Financial planning practices should steer away from time-based billing.
Time-based billing as a fee-based remuneration model is not appropriate for financial planning practices, according to the managing director of a business consulting firm.
"I believe that hourly rates are bad for business and they are bad for clients," Elixir Consulting managing director Sue Viskovic told delegates at the Praemium Business Solutions conference in Sydney yesterday.
"When we talk in terms of clients, often hourly fees are going to restrict the client," she said.
The reason being is clients will be more reluctant to get in touch with their advisers if they are conscious any sort of contact is likely to attract a commensurate fee.
"You don't want the client to hesitate before calling you if they need to talk to you about your advice or to ask for more assistance," Viskovic said.
This type of remuneration model also encourages inefficiency in the practice.
"It's in the client's best interest that you do things as efficiently as possible ... but it's in the adviser's best interest [to take more time in providing advice] because they make more money the longer it takes them to do something," Viskovic said.
Use of time-based billing may also lead to clients getting a shock as to the cost of advice once the advice process is completed, which is unhealthy for the business relationship in the future.
This is because the total cost of the advice cannot be determined using this model until the end of the process.
"If you are charging hourly rates retrospectively, and that's how it's done, clients don't know what it is going to end up costing them so they have difficulty in making a value judgment," Viskovic said.
Furthermore, under this model practices will have to implement an additional administration function of managing a time sheet process that could lead to greater operational inefficiencies.
The two non-consecutive alphabetic letters encountered most often last week caused more controversy than the underlying policy they represented, Wouter Klijn writes.... read more »
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