Fee-for-service – or fee-for-advice as some prefer – is a hot button for an industry dealing with declining incomes as trail books run-off. PLAN Australia asked some of its top brokers, sub-aggregators and executives if they were worth a fee.
Have you thought about, or are you implementing a fee? Will it be fee-for-service, or fee-for-advice? How will this fit your process, allowing you demonstrate your value? And how much is too much? PLAN Australia recently put together a panel of brokers to discuss these – and many other – questions on the critical topic of fee-for-service. Here’s what they had to say.
Wayne Marks, Ladybird Home Loans
Looking at it from the perspective of our business, we believe you can charge a fee. We haven’t actually introduced it – we were waiting for the final disclosures from ASIC – but we are now working on a process and a model on how we are going to roll it out next year. It is all about documenting what it is you are offering and having that offering out there. I think it has got to be tailored – you can’t just charge one flat fee for everything. So we are working on having a tailored fee depending on the complexity of the transaction and what is involved. In that way, the client will also understand that if we don’t meet all these objectives we won’t charge a fee. You have to be clear about what you do, and how you are different from the direct channel, because ultimately if you can’t differentiate yourself from the direct channel you won’t be able to charge a fee. The set and forget mentality – just chasing the next transaction – you can’t do that and charge a fee.
Peter Bromley, LJ Hooker Finance
I think the whole fee for service thing needs more thought. I think it’s potentially a game-changing proposition for this industry, and I am a bit concerned when I hear so many people are charging a fee, as I don’t think we have thought it through. This industry was founded on choice and that the customer doesn’t pay. We are actually changing that whole proposition. Do we know what our value proposition is going forward? I’m not sure we do. Because there are a whole raft of implication at all levels. What does it mean for you when you are sitting in front of the client; what is your value proposition, can you charge a fee, can you demonstrate value in that? I think we have to get there, but I think we have to do a lot more work around it. It has game-changing opportunities for us, as well as risks. In these times of change, you need to understand what the long term outcome may be. For example, if you are charging a $250 fee now and the industry goes the way of financial planning where commissions were banned altogether, you need to think how your model might evolve and where it will go.
Trevor Scott, PLAN Australia
I think the first issue we as an industry need to resolve is the clarity around whether we are talking about fee-for-advice, or fee-for-service. My view of it is – and this is my personal view - it is not fee-for-service. In a way we already get a fee for service in terms of our upfronts. I have said on many occasions we are talking about a fee-for-advice, we are talking about the knowledge that brokers have accumulated over the years, we are talking about their ability to tailor products from a wide range of lenders and to provide the most appropriate solution. We do need to work towards it, and there are many different models and different fees. For example, some brokers may work for groups who charge a holistic fee and the mortgage may only be a part of that. I would just encourage everybody to have a think about it, and don’t undersell the knowledge you have and the ability you have to resolve your customer’s issues – that is why they come to brokers in the first place. Quite often our members get asked by customers, ‘How much is that going to cost me?’
Joanne Attard, Verix Finance
Charging a fee or not will depend on what type of business you have. If you are happy to work from home, and have no staff, and have very little overheads, and you are happy to earn a smaller amount of income or whatever it is that suits you, then you would probably be fine without charging a fee. You could supplement that with diversification of income. For me, I chose a fee-for-service – we have been doing it for 18 months – and I really struggled when I first started because I had been broking for 10 years, and it we had always been known as being a free service. When we first decided to make that change, we started with a basic fee of $150, because we were valued by our clients. Yes, we get paid for the service we provide in terms of dealing with the banks, the real estate agents, their accountants to make sure the loan works, but then there is all that time. I’m sure many will agree they see a client, and before they know it three hours has gone by, and we are giving all this advice. We just decided to put a value on that. Now we have decided to increase our fee for $250.
Fred Obeido, ProForma Finance
It is extremely difficult to set a price for service and advice. We have gone through three pricings in 18 months, so we have certainly gone through that journey, where we have been in business for so long and we have never charged and we were wondering what happens with new clients, versus existing clients where there is an established relationship and loyalty. So at first, we said to our existing clients that we would do things for them as part of the ongoing commitment, but it came back to bite us not long ago, because they referred a client to us and the client we had, we didn’t charge, but the new one, we charged a fee. So we thought no, we have to put some sort of an end to that. The only other additional comment I would make is that we found it is quite clearly a mental shift. When we were thinking how this will be perceived, because this client could go to a bank, and get it for nothing, we were undervaluing our service. What we have done to combat that is create three packages – Bronze, Silver and Platinum – and with each one of those we provide layers of services. Clients see the value, and it also acts as a commitment document.