Dear Ed., I agree with Robert (Robert M. Brown's letter published 16/2/2009) that the financial services industry needs to tackle the potential for conflict of interest created where product distribution networks are driven by sales incentives for the very people being asked to put their client’s needs first.
Arguments against commissions have led to some very imaginative new terminology from institutions with ownership links to advice businesses (“fee for service”, “fee for advice”, “adviser service fee”) but very little in the way of movement away from asset-based charging by most financial advisers.
If someone can explain to me why a client with $100,000 should pay 10 times what someone with $10,000 pays for service that is basically identical, I would be grateful for the insight.
Recent market falls have exposed the down-side of asset-based charging models all too dramatically with many advice businesses reporting revenue falls in line with the average balanced fund.
Disasters like Storm obviously don’t help the apologists for the status quo either.
Building a valuable service business with loyal clients is the Nirvana most advisers seek. I think that particular Nirvana can be achieved without relying on product-based revenue if advisers are prepared to sell the idea of flat fees to their clients (and to themselves).
Given what is about to happen in the UK advice industry and elsewhere I think there is no better time for local advisers to adopt a business model that puts as much space as possible between them and the institutions that have historically fed off them.
Brett Walker
www.independent-advice.com.au
Graceville Q. 4075
