Fee Disclosure Statements – Needed for product providers or advice providers?

I’ve been copping a bit of flack recently suggesting that fee disclosure statements (FDS) aren’t really necessary for your financial advice clients. Yes, I can understand that response considering the frenzy some firms have experienced making themselves ‘compliant’ with their FDS implementation.

The Future of Financial Advice (FoFA) legislation is clear that an FDS is required when an adviser charges a fee that  continues for longer than 12 months.

My thinking is this: How can an adviser possibly advise their clients without at least one face-to-face (or Webex/GoToMeeting) contact per annum? For those advisers who say their clients don’t always want one, doesn’t that tell you something about the value you’re providing to them? 

How can an adviser advise without contact?

How does an adviser know what advice is required, how does an adviser know what behaviours, mindsets, goals may have altered in their client’s life? How does an adviser enforce accountability and ensure commitments to an agreed plan with their clients unless the firm re-connects deeply with advice clients at least annually?

My doctor insists I come in each year if I’m going to be a patient of hers. She doesn’t send me a newsletter about health, she doesn’t just procses and file the latest blood results, she wants to eyeball me each year and really know how I’m progressing with my health and understand all aspects that might be affecting it.

I can understand the need for an FDS position where client may believe the advice was only provided for a one-off transaction or event. Once that advice was acted upon and that complexity was overcome, these ‘transaction-based’ clients have a right and need to understand the value they receive for any on-going fee that the advisers is going to receive off the back of a transaction or event in years past.

Hopefully the FDS can play a vital role for these ‘transaction-clients’ to help them determine their value for money.

FDSs are for ‘transactional-clients’?

THAT is a significant game-changer, isn’t it?

Where is the on-going value for the on-going fees being charged to clients for a transaction or event handled in their past?

Time will tell.

One thing is certain. Clients are understanding what value means to them. Witness the revolution occurring in retail with a shift to online as just one example. The reasons why clients engage their financial planner, their accountant, their stock-broker are fast changing as financial services becomes more of a commodity and they change their buying preferences, habits and what they perceive as value.

I find it hard to understand how a relationship-based adviser can earn the on-going ‘faith’ from their clients that they are on the best possible path to achieve their desired financial ambitions without at least one ‘rich’ conversation every year as to why they are paying the advisory fee.  Once done and agreed, a new (or similar) relationship is agreed upon for the coming 12 months using an annual terms of engagement letter.

To me, that doesn’t require an FDS.

If your firm’s role is the provision of financial products, policies and structures, then I can see the need of an FDS for ‘on-going’ maintenance of the products you provided.

But if your firm’s primary role is the removal of financial doubt from the lives of your clients, I reckon you’re going to have to have a deep client engagement or conversation at least annually to understand the value you need to provide and a terms of engagement letter that supports that.

Am I off track?

What do you think?


About Jim Stackpool

For nearly 30 years Jim has influenced, coached, and consulted to advisory firms across Australia. As founder of Certainty Advice Group, he leads a like-minded team of professional advisory firms seeking to create greater certainty for their clients. As an author, blogger, columnist, and keynote speaker, Jim is regularly called upon for his professional insights into the advice industry. His latest book Seeking Certainty is available now.

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