Charging for financial advice after 1 July 2012
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The FOFA remuneration reforms are designed to separate advice fees from product fees. Financial planning clients will pay product providers for their products and will pay advisers for advice. The controversial ‘conflicted remuneration’ (i.e. of upfront & trailing commissions) that has existed between product provider and adviser is to be eliminated. The client, not the product provider, will be in the driver’s seat when it comes to remunerating advisers.
So in the absence of upfront and trailing commissions on investments and superannuation products from 1 July 2012 (and ‘insurance in super’ commissions from 1 July 2013), what will be the available pricing and payment options for advisers?
There will be no shortage of options but many advisers are going to have to adjust to a new system of remuneration. Although the changes are likely to be prospective, many advisers currently reliant on commissions will have to re-think their value proposition. Let’s look at the options:
- Hourly rate
- Flat fee per service provided
- Fixed annual fee (a retainer)
- Performance or outcome based fees
- Ongoing advice fees – (a) fixed or (b) asset based on un-geared investments only (renewable by ‘client opt-in’ every 2 years)
- ‘Once only’ paid up front or when work is complete
- Regular invoice (e.g. monthly or quarterly)
- Paid through adviser payment plan (e.g. Ezi Debit)
- Deducted from the client’s investment funds at the direction of the client
- Direct credit to adviser bank account
- Direct debit (e.g. Ezi Debit)
- Pay Pal
Where a ‘licensee / authorised representative’ relationship exists, the licensee is the responsible entity and must be paid. Some payments will come from product providers in the form of client- authorised deductions, but a significant portion will come from clients directly in the form of fees. It is likely that all fees remittances will be paid or deposited directly in favour of the licensee (i.e. to their bank account or payment plan), who will in turn pay each adviser.