There is much talk these days about fees vs value added in the Financial Planning environment and quite rightly so; but can this lead to unintended consequences that are detrimental to clients?
I was chatting to my wife this morning, who is also our business' book-keeper, when she reminded me of a comment our auditor/accountant (lets call him Daniel) made in our last meeting where we signed off the business' financials. From the start of the meeting Daniel basically said that he could not add much value this year as everything had run smoothly as to our plans. She commented how despite this the fee he charged remained constant with the normal CPI increase.
I understand how one could automatically assume that as there was nothing complicated or tricky to deal with in the last year, the fee we should pay should be less/discounted? I for one however see this differently. I understand that when we started working with Daniel things were a mess. His predecesor had basically not done his job in many ways which left us completely in the lurch with SARS on various fronts as we had "trusted" that as a CA this chap would always do his job and never let us down, he did!
That lesson was learned and with the help of Daniel we sorted all the issues out and laid out plans for the business. He also helped us understand certain financial factors in running the business which have proved invaluable and helped us build something stable and with an exciting future. I can call him at almost any time of the day to bounce idea's off him such as how to structure the purchase of a new asset or any other financial implication that may affect the business.
Daniel is effectively part of our team as he has made the effort to understand our business and what we are trying to achieve for our clients in the long run. He has turned the accounting function into something which we now embrace and understand, we feel in control.
For me there are huge parallels with what Daniel does for us to what we try to do for our clients. People get referred to us who are not comfortable with their Financial Planning setup; there is so much they do not understand and often it causes huge friction in their homes when they try to discuss certain issues which they know they need to address. Our job is to assist them in simplifying and solving these issues in a way that there is buy in from all affected parties on the way forward which will give them what they want and need in the long term ie: Financial Security/Control. For this we charge fees which are agreed to on an on-going basis, we use the AUM method.
In normal circumstances we have our clients organised and following a long term financial plan strictly within a few years. Most of the effort and education gets done upfront and the subsequent years we coach and manage their decisions to stay on track with their personal plan; when changes need to be made due to unexpected circumstances, we walk them through this process, education is on-going.
So coming back to how Daniel charges us, I understand that we do the same. Our clients pay to have us on call, for us to coach them to avoid making bad financial decisions and to assist them when things turn bad (plus we do a lot more). It is the existing relationship and the long term plan which is so valuable when life happens.
If a client expected us to do a whole lot of stuff every year for our fee, we would be doing things such as chopping and changing asset managers in their portfolio, recommending every new product that was launched that year and a whole lot of other stuff which would more than likely detract rather than add value. Unfortunately the industry is full of these advisers.
There is huge value in a healthy and honest relationship with a Qualified Financial Planner and I believe it is worth paying for. Quite frankly, if you do not have this kind of relationship you are in trouble, you just don't know it yet.