Since I started actively promoting my fee-based financial planning services, I had been getting more than expected interest in this service. In the past, I used to allow the client to choose the mode of service. Moreover, I did not charge any fee for any consultation at my office for the first few hours. But these days I’ll state my preference and default mode of operation which is fee-based planning service. Unless it is really a simple case, a fee will be charged.

The idea is itself really quite simple. The fee-based service simply compensates me for providing the advice. What the client will get end of the day is a financial report. Depending on the complexity of the case, the report can be simple or complex. Some people asked me what is “complex” and what is “simple”. No worries,  because the fee charged is directly proportional to the work done. Like taxi driver’s meter, the fare is directly proportional to the journey taken. Like a taxi which starts with a minimum fare, there is also a minimum fee for financial planning. I think my occupation is really similar to a taxi driver!

Some fellow practitioners asked me how I can charge a fee when everybody gives free advice. My response is as follows:

1. It is not true that “everybody” give free advice. There are many advisers that charge fees. A client told me that she did manage to source for some quotations for fee-based investment planning before she selected me to do the work. Although it was not as easy as 1 2 3, she did eventually found a few.
2. No advice is ever free. If the advice is always free, advisers will live on air and sunshine. It is economically detrimental to have people working for free all the time. Taxes will increase because government needs to support these economically active but income-less laborers. Even charitable organizations must remain solvent and have positive cash flow in order to continue its charitable work.  How does the adviser survive if they seemingly give free advice? The answer to that is based on law of large number. Give free advice to many people and hope some will buy products. Thus, those who buy products are indirectly paying for the advice received and these people are actually subsidizing those who do not buy products upon receiving the free advice.
3. Using purchase of products to compensate for advice is an inefficient way of remunerating the adviser. Logically speaking, the passenger who takes a taxi from Changi to Tuas must pay more than the one who travels from Changi to Simei. But often, the reverse is true if the adviser is compensated using products purchase. Yet many clients like this inefficient way of paying for advice. It defies logic but than many things cannot be explained by logic.
4. Many good advisers are poor salesman. Although they are good in numbers and facts, they are just lousy in “selling”. Why should these advisers be disadvantaged if they are really good? The industry need less salesmen but more of knowledgeable and competent individuals.
5. Most financial advisers who come to this field came for either reasons: They were told that they can earn lots of money in sales or they zealously wanted to be a professional. However, end of the day if the method of compensation is a sale of a product, than unfortunately the latter type of advisers would be very disappointed that it is after all a sales job. Is this not happening to the entire industry? What is a professional? One important mark of a professional is self-regulation. There is no need for the regulator to do micro-management because a professional would self-regulate their own industry. Look at what is happening to the financial advisory industry. Self-regulation? It is more like self-deregulation!
6. Paying for a fee for providing a service can bring out the best of the adviser. I have something to comment about my website. Behind my website is a sophisticated engine running it. Although the source code is open source, however like many open source it is very hard to install and configure. A few years ago, a person approached me to have a good website engine setup. He charges a fee for doing that. I was a R&D engineer for 10 years and had worked with Linux and even embedded the Linux’s OS into embedded systems and to tell me to pay a fee to install an open source can be quite crazy. However, I immediately knew that the fee is necessary because the work required is not trivial and I had full confident that it will be good . Till this day, my website has provided me with many returns. The ROI is too large to calculate.  For those who do not know, an open source software is free of charge.
7. Would I overcharge a client? There is something which many has to remember that in this industry, referral business is extremely important. If a client is overcharged, there goes the referral opportunity. I am not keen in 1 planning case. I am more keen in getting the potential 10 cases which the client will refer to me. Would anyone forego 10 potential cases? Nope. To further illustrate the importance of referrals, let’s say each client refer 2 clients in their lifetime of which each in turn refer another 2. After 10 iteration, the total number of clients will be 1 + 2 to the power of 10 =  1025. So would anyone be keen in just having 1 client? Nope but I would be more interested in the 1025 altogether. Let’s say the average fee per case I charge is $2000, this 1025 clients will provide my family an income of 1025 * 2000 = $2.05 million. Therefore, from this simple mathematics, overcharging cannot and should not be a concern for the client. I think my math is better than average, so no worries again because I know what the numbers are saying.
8. For me I do not claim to know everything. In fact, I’ll have to understand what the case involved because I may not take in all fee-based cases. If it is not within my competency, I’ll not do it but I’ll ask my client to consider engaging the services of my other colleagues who are competent in those areas. Sometime, only certain parts of the planning I need another colleague’s help. I’ll tell my client that there will be two or more people working on his/her case. I think this is the way to go. The client deserves nothing but the best. Since nobody should be jack of all trades, only the “masters” of the various “trades” will be rope in to work on the case.
9. It is no secret that many of my clients approached me after reading some of my articles. I have found that I can kill two birds in one stone. Firstly, I force myself to improve my knowledge and competency through research. Second, I will pen down my research and publish it in magazines. Thank goodness some editors like my work and are willing to publish it in their magazines regularly. I am also glad to know that some foreign magazines who upon reading my articles wanted it to be republish in their own magazines. With me staying ahead of many others in knowledge and competency, I’ve already gain an edge over others. The articles in magazines offer me publicity.  The articles I wrote do bring in many clients to me.  

Personally I hope that fee-based service will become a major part of my work. I definitely prefer such work because a financial adviser should spent more time advising than selling. I also hope that potential clients in the future would understand where I am coming from and the personal preference of mode of compensation. For every report I spent researching and producing for the client, I am always very proud of the end result. I am sure they will be as proud as me too.

For those who are curious, there will be a major shift in the manner I write for the coming few magazines articles. I have never used such style but I think I am getting bored with my old style. Stay tuned for my new style of writing.  

1413 words (gosh, so long-winded!)