In a timely survey released this week, it has been reported that asset based fee for service is the fastest growing form of adviser remuneration.
In its findings, The Investment Trends 2009 Planner Business Model Report contrasted the growth of various types of fee for service models, where asset based fee for service has been the fastest growing area over the last few years:
… the proportion [of revenue] from asset based fee for service models has risen by more than 60%
“The proportion of planner revenue coming from fixed rate or hourly rate arrangements has only crept upwards since 2006, while the proportion from asset based fee for service models has risen by more than 60% over this time,” said Investment Trends Principal, Mark Johnston.
Mr Johnston also pointed out the evolving meaning of the term ‘asset based fee’:
“Five years ago, you could argue that the major change in planner remuneration had been a relabelling of trailing commissions as an asset based fee for service. More recently, the consensus has moved to using this term to describe a fixed percentage fee which is independent of the individual investments recommended, so as not to influence product selection.”
Other key observations stemming from the study include:
The banning of commissions will have a relatively larger impact on new planners
- The banning of commissions will have a relatively larger impact on new planners, who usually derive a much higher proportion of their revenue from commissions in the early years, while their client base is being built
- As of September 2009 planners had already been predicting a significant shift towards fee for service models, expecting 62% of revenue to be derived from fee for service arrangements (including fixed rate, hourly rate and asset-based fee for service) by 2012
Bank branch networks currently rely on commissions the most…
- Bank branch networks currently rely on commissions the most, independent boutiques the least, with the aligned dealer groups usually arrayed in the middle
- The majority of planners expect their profits to increase this financial year, as markets recover from the GFC. Most expected the increase to be between 11% and 30%.
- Planners spent less time talking to clients about planning for financial and lifestyle goals, and more time discussing specific investments and personal insurance or handling ad hoc queries
