The secret sauce of successful practices

The recent Client Experience Survey 2019 conducted by Momentum Intelligence showed that “50 per cent of all advice clients don’t exactly know what their fees are for”.

The ongoing service agreement (OSA) is the written contract that captures the arrangement between adviser and client, a transparent list of services provided and the cost of that service. This agreement needs to be renewed with the client every two years otherwise the fees have to be switched off.

ASIC’s information sheet 232 makes it clear that the list of services offered in the OSA is a contract between the adviser and client and need to be provided. Paramount in this list of services is the annual (periodic) review, ASIC sees all other services as ancillary and of generally lesser value. If there is no evidence of a review having taken place then the fee charged to that client must be refunded.

The legal aspects of an OSA are therefore quite straightforward, however there is also a marketing aspect that needs to be addressed. For a financial planner to provide an ongoing service they incur a substantial cost in running their business and employing staff to conduct the work required – so the fees charged to their client need to cover these costs as well as provide a profit margin.

For the client to agree to your fees they need to see that the value in what you are offering in your ongoing service exceeds their cost. Here are five considerations for your ongoing service agreement:

Continuity of message

The SOA should accurately reflect the goals and strategy conversations and meetings that you had with your client in the initial advice process and demonstrate the value you provide.

Reviewing and tracking the client’s goals – and getting them back on track to achieve them – should be a key component of your service offering.

Explaining the review process

Clients don’t understand the time and effort involved in providing a comprehensive review service and so a description of the process can show them the depth, breadth and value of your review offering.

Your client also needs to understand their obligations in the process, which will include providing you with updated information on their circumstances and making the time to attend your review meeting, whether that be face-to-face or through video conferencing.

Complexity of the client’s circumstances

Clients bring varying levels of complexity that will determine how much work you need to do for them. This needs to be explained to them so that they understand why they are paying higher costs for your services.

For example, a high income client that is 10 years from retirement and wants to maximise their retirement benefit with strategies such as an aggressive investment mix, salary sacrifice, transition to retirement, spouse contributions, downsizing their home, non-super investment, post tax contributions, etc, will require a lot more effort on your part and this needs to be explained to them.

Financial planning is a dynamic process

There are three areas of change that will probably occur each year and may affect your client’s financial plan:

1. The client’s circumstances – income, age, family situation;
2. Government legislation – tax, superannuation, Centrelink and age pension rules; and
3. Market conditions – interest rates, currencies, share-market.

Changes in these three areas will provide both opportunities that you can help optimise and threats that you can help minimise for your clients.

Six areas of advice

Financial planning is not just about insurance, investment and retirement, it’s about all six areas of advice including income, debt and estate planning.

And just because one area of advice is OK at the moment doesn’t mean it can be ignored in the future. Over time your client may find that their debt needs to be re-structured or their estate planning needs to be focused on due to changes in circumstances.

In the modern advice practice the ongoing service arrangements that an adviser has with their client needs to be achievable (by the adviser), valuable (to the client) and priced (to cover costs and make a profit).

To do this, the OSA can’t just be a legal document but should also be a marketing opportunity where you explain your value proposition in a way that the client understands and outlines services that you can deliver on.

This process can be simplified by using technology that transfers the relevant information through a series of tools providing a logical progression for the client and a simple sequence of events for the adviser. The ongoing service agreement can then be created through a wizard in a matter of minutes.

Hans Egger, managing director, AstuteWheel