The majority of Australian financial advisers are using a flat and asset based fee hybrid as their charging model but they are steadily shifting to flat fees, the latest Elixir Consulting pricing report said.
The Adviser Pricing Models Research Report Second Edition found 51 per cent of advisers are using a hybrid of flat and asset based fees, where a flat fee might be charged for the initial engagement and then asset based fees used for any on-going advice.
Outside the hybrid charging model, 29 per cent of the 433 online advice participants, said they use flat fees.
“While 29 per cent might not necessarily sound significant, there has been an increasing presence of flat fee models so a lot more advisers are getting their head around charging a flat fee,” Elixir Consulting managing director Sue Viskovic told InvestorDaily.
“It tends to take a fair bit of commitment but certainly having a robust process to be able to get there is what’s important.”
Furthermore, the emerging trend was rather than advisers going straight from commissions to flat fee, a lot of were shifting to asset-based fees first and moved on to a flat fee model once they were comfortable, Viskovic said.
“The majority felt that they still had conflicts on an asset based fee model so whilst they tick the boxes from a compliance perspective, they still wanted to remove the negative impact that the asset based fee has,” she said.
“That might also be because there are more people doing [flat fee models] and getting a handle on how to make it work.”
The report also said 86 per cent of advisers found their offer was accepted by over 90 per cent of the clients they presented it to.
“If they had conviction in how they had come to their pricing, they had very few clients knocking them back,” Viskovic said.
In addition, a large range of different pricing models and amounts are being charged, where the average engagement fee for comprehensive advice was $3241 and the average ongoing service fee was $3710 per year, she said.
“Despite other research indicating that consumers expect to pay less than $1000 for advice, when the advice is presented to clients who need it and the services are articulated well, clients are still willing to pay market rates for advice,” she said.
Viskovic said there has been an increase in fee discussions as clients are searching for greater clarity around the value of the services.
“That’s definitely happening and it’s not necessarily a negative. The trick is that advisers have to get good at articulating that message,” she added.
Resarch for the Adviser Pricing Models Research Report Second Edition was conducted in the first quarter of the quarter of 2012.Of the 433 surveyed, 57 of the participants were personally interviewed.
