Blue Chip Issue 89
Blue Chip Journal – The official publication of FPI. Blue Chip is a quarterly journal for the financial planning industry and is the official publication of the Financial Planning Institute of Southern Africa NPC (FPI), effective from the January 2020 edition. Blue Chip publishes contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry.
Blue Chip Journal – The official publication of FPI. Blue Chip is a quarterly journal for the financial planning industry and is the official publication of the Financial Planning Institute of Southern Africa NPC (FPI), effective from the January 2020 edition. Blue Chip publishes contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry.
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BLUE<br />
CHIP<br />
COLUMN<br />
Perception is reality<br />
This is why how financial planning fees are charged is important.<br />
Rob Macdonald, Head of<br />
Strategic Advisory Services,<br />
Fundhouse<br />
Rob Macdonald has held<br />
several senior positions in<br />
the investment industry.<br />
At Fundhouse, he acts as<br />
a consultant and coach<br />
to financial advisors and<br />
develops and facilitates<br />
training programmes in<br />
behavioural coaching and<br />
practice management. Before<br />
joining the financial services<br />
industry, Macdonald was<br />
MBA director at the UCT<br />
Graduate School of Business.<br />
He is co-author of the book<br />
Rethinking Leadership and has<br />
consulted, written and spoken<br />
widely on a range of topics.<br />
Macdonald has a Master’s<br />
degree in Management<br />
Studies from Oxford University<br />
and is a CFP® Professional.<br />
At the recent HUM SA conference,<br />
Alan Smith, a London-based financial<br />
planner and the founder of Capital<br />
Asset Management, shared some<br />
of the lessons he has learned in building his<br />
business. His talk was entitled Failing my way to<br />
success, reinforcing the reality that the path of<br />
progress is inevitably littered with both success<br />
and failure. Smith says that he started Capital<br />
with a clear vision to do things differently and<br />
wanted to challenge conventional thinking in<br />
financial services.<br />
One area where he did this is how Capital<br />
charges fees. Smith wanted to separate advice<br />
fees from a client’s asset base. In so doing, he is<br />
agnostic as to where a client’s money is invested<br />
or what financial products a client may have.<br />
Capital looks after the client’s total financial<br />
life for a fee. Smith saw this approach as giving<br />
him a competitive advantage as there are so few<br />
other financial planners who operate like this.<br />
The simplest analogy for Smith’s approach is<br />
the medical profession, where a client pays their<br />
doctor for assessment, diagnosis, advice and if<br />
necessary, a prescription. The client then pays the<br />
pharmacist for the products they are prescribed,<br />
even if there is an in-house dispensary, a<br />
separate payment is made. As difficult as it may<br />
be to envisage, the separation of advice fees<br />
from product fees must be an important step<br />
for financial planning to take its rightful place<br />
as a fully-fledged profession.<br />
In my recently released book, The 7 Pillars of<br />
Financial Health – Partnering with a Professional to<br />
Thrive, as the title suggests, I encourage people<br />
to partner with a financial planning professional<br />
to achieve financial health. A common response<br />
from readers who do not have financial planners<br />
has been that while they recognise the benefits<br />
of partnering with a professional, they don’t like<br />
the way financial planners are remunerated.<br />
Sadly, many still perceive financial advice as<br />
an incentive-driven, sales and commissionoriented<br />
service. This is despite the incredible<br />
work that so many financial planners do for<br />
their clients.<br />
Alan Smith has been able to counter this<br />
perception, saying he doesn’t have to worry<br />
about having conversations with clients about<br />
the link between his fees and products. His fee is<br />
for advice only. Whenever I have fee discussions<br />
with financial planners, the principle of<br />
separating advice and product fees is not<br />
necessarily disputed. The obstacle that many<br />
see to adopting this approach is how to charge<br />
the fee. Smith has solved this problem by<br />
charging a retainer fee to clients. He agrees on<br />
the scope of work and service with a client and<br />
the requisite fee the client will pay, irrespective<br />
of what products the client may need.<br />
Many financial planners are trying to go this<br />
route by charging fees for work done, whether<br />
for initial consulting with clients, drawing up a<br />
financial plan or implementing advice. But the<br />
real challenge is when it comes to ongoing<br />
fees. Here financial planners have legitimate<br />
concerns about having to invoice clients<br />
monthly and chasing debtors who get into<br />
arrears. However, product providers already<br />
have sophisticated and efficient systems for<br />
ensuring financial planners are effectively<br />
remunerated on an ongoing basis.<br />
Adapting these systems to enable financial<br />
planners to stipulate rand-based retainer<br />
fees to be paid to them regularly (monthly or<br />
quarterly), no matter the product type, would<br />
be a huge step in enabling financial planners<br />
to charge clients ongoing fees in the way that<br />
Alan Smith has shown is possible. It would also<br />
help people recognise that financial planning is<br />
a genuine and complex profession that focuses<br />
on helping clients achieve true financial health,<br />
rather than one that many still see as simply<br />
selling financial products.<br />
14 www.bluechipdigital.co.za