While I was working on the business model for my business, Fairhaven Wealth, I gave a lot of thought to the range of services I wanted to provide and how I'll charge clients for those services.
The easiest thing to do would have been to follow the lead of most financial advisers. It would certainly be easier than trying to reinvent the wheel.
But I don't always trust the status quo. Sometimes, I think there are better ways to go about doing things.
And frankly, one of the reasons I didn't join an established firm is because I don't want to be the same as most advisers.
This is based on my belief that:
Many financial advisers are selling Porsches when Toyotas will do
Don't get me wrong: I really like Porsches. And if you ask the average punter whether they'd prefer a Toyota Corolla or a Porsche 911, most people would take the Porsche.
But you see a lot more Toyotas on the road.
Why? Because they're cheaper. A Porsche is a great car, but you need to pay for it. And after considering the trade-off, most people end up going with the Toyota Corolla.
Likewise, financial advisers provide great services to clients. But I think there's a whole lot of people who don't use financial advisers because they can't justify the cost. I also think there are a number of clients who are paying for Porsches when they would probably be happier with a Toyota - if this option was available to them.
I could go into a lot of detail about how financial advisers could more effectively "scope" the services they provide to their clients. But instead, I'll focus on two things that almost all advisers insist upon for their clients, that I choose not to enforce on my clients.
The term "financial adviser" suggests that they are "advisers".
But they're usually more hands-on than this. After they provide a client with their recommendations, they often get a client to sign a document called an "Authority to Proceed". After this, they roll up their sleeves, and get involved with dealing with financial institutions, disposing, acquiring and applying for assets on the client's behalf.
In most cases, clients got themselves into their current arrangements. If they receive clear advice, they can change their arrangements.
Maybe they want help to do this, and are prepared to pay for the help. But in all my dealings with financial advisers, I can't recall seeing an adviser ever give their client the option.
Providing ongoing services
The service model for almost all financial advisers is one of advice being provided on an ongoing basis. The client might pay a fee for the initial advice, and from that point on, they pay an ongoing fee in return for ongoing services by the adviser.
Ostensibly, the ongoing services from one practice to the next are the same. They'll usually involve a periodic review of the clients' investments and insurance arrangements.
In practice, different advisers do this to differing degrees of thoroughness. In some cases, the review might largely be a case of reporting on the performance of your investments and rebalancing your portfolio to reflect the asset allocation they recommended in their original advice.
In other cases, the review might involve running through your circumstances, needs, objectives, and risk profile in a systematic fashion to ensure that there haven't been any changes that might trigger the need to update your underlying strategy.
Some advisers may even go further, by acting as something of a coach and trying to keep you accountable to the goals and actions that you've said are important but aren't being treated as such.
In some cases, clients can go to their advisers and talk through financial decisions that they're planning on making.
Don't get me wrong. I think the ongoing services that advisers provide can be of tremendous value. If the original advice can be thought of as making a plan, the ongoing services can have the effect of helping the client work the plan.
But not all clients need the ongoing services. Many are capable of working the plan, and have the awareness that if something changes they might need more advice.
If given the option, they might be more prepared to engage with an adviser periodically, on their own terms, for a review. Especially if the costs of the ongoing service were clear to them.
There might be risks involved with this. A client might miss out on some important benefit or regulatory change that effects them. But on balance this might be a risk that they are prepared to take. If clients can give "informed consent" in relation to medical decisions, they should be able to do the same with their finances.
In other words: if given the choice, clients might often choose the Toyota rather than the Porsche.