If doctors spend 40 hours to gather information about a patient and give suitable treatment, it will also cost just as much to see a doctor. But the doctor (i.e. general practitioner) has found a way to reduce the time taken, so that the information gathering and treatment can be done within 15 minutes. The doctor charges around $30 for consultancy. Read this report about what the doctor has to know and practice.
It should be possible for a financial planner to reduce the time that is needed to give advice. Some of the steps are:
a) Give a booklet to the consumer to read on their own, and understand the basics
b) Ask the consumer to provide the details in a form
c) The financial adviser has a preliminary discussion with the consumer
d) The financial adviser takes some time to prepare the analysis
e) The financial adviser presents the recommendation in a separate visit
If this is done using a more efficient approach, the time taken can be reduced to between 2 to 4 hours. This will reduce the cost of financial planning advice by 90%. Maybe a fee of $100 to $200 will be sufficient.
21 comments:
Financial planning takes a number of meetings and not just number of hours. Proposals after proposals until they meet the clients needs and expectation..
i recall a case where a fee of $10K was charged for retirement planning and asset value involved was more than 1 million.It involved a number of issues.
The fee came to less than 1% of the asset value. Finanical planning can be a GP practice involving very simple specific need eg, like college funding or risk management and only one meeting is needed. Normally 2 meetings are required.
The people with 1 million of assets form a small proportion. They do not fall into my proposed scheme. They can approach the financial planner and lawyer and spend $10,000.
My proposal is for the ordinary people with modest current assets and future earnings. These people should not be overcharged by financial planning advisers who want to earn $1,000 or more.
If they D-I-Y, they don't even have to pay any single cent to financial planners.
Mr. Tan
It has to do with the lack of volume because people don't want to pay fees for advice.
If the financial planner can spent his entire 8 hours in the day giving advice, a $200 per case is more than enough. Each day just need to see two cases. In one month, total gross revenue = 200*2*20=$8000. After rental and expense, the take home pay can be realistically $5000/month. This is good income.
Unfortunately such volume does not exist in the market place. All clients want free advice. So realistically there is no fee-based case on any day. To create leads, the financial planner has to do marketing and leads generation 80% of the time. Perhaps having one fee-based case per month is already extremely optimistic in Singapore's context. What is the adviser going to eat if he charges just $200 for this one case?
In practice, nobody charge fees so that they can see as many "free" cases in the day as possible. By law of large number, there will be a few clients who would buy products such a WL and ILP.
Mr. Tan, if you could find a way to generate leads who are willing to pay a $200 case frequently for planners who are willing to do this, your proposal is feasible. Otherwise - i am sorry to say that your proposal is not practical in Singapore.
For my survey done in the past, many people are willing to pay $200 for a basic financial advice.
It should be possible to generate the volume.
But, to make it work, the financial planner must have a standard practice, and an explanatory booklet. And ask the customer to do some preliminary work to gather the data and read the booklet.
One day, this will be possible. Let us work towards it.
It starts with a preliminary discussion to settle the scope of the service, the fee etc before actual planning is done. This is free because no advice is given. If the client agrees a contract is signed with a deposit which is waived entirely or partially if the implementation of the recommendation is done by the same planner. The deposit is to safeguard the planner's interest in case the customer implements with another adviser.
This applies to the current situation where products still carry commission .
Strictly fee based will be different. The fee will be paid in stages.This is the kind of model UK will adopt in 2012 when products no longer have commission.
This deposit taking is normal practice to prevent exploitation by lousy or not serious customer.
Next thing , who charges fees? Only those who are professional with accredicted professsional qualifications and those who practise financial planning.
Insurance agents ar NOT fit to charge and people have bad experience with them and don't want to pay because of these salesmen. These salesmen have given the industry a bad name and people think planners are the same as these salesmen, product pushers who don't add value.
These salesmen have only 2 or 3 products to sell and they are wholelife , endowment or regular ILPs, all of them carry excessive commission.
If you tell a customer that you are a planner he or she thinks you are misusing the title and is hiding behind the title to con them.They think financial planning is selling insurance or a new name to sell investment . They don't think of needs planning but rather product selling. Isn't this what the insurance agents are doing?
