consider offering a different style of relationship, perhaps based around cash flow management, quarterly ‘all of wealth’ reports or something similar.
Here’s another approach for the recalcitrant clients – you could send them a reverse fact find with some pointed questions to jog their memories. Because it is of course entirely possible that there are good reasons why they should talk to you, but they haven’t realised.
You also need to have a view on how long you let the ‘no review’ situation go on for before you take action. From a purely legal point of view, I don’t think this has been challenged in court yet as all the big banks just rolled over as soon as ASIC raised it, but I’m sure most licensees have a position. My gut feel says that after six months of trying every month or so, you might have to concede that things have changed.
From a business management perspective, chasing non-communicative clients is just a pain. I totally get that. That’s why I’d use a marketing automation system to follow up so that you can keep on them without it causing you extra work. Using marketing automation, you can automatically get in touch with clients (you could bucket your clients by month) using a standardised set of email follow-ups. The other advantage to this of course is if ASIC comes knocking, you have clear evidence that you were trying your best to get hold of them and that you have a process in place. If you need a hand writing the email series and setting up the automation, drop me a line.
And lastly, for goodness sake, don’t completely cut contact with ex-clients. They may well need you again in future (let’s say almost definitely!) so you want to be their first port of call when they next need advice. Keep them on your email list, invite them to your events, ask for a testimonial to use on your website, maybe even write them a personalised note once a year to check in. Just a few lines.
Sarah Penn, managing director, Mayflower Consulting
Great article. In hard to understand why Adviser fight about fees for no service. Its inherit greed in all of us, or rather a professional entitlement. Mechanics are the worse at it…
in years to come, receiving money for not providing a service for years on end will be laughable…
I Do wonder if any other professions do it currently with a straight face elsewhere? for a real giggle, someone suggested a gym membership!!
Not sure whether inherant greed is the correct term. In certain cases yes, for example where reviews simply aren’t done. In others no.
There’s been plenty of times over the course of my career that I’ve delayed doing a plan due to waiting on an event (Inheritance, redundancy, even just being delayed by a client failing to produce information that enables the plan to be done). I’ve never been concerned about it as long as the delay wasn’t more than 6 months or so. The client still gets the plan they paid for. They just get another one within 6 months. Is that inherant greed? I don’t think so, but I guess ASIC disagree.
wrong – again too many voices making comments on behalf of most importantly the client. It is purely and simply a question of “what has the client agreed to”? If they agreed to get a post or emailed report on their accounts and an update of circumstances form and have agreed to pay $500 annually for that, and that is what is delivered then that’s fine…if they agreed to attend an annual progress meeting for $1200 and that’s what they get…then fine! Lets all stop telling each other what the client does and does not think is appropriate when the client is not the one responding!!! I think let a free market apply as long as we as an industry are being responsible and ethical and delivering on what has been agreed openly with someone then that’s all we should be measured against…the rest is noise from lawyers and policy makers with no actual understanding of advice or how a practice operates. So it should never be a question of fees for nothing type situations, we should have a clear agreement with clients what they expect to get in terms of service and our fee to deliver that…and then we either deliver it or we don’t. If we don’t then the client doesn’t pay…would you pay your gym fees if they stopped delivering what they promised you access to?
If the client has happily agreed to paying $500 per annum for an emailed report on their accounts (readily available for free online) then I am sure they would also be happy to sign an opt in form for that to continue each year. A happy, engaged client will sign a form to keep being a client.
But lets be honest, if they knew they had the option to not pay for that in most instances, they wouldn’t. There is lies the problem and why some advisers vigorously defend grandfathered remuneration, they lose a lot of clients if they have to actually engage with them to keep getting paid…
agree – thanks for making my point. But value is in the eye of the beholder not someone else deciding on your behalf.
“But lets be honest, if they knew they had the option to not pay for that…..”
When you say something as stupid as this to justify your argument you should have the intelligence to realize you have no argument.
I’ll explain. – Obviously, if there is an option to get “that” for free, people will. That seems to be your only piece of supporting evidence. WOW.
You are not amazing – you are simply very simplistic in your though process.
Investing an absurd proposal (But lets be honest, if they knew they had the option to not pay for that…) to justify your belief “There is lies the problem and why some advisers vigorously defend grandfathered remuneration” is not clever – it is frightening.
I am guessing you work for a regulator…same type of thought process.
You’re comparing investing funds on behalf of a client, and reviewing and making further recommendations on these investments ongoing to sending out a simple account statement every year? Wow. Its worse than I thought.
This is why its sometimes embarrassing to tell people I am a financial adviser. When they hear financial adviser, they assume the lowest common denominator.. Those who don’t service their clients above charging for a newsletter and annual account statement. You’ll be the same person complaining you cant make money anymore with all these ongoing changes, but reality it, thats because you dont have an actual value proposition.
$500 to get emailed an Account statement. That’s like $100 per page. Get enough, and you will be a very profitable business!
