Christina Economic n Finance

We have noticed however, a real resistance in the Australian consumer to the fee for service model.  Whilst it is true that the well-informed client comes to us specifically to seek fee for service advice because they believe it is better, there seems to be a large proportion of clients who have become so used to the commissions model, that when faced with the prospect of paying their financial adviser for their advice many baulk at the prospect.  Whilst it’s true that the commission-model client ends up paying more in premiums etc to cover the cost of the commission to their adviser, there is something more challenging in the prospect physically handing over your own money to pay for advice.  In the lead up to the fee for service transition in 2012 this poses some concerns.

In a recent study conducted by GESB, they found that 44% of Australians believe that a five-year financial plan should cost less than $500.  When you consider that the time it takes for a financial planner to meet with a client, research and formulate a financial plan, write a financial plan, then consult and implement that plan is as a minimum 8 hours work that is well below what a financial planner could possibly afford to charge if they want to stay in business!

Why is it that many Australians aren’t prepared to pay a reasonable sum for financial planning advice?  Perhaps it is because the true cost of advice has been hidden from consumers by commissions for so many years.

With the profession transitioning to fee for service by 2012 this raises a concerning issue.  Unless consumers change their stance toward paying a realistic amount for the cost of a financial plan, we believe there will be a significant decline in the number of people who will seek professional financial advice.  This is of course worrying for the viability of the financial planning profession, but of greater concern is the prospect that the overwhelming majority of Australians will not have a financial planner to help them.

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