Who is paying who?
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Who is paying who?

September 9, 2016

by Tony Vidler  CFP logo   CLU logo  ChFC logo

who-pays-advice-feeWho is paying who is becoming the biggest question in consumers minds as the public debate around fees and commissions  and conflicts of interest increases in financial services.


That’s a great thing for professional advisers.  It is however a question that many struggle to answer adequately when commission on products is part of their remuneration mix.  I do have a relatively simple suggestion for how to answer it honestly, and professionally, and help advisers get paid a fee for their expertise directly by the client.


Bearing in mind 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 an anti-commission rant.


I do believe that professional advisers should charge the client directly in the form of a fee for planning. 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.  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, if the advice is good and we are able to get the recommended solution in place on terms the consumer is happy with, then we get paid a success fee in the form of a commission.


A success fee in the form of a commission for successful implementation of advice 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 – which is where the advisers actual skill and expertise should be valued separately.


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.


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.”


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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