They have a point: relying on charitable donations and volunteers has its limits
Managerial Change Amid Regulatory Change

Ask a stupid question, get a stupid answer

Ask people what they would be prepared to pay for a house in Auckland and I doubt you will get an answer equal to the current median price.

There is a well known economic concept called revealed preference, which is a way of saying that what people say they will do and what they actually do are two quite different things. People involved in fast moving consumer goods find it hard enough to get people to imagine whether they will buy something quite ordinary - like a new brand of frozen cheesecake - let a lone a complex proposition like financial advice, which varies so much, and is in large part created in collaboration with the client.

The point being: the thinking around fee-based advice remains immature. In an effort to quantify the challenge - and make no mistake, I am agreeing that there is a challenge - the questions being asked are quite simplistic ones. So the comparison between a notional "$2,000" required for advice (whatever is meant by that) while consumers are perhaps happy to pay "$500" seems to completely miss some significant features of the client experience today. 

Financing is a concept incorporated in the commission model. If you want to challenge the commission model, sure go ahead, but consumers frequently like to spread lumpy costs, so no need to abandon that idea, and assume that fees must be lump sums.

Imagining the future is difficult. We are not the only ones struggling with it, clients do too. They don't necessarily say in answer to our research questions 'I am struggling to see how that would work' - humans are notorious for not owning up to a lack of knowledge.

Revealed and stated preferences are not the sole domain of clients, either. Many advisers say that they are motivated by annuity income, but their actions reveal a preference for upfront income.

So the future is much more likely to be created by experiment. Advisers will try things, clients will respond.

In the current environment, the financing of much financial advice through commissions, has some great features - and some pretty bad ones - but it works well for lots of people. Alternatives seem limited. But I am an optimist for more ways to give financial advice, and more ways to collect a fee that makes advice provision viable. There are lots of ways consumers pay for expensive intangible services right now. In fact, many, many, more than they did just a few years ago. Whether they are lawyers, accountants, nutritionists, beauticians, fitness instructors, therapists, architects, planners, designers, you name it, there are loads of services being delivered in ways that consumers are happy to pay for right now. While that goes on, commission will also remain an important and valuable way to finance and pay for an important and valuable service.


Feed You can follow this conversation by subscribing to the comment feed for this post.

The comments to this entry are closed.