As planning firms implement a fee-for-service model to meet FoFA regulations, they must not only navigate associated costs but also find a way of justifying the costs they’re presenting to clients.
Management advisor Max Franchitto said the biggest challenge for most firms will be in this justification. If the client can’t see the value, they’re going to struggle to pay a large fee, he said.
“My tip is to make sure that the client can see that whatever they’re buying can’t be easily substituted,” he said. “It’s basic economics. The price of butter is limited in that it has an easy substitute in margarine.”
It could be debated as to who is the butter and who is the margarine, but financial planners will have to effectively prove to clients what makes them worth the money. Franchitto said the challenge will come particularly with SMSF’s: “accountants are going to be very competitive in that area.”
“Accountants are highly focused on compliance and they do give business advice. Managing money is not their core activity,” said Franchitto. “A financial planner is more a money manager and a wealth manager – so making that money grow and stopping it from going backwards…The financial planner has got to say ‘I’m not here to give you compliance and that sort of advice, my work is much more about your wealth and managing your money’, so that’s the point of differentiation.”
Franchitto said it all comes down to presentation. Most planners have the value there, but it is the presentation that is the problem. They need to put together a service proposal that the client’s not going to quiver about.
At this stage, Franchitto sees about a 50/50 split of advisers that have this presentation skill mastered and those that need to work on their proposition, but he said he hasn’t seen any lost causes yet.
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