Clients complain about adviser fees
Two or three complaints a month are made to disputes resolution scheme FSCL about advisers who charge clients a fee when they do not take up their recommendations.
Monday, March 9th 2015, 6:00AM 
8 Comments
by Susan Edmunds
In a recent case, a couple wanted to reduce the amount they paid for their personal insurance. They were phoned by an adviser offering to help them and were told there would be no charge for a meeting.
The adviser prepared a detailed report with recommendations for changes to their insurance arrangements. Eventually, the clients decided not to go ahead. They were then invoiced $450 plus GST, which they disputed.
The adviser said the clients should have been aware that there was a clause in his company’ scope of service and engagement agreement that said a fee could be charged if no business was transacted. The couple had signed a copy of the disclosure statement.
The adviser felt that in view of the amount of work he had done, he was entitled to make the charge.
Once FSCL became involved, the adviser decided to write off the fee because of the costs involved in going through the complaint process.
FSCL chief executive Susan Taylor said it was a relatively common complaint although most cases were referred back to the adviser to settle directly.
She said it was appropriate to charge a fee when work had been done but no commission would be earned, provided the fee was clearly disclosed in the relevant documents.
“Advisers are entitled to charge a fee, however we believe the fee should be based on the time and service provided. We do sometimes see a fee that is a straight clawback of commission which can be several thousand dollars depending on the type of product and I don’t think that’s appropriate. The fee should be fair based on the scope of service and time involved.”
FSCL would receive two or three similar complaints a month, she said, although it did not get involved in most of them.
It was not uncommon for advisers to decide it was not worth the cost of going through the complaints process and write of the fee, she said. “It’s a customer service gesture. Sometimes they make a practical decision, if it is a small amount of money involved, to reach a settlement.”
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Comments from our readers
If an adviser wishes to charge a fee in these situations they need to highlight that fact in the document and get the client to sign or initial that they are aware of it.
This is about transparency, not whether a fee should be paid.
Once I explain how I get paid and the clawback provisions no one has objected to signing off on this condition.
If they do then I'll be out the door and it won't be an issue! It's high time that we stopped working for free and value our service as other professionals do.
I assume the comment refers to an agreement by the client to reimburse the adviser for commission forfeiture due to the client's short term cancellation of a policy. if so, could she please explain why she thinks this is inappropriate if the condition had been fully disclosed and agreed to by the client?
Real advisers providing a real service should be paid and not have their time wasted, so advising that there will be charges where their time is wasted is very sound - I would even go as far as to say that if the case is a difficult one, the potential client pays. It is not the advisers fault that the enquirer has "issues"
How do you value your time? If you look at your gross revenue and consider the number of hours you put in ( multiply the after hours visits by 2) and decide what an hourly rate for your time is reasonable.
Anything below $200 is not valuing yourself highly enough as professionals.
Disclose this clearly to clients that in the event of the prospective client not taking advice specifically prepared for them will incur a cost. Straight forward cases should be a min of 2 1/2 hours and more complex (underwriting or other issues) cases at least 4-5 hours.
Don't try the claw back thing but do charge a fee for time.
FMAs view is that the costs should be disclosed and agreed and "reasonable" ie based on time. Most advisers are able to provide the first hour free to clients to discover if there is a need for their services.
Once a client signs off a scope of service then ALL time should be chargeable. Accountants and solicitors do this so you should as well.
There's no such thing as a free lunch (even when the BDM takes you to lunch).
With regards to clawbacks, perhaps its time for a rethink from all parties to commission. Or do we wait for the FMA to force a change instead?
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