In other words finanical planning is about selling these products. Financial planning is NOT. This is the main problem that the playing field is not level.Unless MAS settles this and have ONE set of rules finanical planning will be misunderstood.
Actually everybody wants an experienced financial advisor who thinks for their needs and has extensive experience to advise them, however hardly anybody is willing to pay for the services.
Do any job also need time to gain experience and education. But if you want people to pay for a certain rate, I will also be reluctant. If I buy those cheap cheap term plans, however I understand I should not go and trouble the financial advisor un-necessary. In this society,if you pay peanuts, you also get peanut service.
August 11,2009 8:46pm said "Pay peanuts, get peanut service". This is not really true because many clients do not pay "fee" but they pay huge commissions. So actually they pay a huge fee but still get monkey. Why? It is because they think fee embedded into a product is invisible and isn't cost to them. It is always pretty silly for clients to think that $200 is more expensive than a $2000 commission in a WL.
To Mr. Tan (August 11, 2009 6:07 PM), with due respect your survey is statistically biased and not representative of the population. Your survey is hosted on this website in which you cannot deny many visitors are those who has either lost money in minibonds or get con by insurance agents. Obviously they see value in unbiased advice. I believe if you setup a survey to be done by a 3rd party using truely random sampling, I don't think any one of the respondent will even want to pay a single cent of fee!
To anonymous 10:18 pm
What makes you so smart to pass sweeping statements?
The problem with people who don't want to pay for financial planning advice unwittingly pay high commission for products WITHOUT GETTING ADVICE.
In fact these consumers are suckers.
Currently fee charging advisers charge a fee as a 'guarantor' against consumers making use of them for free especailly those who are not serious and those "smelly leg" customers.After all the fee will be waived or returned when you let them implement for you.
It is cheaper than buying from a product peddling salesman who charge you a high commission without providing advice.
If it is term that you need it is still cheaper because with insurance agents they will not reccomend you term but expensive whole life or endwoment and worse you will be inadeqautely covered.The outcome is you are worse off in term of coverage or return.
What is financial planning? I beleive many don't understand what it entails.Many will think that it is waht insurance agents are doing or buying and selling funds and unit trust or so called crunching some figures from a software. To some maybe some fanciful term to fool them but actually it is selling them insurance.
As mentioned above the service could cost $10K+ if the asset under consideration is in the millions. Can the salesman insurance agent do it or has he or she the skills to handle such big sum? It is the trained, to tertiary level, planner who is skillful in insurance planning(don't confuse with insurance selling) , investment structuring or retirement planning or estate planning.The planner is a professional like the lawyer or CPA and not some snake oil or koyok insurance salesmen you have been getting.
In US insurance agents are the most despised salesmen consumers shun.
zhumeng, your idea sounds good.
You talk about trained, tertiary level planner who is skillful in insurance planning etc. The person take such a long time to study and need experience to do financial planning, all these need time and $. Is the government or insurance companies going to sponsor their studies?
Or is it they just study a degree, then it means they are certified?
Even if study, also need experience with different people and families to know how to handle financial planning properly. Where on earth can they get such type of experience nowadays? Unless I am thinking .. .they start off as insurance salesman.
To August 12 2009 10:27AM
I believe the market is quite efficient. If after taking the long study and training to be a professional and qualified planner, there is increased in customers wanting to pay for advice, than the market place will react accordingly because investing in studies and training is profitable.
Although this is generally true in most occupation that the more you upgrade the better the occupation prospect, it is not true in the financial advisory industry. Primarily it is because consumers only want to get FREE advice and not willing to pay for a highly skilled planner.
Since the laws of demand and supply (aka free market) fails to work, regulators have to come in the clean up the act by mandating planners to be qualified and at the same time outlaw commissions but mandate fees.
To August, 12 2009 10.27am,
What if you found out your lawyers and doctors have passed only a 3 month tikam tikam exam and are already practising in the neighbour hood.Their style is different . The moment you walk into their clinic or office they will pitch a product or products and let you choose which one that you think you like and suits your problems. At the end of the day you amke the choice. There is a famous refrain of insurance agents, " you want waht" or "they want one, leh ".
