A remuneration model based on charging hourly fees is not applicable for financial planning practitioners, according to MINC Financial Services manager David Offer.
The Western Australian-based financial services firm has transitioned to a fee-for-service model and in doing so assessed the methods that can work and those that are less practical.
"The concept that accountants can charge an hourly rate so why can't financial planners is flawed. Accountants can charge an hourly rate every year because they have to complete a tax return every year, there is a reason for the client to see them, there is a goal to be achieved, and in the process the accountant can provide taxation advice," Offer told delegates at the Praemium Business Solutions Conference.
"A good financial planner has to be in front of the client and has to alert the client to opportunities depending on where they are in life. So how can you identify an opportunity for a client, present it tothe client when the client didn't request the advice and then expect to be paid for all of the time invested in process?" he said.
"Also how do you get paid for investigating a client's circumstances to find no change should actually be made in the first instance? So I put a line through that model."
MINC decided to implement an asset-based fee model which Offer said was not significantly different from fixed fee model.
According to Offer there were distinct advantages to adopting an asset-based fee model including an alignment of interests between the client and the adviser's objectives.
"As you're growing your business you really need to have things standardised and having to sit down and negotiate a fee arrangement with every single person you sit in front of is painful. So I like an asset-based fee because of its simplicity," he said.
Transparency and a feeling among clients that they are all being treated equally when it came to being charged for advice was another benefit Officer cited.
In addition he said it took the concept of time out of the equation and the uncertainty of charging a fee on the estimated time to be spent on an account.
