Speaking to SMSF Adviser sister title ifa, Lifespan Financial Planning chief executive Eugene Ardino said that the more the industry goes down the path of charging for everything an adviser does for a client, the higher the cost of advice.
Now that advisers have to be degree-qualified and spend a minimum of three years at university on top of a professional year, Mr Ardino thinks advisers will not go through all of that to earn the average wage and, as a result, will charge higher hourly rates to clients.
“The unintended consequences of all of this is the entry to advice is going to be higher in terms of what it will cost to pay,” Mr Ardino said.
“If you’re expecting advisers to charge a fee every time they do something for a client, I expect fees to go up dramatically, like maybe two or threefold, if that’s how you have to run your business rather than having a sort of retainer arrangement.”
Another consequence, according to Mr Ardino, is that if some advisers have more passive income streams such as grandfathered trail commissions, then they will need to make sure the rest of their business is generating enough income for it to be viable.
“Look at all your client relationships. Look at your service agreements, and just make sure they are commercial. Make sure that you can provide that service for what you’ve quoted to be the fee,” he said.
“There are a lot of reasons why advisers might have an ongoing fee arrangement where they’re over-servicing the client relative to what they’re earning, and some of those reasons are going to be wiped out because of FASEA and the royal commission.”
Mr Ardino also said that it was more important than ever that advisers be able to demonstrate their value to clients.
“Despite the royal commission headlines, my experience with advisers indicates that most advisers don’t charge their clients anywhere near enough for the time, effort and service provided,” he said.
“So, just as important is to ensure that your service agreements are commercial and that you are not promising too much for too little and, as a result, not living up to what you have promised because it is unrealistic.”
The industry as a whole still seems reluctant to acknowledge that it clearly has a problem in a range of areas.
Whilst increases in cost and complexity obviously cause consternation those that are good advisers among the bunch will rise to the top. Regulation of any industry is scary (as is change in general) but the industry as a whole has to realise that it can’t continue the way it was. The mentality of “well I’m a good adviser” is the same kind of toxic sentiment (albeit with less impact) as “well I’m not a racist,” and it has to stop for the industry to move forward.
It’s also not like the qualifications and requirements are seriously onerous. Accountants have to do a certified university degree, a graduate diploma and be endorsed by a mentor and their professional body of choice. Not to mention they have ongoing CPD requirements of approx 120 hours on a three year basis depending on the body.
Whilst there should be some acknowledgment of past experience/qualification (as there was with accountants when their qualifications were introduced) saying that the restrictions are onerous is simply incorrect. They would only serve to bring the industry to the same level as many other professional services.
Advisors exiting rather than undertaking additional training, some after many years of dedicated and excellent service. Those remaining having to pay for very expensive and for some, unnecessary education. Hardly surprising that fees will rise. So much for the government trying to make Advice more affordable! The government need to consider what, if anything, can they do to improve this? Standard advice documents would be a great start. Standard forms to standardise fees!