Though Mr Stop, the point you miss is that clients do complain, when they receive a newsletter, account statement (which the Provider sends annually for free)…so its clients making the same comments, especially as they are now aware since the RC. good luck if your client agrees to an account statement for $500 – problem is, when challenged, a newsletter and an Account statement they are legally required to get from their super fund/insurer is not deemed to be worth $500.
no you missed the point actually by doing exactly what I was trying to explain. Everyone whose opinion doesn’t matter..ie yours, mine etc gets all wound up in the semantics and misses the real issue – you may think that $500 for account management/report and a phone based review is not worth it but the client should decide that. And perhaps they will. BUT we should let the free market guide this and not keep answering the question on behalf of the client who is not in the room!! If you have a signed service agreement with a client and you deliver exactly what is in that, then tell me again what exactly is the client complaining about?? If they agree to pay you $500 for X, Y, Z…you may look at it and deem it not worth it, but the client might, and if it what is promised is delivered then that’s what we should aspire to…to actually DO what we promise
So by that thinking none of the super funds should charge an admin fee. At all.
Worth a try. Let’s see how far it gets.
The comparison with the medical profession is erroneous.
People don’t pay for medical services. The bulk of the population rely on medicare.
Remember the uproar when a $5 co-payment was proposed.
Medical practitioners are not exposed to the same level of scrutiny as financial service providers.
Medical malpractice goes unreported, doctors rort medicare on a massive basis with remuneration based on attendance not outcome and conflicted remuneration is par for the course.
To the medical industry, like many of us I pay an ongoing fee every year it’s called Medicare whether I use it or not. I don’t get a choice unless I choose to be unemployed & earn no income.
Medicare bills do not cover the full medical expenses…and comparing financial advice to medicine is a little overcooking the egg. Especially as doctor’s mistakes are reviewed by a coroner.
A “review” doesn’t have to be a face to face meeting. There are lots of busy professionals who don’t want to spend time in a meeting but are happy to have a short phone discussion or email exchange to update their personal situation, then have the adviser email a customised “review” document to them.
This document would typically cover things such as market movements, legislative changes, financial product performance, and the impacts of these things on their updated situation. It would include recommendations of any changes required, or a recommendation to not make any changes at all. (Which can sometimes be the most valuable advice).
Plenty of clients see value in this approach and are prepared to pay for it. Many actually prefer it this way. They see it as a more effective use of their time, and it allows them to digest the review content at their own pace and convenience. If clients are avoiding review meetings it doesn’t necessarily mean they want to end their relationship. It’s often because they see the meeting itself as unnecessary, and would prefer to get their ongoing service in a more efficient way.
For Ongoing Service Agreement purposes a review [i]meeting[/i] is only required if a meeting was specified as a deliverable. But the method of review doesn’t necessarily need to be defined so narrowly in an OSA.
I would have agreed with your view a few years ago, however recent ASIC action and the Royal Commission commentary have indicated they do not consider form of ‘standardised review’ worth much at all, if anything. Their view is that you need to be providing actual personal advice on a ‘regular’ basis (to date they appear to indicate 12 months max but no time frame has been defined) to justify ongoing fees, especially at any substantial or commercially realistic amount.
The absurdity is that in their view (ASIC & RC) it is irrelevant what the client actually want or see value in, all that matters is ASIC’s determination or viewpoint.
Reviewing all matters relevant to the client’s situation then advising them not to change anything is personal advice. Regardless of communication method.
I believe ASIC’s concern is more with sending the same “year in review” newsletter to all clients without updating their circumstances or tailoring the advice.
We’re on the same page then, totally agree with you.
Some interesting thoughts Sarah. In my view there is no problem collecting fees whilst a client remains in an adviser’s care, irrespective of whether the client elects to participate in an annual review. The adviser is still responsible for the strategic advice/investments. Also, it’s up to the client to make the move away from the advisor…the client will require advice from an alternative adviser to do that.
Disagree. Collecting an ongoing fee where they are not participating over an extended period is not appropriate. The question then comes around to individual circumstances and what is an appropriate timeline before the ongoing fee is turned off. Contact can be maintained to reinstall the ongoing advice service when needed.
Your comment is a great representation as to why the public views financial advisers so poorly. Money prioritised over the client.
Thanks for ruining it for the rest of us.
Was their an ethics module in the CFP course 25 years ago? Legit question.
25 years ago? Assuming someone completed their Tertiary studies at say age 22, they would be about 47 years of age now – and if Ethics was not included in their original quals, back to Uni they must go. Is this what your question is and if so, does it apply to all?
There definitely has been an ethics module in the CFP course for at least the last 10 or so years. (Although Longstaff from the so called “Ethics Centre” has his grubby hand out to clip the ticket again as part of FASEA’s conflicted arrangements).
The problem is there was no CFP course at all 25 years ago. I think you may find “CFP Veteran” is a grandfathered CFP, not a real CFP.
Its called fees for no service ….perhaps you should volunter to give evidence before the royal commission….
Define for me “service”.
How Orwellian of you
The value has nothing to do with investment reports or how many times you meet. It comes down to the value the client places in the relationship they have with you and your business and the service you provide. It certainly cannot and should not be evaluated by someone external to that relationship. It is worth noting that most negative comments about advisers come from either people who have never had a relationship with an adviser or advisers who have no value proposition.