Fee-Based Financial Planning

Talking straight with Gregg Sneddon, independent financial adviser.

When did you become a fee-based financial planner? 
I became a fee-based financial planner in 2003, 10 years ago, and for the last six to 12 months I have been a fee-only planner. I define a fee-based planner as someone who charges fees for their advice but still earns trail fees. When we became a fee-only practice, we no longer earn trail fees on any new business.

Why did you decide to become a fee-only planner?
It is cleaner and the kind of practice I want to run. I don’t think I should be rewarded or penalised for something over which I have no control, like investment performance.

What do you do when financial service providers still pay rebates?
Some providers don’t have clean fee classes and still pay a 25-basis-point rebate. I earn that but disclose this fully to my client and offset it from the fee they pay me. It doesn’t make sense not to earn it because that doesn’t make it cheaper for the client. In fact, they end up paying it twice.

How should financial planners decide on the fees they charge?
They need to decide how much it costs to run their practice, how much they want to earn and how many hours they want to work or, alternatively, how many clients they want to see. That way they can come to an hourly or per client rate. They could also have fixed fees for specific services.

How do you disclose your fees?
I tell the client that I will be charging from the 
first session and that they 
can expect an invoice. I explain exactly what they 
will be paying in rand terms then and in future.

Why are there so few fee-based financial planners?
A lot of financial 
planners don’t have 
their cash flows in order and are living from commission cheque to commission cheque.

How have you been able to do it?
Fortunately I have an established practice, no debt, my budgets are under control and I am careful about how I run the business.

How do you view your role as a financial planner?
My practice operates on the premise that we don’t manage money, we manage people and their emotions around money. If I can get my clients not to fiddle, their money will grow. To do that I have to make sure they have reasonable expectations about what their investments will deliver over time.

How do you approach diversification?
I don’t buy risk 
profiling because volatility is usually the only risk ever measured and there are other equally, if not more important risks such as inflation. I start with where the client is financially and where they want to be and adjust the asset allocation accordingly.

I like to keep things simple. Unit trusts are a great investment vehicle because they are transparent, there’s no Capital Gains Tax and they protect the investor.

I think the concept behind index funds is fantastic but I don’t believe it’s an either/or when it comes to passive or active funds. I believe there is space for both.