I have seen insurance agents doing it. They have printed a few quotations of different products and lay them on table and tell you what each is all about and ask you to choose. Of course the products are cure all koyok. You can be sure they are whole life ,endwoment and anticipated endowment.Which ever one you choose they don't care because all them carry high commission, so long it is sale.
All these things need to be gradual. Cos a person may be qualified but no experience. A person may be very experienced but not much of a qualification.
I dont think a law will be enough just to wipe out all commission. People need to change their thinking too. If pay a lot say a big cut in commission, you are afraid of salespeople sell the wrong products. If pay too little, who wants to do the job?
The assumption here is that a fee based planner must be more honest, efficient, knowledgeable and qualified person, who will recommend "solutions" to their clients.
However, what is there to stop a fee based planner to charge a hefty consultation fee and yet recommend rubbish to his/her client, while pocketing big commission at the same time?
To Vincent Teo,
Unlike commission-based, fees are totally transparent. The client knows exactly what they are paying. The price which the consultant charged will be checked by competition. Competition works only if there are many people providing similar service. Currently since clients don't want to pay for advice, you see hardly any adviser charging fees.
You also brought out a very good problem about fee based - that it is difficult to ascertain the qualify of advice unless there are documentary evidence showing otherwise. For this to happen, all fee-based financial planner would produce a financial planning report that adheres to the professional standard either to CFP or ChFC. This report is the documentary evidence and can be used in the court of law to determine whether has there been any negligent or lack of competency. That is also why the charging fee is so high as it is quite an effort to produce such report.
At this point, the fee-based practitioners in Singapore are not charging any fee just to do planning verbally. Not likely charging fee just to do verbal advice is feasible as the client's interest isn't protected since there is no documentary evidence stating the details of the planning. Mr. Tan Kin Lian's proposal of having a couple of hours of planning isn't feasible in this context.
Some people try to compare the financial planning model with that of a medical GP. A medical GP charges about $30 consultation fee for a few minutes of work. So a financial planner shouldn't take so long too. However, this model does not work because medical problems are often show up symptomatically.If the symptoms doesn't go away despite the GP's prescription, the GP would refer to a specialist for a thorough investigation.
In financial planning, there is always almost no symptom to a problem. The client feels he is OK and have enough to spend and eat. But when a problem suffice, there is usually no remedy and often can be fatal. Examples:
1) If a person has very low in emergency cash, a lost of job is detrimental in cash flow. Without the ability to pay for mortgage installment, the property could be foreclosed.
2) If a person did not write a Will and dies, his assets could end up with unintended beneficiaries. Beneficiaries who truely need the money such as dependents could receive little or nothing.
3) If a person did not have sufficient insurance, his family survivor is at stake when a sole breadwinner losses his income due to disability, sickness or death.
4) If a person did not have a prudent asset allocation in all his wealth but has an exposure to one asset class (property is a common overexposed asset class), a plunge in market value of that asset class can be fatal to his wealth.
5) If a person did not have a discipline way of saving, he could never retire when he reaches 62. ... and the list goes on.
As you can see that most financial problems have no symptoms. The client cannot tell you I have a headache (financially). However, when the problem suffice, it is usually quite fatal and there is little cure for it. Therefore it is the professional duty of the financial planner to be thorough in his dealings with his clients to ensure that nothing is overlook. This definitely cannot be merely a few hours.
As practicing fee-based practitioner, this are the issues on hand. Most comments made in this blog are made by insurance agents or those in other industry and thus may not appreciate what is going on.
Finally, business cost is always related to economy of scale. The higher the volume of such cases, the lower the fee will be. This is Economics 101. I really hope some kind soul out there is willing to do some "charity" to promote fee-based professional planning via the media through advertising campaign etc. It will really help us lot who are fee-based planners.
From a Fee-Based Practicing Practitioner.
Hmm ... you can be your own financial adviser. Just spend time talking with friends, go to web sites (like this TKL website), try out small amounts of money on various funds, read fund/annual reports; after all, it is your money! you cannot rely totally on fiancial advisers.
