The majority of “advice” given to clients in our industry is product/sales driven. The reason for this is that most financial advisors earn their income by selling financial products, and receiving a commission from the sale. By being incentivised in this way, it is very difficult to give true professional advice without guiding the client to purchase a product, even if the client does not need the product or even if the product is not the most cost effective relative to other options available, because it pays a lower commission.
It could be compared to a doctor who only earns a living from the medicine he prescribes. Whether you need the medicine or not, or even if there was a more cost effective medicine available, he would be incentivised to always prescribe something, and it would probably be the most expensive option.
In order to enable us to give pure advice which is in the best interest of the client, we have chosen to change the way we incentivise ourselves. We also wanted to ensure that all our advisors are qualified to give meaningful advice, and not simply be glorified salesmen and women.
To achieve that, we offer fee based consultations with professionally qualified advisors. All our fees are openly disclosed and agreed upon on an individual basis.
We take no commission on any investments placed with us, and rather charge an ongoing advice fee to manage the investment strategy, making sure we make money only when our clients make money. We are therefore also incentivised to make sure they are performing consistently over time. Clients won’t have the experience of being signed up and forgotten about.
Life and disability products are designed by insurers in a way that if commission is removed the cost saving is negligible. Clients can therefore choose to either remove the commission or allow the commission and avoid the annual life and disability admin fee. Either way the client is paying for what he/she is benefitting from while we are getting paid for our work.
By structuring our advice as financial planning practitioners, clients get advice that best suits their needs. At the same time they avoid paying for unneeded products. What this means for our clients is that they save on the overall cost of their financial planning. Also the financial plan that they are paying for is ideally suited to what they truly need. It’s a true win-win situation. Our clients trust that we have their best interest at heart as they are able to see the value they are getting.