The Continuing Disconnect Between Advisers & Clients in Terms of Reasonable Fees

The Continuing Disconnect Between Advisers & Clients in Terms of Reasonable Fees
I recall around the time of the implementation of FoFA, data was published highlighting the results of a survey which suggested the general public expected the preparation of a financial plan to cost around $300 whilst practitioners felt $3,000 was a more appropriate figure. At the time it suggested to me that the gap between provider and client expectations on fees were significant and it was going to be with interest that we watch how these differences were to be addressed and managed.

Looking back, the approach to structuring fees and revenue generation in the early days of financial advice has probably not assisted the profession in the long run, but then hindsight is a wonderful thing. Moving forward, I’m still not sure that recipients of financial advice truly appreciate the knowledge, skill and expertise that most of the advisors contribute to their clients. I feel there is still much work that remains around the whole value proposition within this profession.

Obviously one of the more similar and common approaches utilised to progress across to fee for service charging was the structuring of annual fees as a percentage of the funds invested. In reality, this is probably not overly dissimilar to prior approached but rather the client is now paying as opposed to the product provider. Some talk about the utilisation of hourly rates, whilst others endeavour to charge a flat fee for a specific scope of work, such as a preparation of a plan, or for advice in general. The cost of compliance doesn’t necessary assist with ensuring healthy margins on such services, with the market as a whole endeavouring to find alternate and more profitable methods to servicing clients. Likewise, again I feel the consumer continues to struggle around the realistic cost that it takes to provide the services that they receive.

Such a debate could be taken one step further to ‘how do we differentiate between an average, good or great adviser’? Interesting question isn’t it.

One obvious metric could be the value of FUM/FUA over a specific period of time; however there are identifiable concerns with such an approach. Even the best adviser in the world is unlikely to pick every peak or trough in the market, thus ensuring a client is continually growing their assets. Does a loss in value of shares or investment equate to poor advice? Surely not; it would be extremely unrealistic to play such a game.

But the dilemma remains, how do advisers differentiate their skills, expertise and service? The next step to which is, how is this translated into value therefore helping to bridge the gap between a profitable fee to charge for a service and a cost deemed as reasonable by a client to pay. Unfortunately, at present I see this as an ongoing endeavour for the profession.