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Financial Services Compensation and Regulatory Intervention

By Phil Billingham, ACII CFP Chartered Financial Planner

First the good news: We should get paid for the work we do, the value we add, and most clients understand that…sort of.

Next, the bad news:

  • Clients don’t understand what we do
  • They don’t understand how long it takes
  • They don’t understand how complicated it can be
  • They don’t really understand why they – rather than the product provider – should pay for it
  • And so they do not always see why we charge so much – or even how we charge in the first place!

Of course, this is the most crude of generalisations, but please stay with me here. Because, in all my travelling, I’m not at all clear that anywhere has got this right yet. Otherwise why would we still be discussing it?

And all, this confusion has resulted from the biggest mistake we ever made. We managed to allow the big lie that advice was free, and the value was in the product /fund. Boy, are we ever living with the confusion and damage that caused!!

Selling Advice as Opposed to Product

Of course, we protest, “We are different. We are planners, not advisers. It’s all about you and not the product, therefore, you must pay us.”

And that’s right. The important and clear fiduciary duty we owe to our clients is the very heart and soul of our function. It is the root of our value, and the reason why the client – and only the client – must pay us.

I fully accept that this often means, in real life, that the actual payment is from a fund, but in that case, we must be extra careful that the client is always aware it is his or hers money, and it is within their power, at any time, to simply stop paying us where they do not feel we add the value that our fees suggest we should.

Regulatory Intervention

Increasingly, regulators around the world are seeing things the same way. To a very large degree, regulators in the UK, Australia, Holland, Singapore and South Africa have or are actively proposing to ban all commission for advice relating to investment products, with some territories going further, and including risk products, as well. Others will, no doubt, follow and I predict this will be sooner rather than later

The Future of Financial Services Compensation

The current, most popular, model of planner remuneration is an ‘Ad Valorum’ one. That is, being paid as a percentage of assets moved / influenced / managed. I suspect that we will eventually look back on this phase as an interim phase between ‘commission’ and ‘fees for planning and advice’.

In this world I suggest we will move to something like the following model:

  1. Project fees for planning and technical advice and reporting
  2. Project fees for implementing and managing recommendations and action
  3. Retainer fees for ongoing service and maintenance

“But we already do that!” you cry. Perhaps, sometimes, in some places. But it’s not consistent. It’s hard to walk into a ‘Financial Planning’ firm in different cities, let alone countries, and know how you are likely to be charged. And when there is some consistency, it’s often imposed by regulators, rather than by us taking a proactive professional standards approach.

Is it time to take a stand, before our regulator decides for us?

4 comments to Financial Services Compensation and Regulatory Intervention

  • I like your idea of compensation model:Project fees and retainer fees. We start to make it a standard in our firm and in this industry. Thanks.

    • Phil Billingham

      Hi Taylor,

      Thanks for this. Yes, a number of people have contacted me via twitter (@philbill360) to make this very point.

      It seems to work


  • The bottom line is IFA/FAs and Planners have had it easy. With a bit of fee and a bit of commission they have convinced themselves they are fee based.

    The fact they are wages out of the product ‘just like commission’ don’t make them fee based. Fee IMO is the client writes a cheque out.

    The sector is awful at explaining what they do, which is why we have so much ‘stuff’ to nail our proposition on. Planning, life planning, wealth management……etc etc- The list goes on.

    Every client is different – Find their need, fill it and they will pay.
    That don’t mean they want or will value a plan. I want results, not a 40 page document on how I might get there.

    Clients aren’t bothered about ‘your’ proposition. They work on ‘whats in it for me’.

    Not ‘whats it in for you and how do I pay you’.

    • Phil Billingham


      Mostly agree, sort of.

      Couple of points to think about though. What we do is often to make the complex, simple. This will involve ways to summarise what we do. It’s tricky to answer ‘what do you do?’ with ‘Stuff’. There needs to be something. Engineer, Doctor, Financial Planner…..

      But yes, Clients take action for their reasons, not ours. And they need to be the ones that pay us. I’m not too fussy how, as long as it is clearly their money, paid by them for services to them.

      Thanks for posting – appreciate it

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