This is a further comment to my previous blog on Hourly Work. Many customers do not realise that they are paying huge amount in commissions to their advisers who recommended extremely expensive product. Yet many clients refuse to pay even a single cent for consultation fee. For instance, it is not surprising for a client to pay $50,000 in upfront commission for a regular premium ILP even him without knowing it. How is this possible? This amount will be amortised from the client over the premium period. Regardless of how the amortisation is done, the Present Value of the cost is still $50,000. Yet I know many of such clients will not even pay a single cent of financial planning fee. They would only go along with the planning if it is "FREE". My advice to those seeking financial advice is this: Your route to financial freedom starts to be aware that nothing is free in this world. It is either subsidised by others (such as taxpayer's money which is YOU) or paid by YOU directly. The product provider will never give you for free for if they do that their management will be suit by their shareholders for failing to manage the company in the interest of the shareholders. If I am a shareholder, I'll also sue the management for doing work for free.

For me, I'll do a financial planning work based on hourly rate. This is the fairest method for all parties. Often, I'll be ask to quote a lumpsum figure. This is very difficult because the scope of work cannot be exactly known until it is done. No hospital can give a guaranteed lumpsum for its surgery until it is done. No taxi driver can or is permitted to quote a lumpsum taxi fare until the journey is completed. Thus, if I would to be ask to quote a lump sum amount for financial plannig fee, to ensure a margin of safety for myself, I'll always quote the so called "90th percentile". Thus a simple work that could have been done for just 2 hours, I'll quote based on 20 hours for fear there will be many things to do.

This has happened to me once in which a lady called me saying she just needed some simple insurance policies. So I told her that since it is a simple case, I'll not charge a fee. But it turn out that I spent 9am to 2pm (5 hours) skipping lunch for two days. Thus I spent 10 hours on the case because knowing my time is "free" she gave me a huge stack of family's insurance policies which were badly maintained and some of which has no policy documents but only invoice. A "simple" case turn out to be a comprehensive insurance review for her and her two children. On a second meeting, she asked and sought my investment advice on her AIA Achiever ILP and asked for a recommended asset allocation (the original adviser "disappeared" -as usual). I advised her on the appropriate funds and she took my advice and transacted directly with AIA. How much did i earned? She took my advice to get a young son an Aviva's Myshield plan which hardly pay for my missed lunch. Actually the family has a great need. I recommended:

(1) NTUC iTerm,  (2) Aviva's Mycare for husband and wife and (3) a life policy for the young daughter. (4) shield plan for everyone in the family. (5) start a regular saving plan for the couple for retirement savings.

She did not take up my iTerm recommendation, bought the basic eldershield from the insurers directly (previously they opted-out), did not take my recommendation on the life policy for daughter and finally did not accept my recommendation for the shield plan for the whole family because she was under an impression that employer's group plan is sufficient. She did bought from me a myshield for the son due to pre-existing illness reason. They did not accept my advice on the RSP too.

My mistake in this incident was I took for granted that it will be a straight forward case of just a couple of hours. It turn out that I was made used for. For this reason, I'll always charge on an hourly basis. This is the fairest way for all.