Why fee-for-service could be a matter of survival
It’s a mixed bag when it comes to advisers and their readiness for FoFA. There are a number of advisers who have been ready for this type of reform for years. I know many firms which have been operating as fee-for-service practices, not relying on rebate income or commission income for many years.
There are also those which are making the transition, and those which haven’t yet started making that transition. I think there are actually a large number of firms in this latter category.
Opt-in has been one of the main areas of concern with FoFA. There is a large percentage of firms which have not yet transitioned to fee-for-service. They have came through the last 20 years building up large client bases where they subsidised the costs of up-front advice by charging trail commissions. Those trail commissions they collect effectively pay for the up-front advice, and obviously some of the ongoing advice as well.
So it’s not as easy just to say ‘get opt-in ready’. Even for those firms that already work on a fee-for-service basis it’s not that easy because some of them have large client lists that they need to communicate potential changes to.
Although one could mount the argument that ‘clients should not be paying for something they’re not receiving’, in many cases they’re paying for something they’ve received in the past.
So I think we’ve got to acknowledge that there is an old model and a new model. Fee-for-service is not just a matter of profitability, it’s now a matter of survival.
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Paul from what I have seen there are a lot of businesses that are trying to maintain their old income stream by implementing a FFS model with the same revenues. The issue as I see it is their clients have not understood who was previously paying, most commission based advisers used phrases such as I will receive x% up front and so much trail , and this is paid to me by the product provider ! Now they have to say to the client they are paying from their product , a completely different story, and a completely different value judgement by the client !
Many advisers don’t have a value proposition that matches their old commission revenues and although they will try and create one, these I believe will not be sustainable. Saying that you will charge so much for 4 appointments a year or so many reports or whatever makes the service a commodity, value and correct pricing can only be achieved when there is intellectual property.
I am strongly agreed with Paul. The value of Advice is critical for client success. When an Adviser providing an exchange of the Advice for the money, receiving from client on a way of the commissions – no value of the Advice is delivering to client. Advice is intellectual property and needed to work on the strategy to be able to deliver the value of Advice to a client. This is why ongoing Advice is very important. None of the manufacturer of the product can pay for it. This is what the Advice is all about.
Ian, your comments are on the money. The nub of the issue is that it is difficult to articulate the value of a service that does not provide some form of instant gratification in this modern ‘right here right now’ world of ours. Those whom can successfully articulate value (in the clients eyes) are more likely to succeed. I don’t think an offering of X meetings per year will cut it either. The product we are selling is a combination of trust, education, peace of mind, and a plan for the future around building and protecting wealth. Different generations will respond differently to different mediums, and advisers need to be crystal clear on what it is about them, their business & service that appeals to who.