“Never ask a barber if you need a haircut”
There is currently no “prescribed” model for fee-based financial planning in SA (nor, for that matter, is there a definition of financial planner). There are, however, many financial planners who refer to themselves as “fee-based” (and many advisors who call themselves financial planners) but when push comes to shove, many of them still sell products as the primary means to earn their income (commission). While there is nothing wrong with earning commission, it often results in increased conflicts of interests as the only way that the person advising you is going to get paid is by selling you something as part of the process – whether it’s actually right for you or not. No sale = no income!
At The Financial Coach we are striving to build a fee-only practice where our clients know what they pay us and why they pay us. We are trying to reduce/remove the conflicts of interest that exist around the need to generate an income from what we love doing while at the same time being able to have tough and honest conversations and being able to resist the path of least resistance without the fear of losing a sale. We get paid (by our clients) regardless of product involved.
Simply put, we offer 2 models: the first is an “as and when” model where we do work on an hourly/project basis. This might involve one-off advice, a second opinion on a financial plan or help with retirement. Once the task is complete we get paid and there is no ongoing duty of care from our side – we re-act to requests for help from people as and when they ask for help and we will help if/when we have the capacity to help. All work is quoted for in advance so everyone knows the scope of work and what the cost will be – it’s transparent!
The second model is essentially an ongoing retainer model, where we proactively engage with our clients and their financial lives. While part of what we do might involve assisting clients with their investments, we don’t manage money, we manage our clients and their emotions around money. This includes providing them with:
- Clarity about their finances,
- Objectivity when it comes to their emotional responses,
- Accountability around things like taxes, budgeting, investing and their wills,
- Communication – we do it clearly and concisely and all of this is because we have a,
- Hands-on approach.
We don’t do numbers and we don’t have sales targets but we love working with real people to help them improve the quality of their lives by sharing our expertise – and we get paid for doing it!
So how do we get paid?
One of 2 ways – either by clients directly (the usual method for our as and when model) or by a product provider from the client’s funds. While this may appear contradictory and inconsistent with a fee model, the reality is that product providers have the systems in place to facilitate payments. On top of this, the Financial Services Board (FSB) has recognised that this is a fair and easy way for fees to be paid. We have tried models where we invoice our retainer clients at regular intervals and the reality is that while clients don’t mean not to pay, they forget! And then we become debt collectors and that just increases the costs of doing business. So in a moment of pragmatism, we have accepted that there are systems in place to facilitate payments and have decided to make use of them. There are some ground rules in place though: the fee is paid by the product provider from the client’s portfolio with the client’s written consent. This fee is fully disclosed to the client in Rand terms (not just an “obscure %” which no-one actually understands). We believe that we do good work at fair prices and as a result are trying to be completely transparent when it comes to what we get paid by our clients.