Who is paying who for financial advice?
Best Practice Advice & Financial Advice & Financial Planning & Sales & Selling

Who is paying who for financial advice?

May 17, 2021

by Tony Vidler  CFP logo   CLU logo  ChFC logo

who-pays-advice-feeWho is paying who for financial advice will become the biggest question in consumers minds as the industry stakeholders continually and very publicly debate fees, commissions  and conflicts of interest in financial services.


For many advisers yet to experience it, full transparency on costs and fees is good for business. It is the right way forward because it builds trust on the part of the consumer, and it helps establish the value conversation which in turn helps correctly to position advisers in comparison to sales-people.  That’s a great thing for everyone except maybe the sales-people.


The who is paying who question is however a question that many advises in transition struggle to answer adequately when commission on products is part of their remuneration mix today (and maybe forever).  It does need to be answered honestly and professionally, and if done so it should help advisers get paid a fee for their expertise directly by the client while potentially still leaving the door open for being paid in a different way for other work with the same client.


I have no objection to commissions as a form of remuneration, and do in fact argue strongly for commissions as a form of financial adviser remuneration in many parts of the industry and advice process.  One should not assume that my comments to come are any sort of anti-commission bias.


But while I absolutely believe that professional advisers should charge the client directly in the form of a fee for planning and pure advice, I do also believe that advisers need to educate clients on the range of possible engagements and what work is required from each of them. Whether that advice is investment, debt, risk management, taxation advice or whatever is irrelevant.  A professional adviser specialising in any one of those fields (or any other) who provides their time and expertise to a consumer deserves to be paid for that given the adviser is trading time, reputational, legal and regulatory risk.  Traditionally the adviser has assumed the business risk of not charging the client directly for that expertise, and instead working on a “success fee” basis only.  That is, advisers have worked on the premise that if the consumer judges the advice to be good and we were able to get a recommended solution in place on terms the consumer was happy with, then we get paid a success fee in the form of a commission from the product placement.


A success fee in the form of a commission for successful implementation of advice recommendations seems reasonable to me, and actually presents good value to consumers generally.


However, prior to implementation of recommendations is the time consuming area of planning – or devising strategy for the client – which is where the advisers actual skill and expertise should be valued separately.


This should be valued separately and in addition to the time and effort that the adviser might be remunerated for if there is  implementation work to be done sometime after a strategy (or plan) has been developed and delivered.


The challenge for many advisers moving to this approach is how to introduce a fee for the planning element when the consumer is often comparing that adviser to a competitor promising to do the “planning” for nothing.


The answer is remarkably simple.  Say the following:


“nobody is working for nothing.  Somebody is always paying, and whoever is paying is who that other adviser is working for.  If you are not paying them directly then they are not working for you.  


Your question regarding the fee I charge is a good one, and the answer is straightforward: I charge you a fee because I am working for you.  The person who says their plan is free is being paid by someone else to deliver someone else’s agenda….not a plan to meet your goals.”


Then perhaps show them visually what is involved with each possible piece of work and talk to that…

Of course the adviser still needs to establish their value to the client, which will dictate what fee level is appropriate and fair and a good exchange of value.  However the question of whether a fee should be payable at all by an intelligent consumer is essentially addressed and dismissed with this approach.


End of issue really….it is that simple.  If they don’t get that, then you’re probably best not to work with them anyway.

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