Topic 5: Meeting Client Needs

Question 1

Include in Financial Plan (5)

Answer 1

1. Realistic return expectations; why investing
2. Discussion of historic risk and link (or lack thereof) with future risk
3. Why we need diversification (i.e. stock analysts & strategists are fallible!)
4. Characteristics of asset classes and agreed asset allocation
5. How much income can draw
6. Clear explanation of fees

Question 2

Risks to not explaining plan adequately

Answer 2

1. Blame you for adverse outcomes
2. Will abandon plan at worse possible time
3. Might lose client
4. Could get sued

Question 3

Main fee types (4)

Answer 3

1. Adviser fee (% assets, by hour etc.)
2. Brokerage/product placement/trails
   Paid to trade, so conflict?
   IPO’s, placements, market upside!!!
3. Management fees on underlying funds
4. Platform & reporting fees

Question 4

Issues with fees (4)

Answer 4

1. Trails
   •Get paid after work done
   •Incentive to place in highest paying product (conflict of interest)
   •Now illegal (or are they?)
2. Ad Valorem
   •Bias to overinvest/growth
   •ASIC vs Treasury view
   - some govts against ad valoreum - can create incentives for clients to overinvest (borrow to buy assets)
3. MySuper
   •But accounting body views, a “real”profession?
4. True fee for service

Question 5

Fee negotiation

Answer 5

1. Do it early, do not wait for client to raise
2. Experienced advisers don’t discount
3. Don’t split up services (subject to new laws)
4. Charge a market rate, for your market!
5. The Firm may set price
6. Discounting should be in small increments •Firm may pay adviser less if discounts, min flag fall on the “grid”

Question 6

Tailoring (4)

Consider scaleability - increase number of clients without material increase in cost base

Answer 6

1. Tailoring is ideal way to meet needs
2. Takes time and can be costly
3. Limits client numbers and hence profits
4. Key is to reach balance between “scaleability” and tailoring to meet client needs

Question 7

Regular reporting and contact

Answer 7

1. Relationship building
2. regular portfolio review - mkt update; trading / investment ideas; new products; info sessions; relevant changes in law
3. Physical report including realised/unrealised gains; transactions for relevant period; income & distributions for relevant period