You can copy some funds using 80% reliable bonds and 20% reliable blue chip equities. Spread your risks!
Vincent Teo,
Before work is done there must an agreement between the customer and the planner on parameters.If the customer finds the fee is too stiff he or she can decline otherwise a letter of engagment is signed. It is transparent . You know waht you are getting. You know the cost . You know there will be work done and a report which is a portable document that can be used by another planner or can be used to incriminate the planner. What you pay may be lesser than the commission you pay to the insurance agents for doing 'nothing or form filling' or a promise that when you make a claim he or she will file for you.
Commission has been a perenial problem. The minibond fisaco attests to the evils of commission. I beleive MAS has issued to FIs to find a better way of remuneration and remove commission. BY 2011, UK will remove all commission from all financial products and will go fee based. Singapore will follow suit. Too bad , if the insurance agents are incompetent to charge fee. They better start looking for another vocation , pehhap as toilet cleaners or as kitchen helpers in fastfood outlets.
Too much time already had been given. Since 2001, MAS has issued notices , directives and CEDLI guidelines on financial planning and nothing has changed. The insurance companies are dragging their feet. LIA report on fact finding by varios companies shows Munulife with 70% of their agents with full or partial fact finding and at the other end is NTUC with the lowest at 30%. This means 70% of ntuc agents are product pushers.Why so low? product peddling is more lucrative for both the insurance companies and the agents but to the detriment of consumers.Product pushing is fast and the agents can push high commission products without exposing their own incompetence and without the need to justify the recommendation.
Look at the new products today, they are useless as financial planning products and planners will not use as they are inefficient and effective products.They are good for product peddlers and door to door selling.
The clean up should be coming.
The Watchman
In my opinion, a fee based model is possible but very difficult. There must be a very strong marketing strategy to generate enough prospects and a cost structure lean enough to sustain. Such a firm may need to spend quite a bit on marketing, client servicing staffs and admin/acct staffs, etc. Not forgetting the fixed and variable cost of running a business such as rental and electicity, etc.
A planner is not just about talking and get the money. There are a lot of administrative work that follows. The underwriting can also be long and tiring especially for substandard lives. Advisers may also have to help out with the after service sales that comes later?
A fee based model is preferred on the higher end market who have money and no time to manage their finance, not on those who pay $100 and thought they are the king and advisers are at their mercy.
I agree with The Watchman that 70% of ntuc agents are product pushers. They push high commission products only.Pushing products is dangerous. Theeir customers likely end up with wrong product and not meeting needs. But do these agents care?
They care only for the commission and rob their trusting clients. Their clients deserve to be robbed also.MAS should audit them and come down hard on them.
Dear Mr. Tan,
Most ordinary people don’t need a comprehensive financial planning advice. To make the cost affordable for most ordinary people, is it possible to split up the financial planning advice into the followings?
(1) basic retirement advice (fee: $200)
(2) basic insurance advice (fee: $200)
(3) basic investment advice (fee: 0.5% of the investment amount)
A customer chooses to have all the three basic financial advices may enjoin a discount of say 20%.
Pang
You are wrong to say ordinary folks don't need
comprehensive financial planning. In fact they need most because they have very limited resources. I think 'comprehensive planning" has been misunderstood. It is by looking at every area of these folks' finances that prioritisation can be made and resources allocated to the right places.It is because it is not done that ordinary
folks became victim of insurance agents who squeeze
their resouces into inappropriate wholelife insurance or endowment that they become grossly under insured and have no or low saving.By looking at the BIG picture of these folks' finances that plan or plans can systematically be put in place to address their concerns properly.
The poor are the people who need financial planning MOST but unfortunately they are usually the easiest preys of predaory product pushing insurance agents.Because of their lack of resources that they fall for the unethical
insurance agents ploy.
Is a $10K wholelife useful to a poor or a $300K Term insurance? Both pay the same premium.I have known of a case of this amount being sold by an insurance agent to a poor bread winner. Financial planning can pick up this need.
Financial planning is NOT for the rich only but it is most needed by the poor.
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