Will fee-for-advice cost clients too much?

The debate rages about who would get hurt if commissions suddenly went the way of the dodo bird in Canada.

When the UK banned commissions in January, about 20% of advisors left the business. Such articles discussing the demise of fees have incited heated comments.

Read: Fee-for-advice model lacks transparency: IFIC

Many of the negative reactions, I suspect, are from advisors who’ve never successfully offered a fee-for-service option. One advisor said he offers a fee option, but no client has ever chosen it. I suspect that practice isn’t really set up to accept fees. Rather, the advisors are presenting the option to give clients a sense of the value they’ll receive by working with that firm.

Read: How to frame fees

With such objections in mind, I want to address two challenges.

1. Lack of confidence in the minds of advisors

If you’ve never successfully, over a long period, charged fees for advice, you can’t know what it would be like. I agree; the thought of such extreme change uncovers a lack of confidence in many. And no wonder advisors feel that way. No one has ever trained them to sell fees.

(And for those of you who think the fee-for-advice model will get you away from sales, think again.)

Read: Worry about value, not fees

I successfully operated a fee-for-advice model for years. And I’ve trained many advisors with various firms and licensing types to charge fees. The number one issue is entirely between the advisor’s own ears, and the solution is a mindset shift. A successful fee-for-service advisor knows exactly what she’s worth.

2. Some consumers not having the cash flow available to pay for advice

UK firms are offering payment plans, and some clients are paying with credit cards. Advisors reasonably object to the idea of clients going in to debt to pay for advice.

Read: Are your fees transparent?

But here’s the thing: if you offered cash-flow planning, you’d know what the client could afford in the first place.

Never mind that some advisors already unknowingly put many of their clients in debt to pay for advice now. When advisors don’t create cash-flow plans and their clients overspend, they’re contributing to that debt by encouraging clients to pay for insurance premiums or make investment contributions.

Read: Wealthy clients add fee accounts

The bottom line

To all those who say, “But what about the little guy?” Guess what: the little guy who has no cash flow will never be your client. Clients with no cash flow don’t buy financial products. Without a cash-flow plan, your clients can’t pay for advice. But with one, most of your clients will be able to afford you, and will end up financially ahead for it.

What do you think? Sound off in the comments or email us.