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Survey shows hourly rates encourage time-wasting

Adviser charging structures that operate on an hourly fee basis reward inefficiency, according to a new survey.

Australian firm Elixir Consulting researched charging structures in the country’s financial advice sector and found that time-based fees are unpopular among IFAs.

It says most advisers charge via a job-rate structure or ann-ual retainer amid concerns that hourly charging encourages advisers to simply work slower. The research highlights adviser concerns that hourly fees may discourage clients from making contact when important events occur and business revenue will always be limited to the number of human hours available.

Advisers also report it is difficult for clients to see the value in time spent analysing possible strategies for their investments when the ultimate recommendation is for no further action.

Managing director Sue Viskovic says: “Many advisers have estimated the time it takes to complete any particular task for a client and worked out their minimum or standard fees accordingly.”

Evolve Financial Planning director Jason Witcombe says: “Hourly rate fees are fine if it is a one-off piece of work. There is a definite start and end point and the adviser can give their client a decent indication of what the cost will be. But for ongoing relationships with clients, hourly rate fees do not work well because they act as a barrier to communication between client and adviser.”

FP Advance managing director Brett Davidson says that flat fees and asset-based fees are often a better approach because they encourage clients to make contact and are more conducive to building strong relationships.

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