Gary Harvey of ipac wealth management reveals some of the key things that clients should know and consider when paying various types of fees for wealth management-related products and services.

Date: May 2011

Tags: Fees, Commission

• Clients must realise there is no such thing as a free financial plan – the key is whether they understand what they are paying
• Full disclosure is important to show who is getting what, and that there aren’t any additional fees being charged in a non-transparent way
• For clients to get value in relation to the fees they pay, they need to be getting the services they want and expect
• Transaction-led fee advice is fine if the client is comfortable with that, but it enables the relationship to be driven by a buy-sell approach

When it comes to paying fees for various products and services, Gary Harvey said in an interview that clients must realise there is no such thing as a free financial plan – they pay for it in some way.

The key, he explained, is whether clients understand what they are paying. The insurance industry, for example, sells a wide range of products – to all types of clients – which incur high charges.

It might be positioned to clients that products are free, but clients pay for the advice through the product.

Fee transparency

Harvey said he would like to see an environment where clients do understand the fees they are paying, but at the same time they appreciate that institutions need to be profitable to be able to provide the required level of service.

Full disclosure is therefore important to show who is getting what, he added, and that there aren’t any additional fees being charged in a non-transparent way.

At the same time, said Harvey, for clients to get value in relation to the fees they pay, they need to be getting the services they want and expect.

An advice-led fee model which provides ongoing advice throughout a relationship will be of value to a client who seeks this type of regular service, he explained. However, that clearly wouldn’t suit a more self-directed individual.

The issue is therefore whether clients understand the fees, and then whether the fee levels are appropriate for what clients want.

Pitfalls of transaction-led fee advice

Harvey said transaction-led fee advice is fine if the client is comfortable with that, but added that it enables the relationship to be driven by a buy-sell approach.

It is again all about whether clients understand the nature of fees, when they get triggered and what the levels are, he said.

Clients should therefore be wary of so-called “free” advice, warned Harvey, given that there will always be a catch if anyone says that is the case.