Many financial advice firms promote the benefit of offering a one-stop shop, where you can get all your financial advice in one place.
These firms tout the convenience of only having to deal with one firm and they claim you will get a better overall service if your accountant, estate planner and financial adviser all work for the same company.
While there may be some benefits to this model, I think there are elements of a one-stop service that can conflict with your best interests. I think potential conflicts need to be examined and considered whenever you receive advice from a bunch of specialists all working for the same company.
I also think self interest is the primary motivation for most financial advice businesses when they set up a one-stop shop. I recently heard the head of a financial advice company tell a room of 100 finance industry professionals that they should “put a fence around the client” by offering additional services, such as estate planning.
While I imagine few of his clients would appreciate the terminology and sentiment, let’s consider his motivation. There’s a fear amongst advice professionals, including accountants and financial advisers, that they may lose a client if there are other advice professionals in the mix. Many firms combat this risk by trying to meet every possible client need and remain the sole adviser.
Aside from retaining clients, the main motivation for financial advice companies to offer a one-stop shop is to increase their ‘share of wallet’. I don’t begrudge a company wanting to increase its revenue per client. But, when your core service is financial advice, I think advice firms need to be careful how the addition of a revenue stream might impact the quality of their advice.
Let’s consider one of the most common conflicts within advice firms that offer financial planning and accounting services.
Your adviser may decide a self-managed super fund (SMSF) is in your best interests. But, consider the added incentive to recommend a SMSF when your adviser or their employer also profits from the set-up and ongoing management of that fund. If your adviser is employed by a company that has an accounting service, they may be directed or encouraged to recommend a SMSF through incentives such as bonuses or a share of profit.
The Banking Royal Commission recently highlighted a case where the recommendation to rollover to a SMSF run by the financial adviser’s company would have cost a client $500,000. Fortunately, Ms McKenna was put off the advice by Sam Henderson’s hard sell of a SMSF loaded with fees far in excess of her current super fund. More significant than the higher fees, Ms McKenna stood to incur a penalty of half a million dollars if she rolled out of her deferred benefit scheme, to which she had access in only a couple of years.
The adviser’s company, Henderson Maxwell, had established Henderson Maxwell Accounting to set up and run SMSFs for its financial planning clients. The firm also directed much of its client base into its own high-fee managed discretionary account, a point that attracted criticism during questioning at the Royal Commission.
Given the information that came to light in this case, it’s not a stretch to argue that this one-stop shop model was operating in a way that put its own interests ahead of its clients’.
I’ve seen many examples of this all-in-one advice, SMSF and managed account strategy. Regularly, people reach out to me after years of underperformance and high fees from a strategy that generates plenty of revenue for their adviser’s firm, but underperforms even a simple industry fund investment option.
Add property advice and a mortgage service to a SMSF strategy and you have a commonly abused business model in financial services, one where clients are advised to rollover super to a newly established SMSF, take out a loan and buy a property. While this might be an appropriate strategy for some clients, my experience tells me it should be rare. Yet, I know of companies that provide this advice to almost all of their clients. I’ve seen people with $200,000 in their super funds lose as much as $40,000 in fees and costs through such strategies.
There can be benefits to having several eyes on your strategy and ensuring everyone is on the same page. Different specialists can also provide a diversity of ideas. But, your advice specialists should be able to collaborate without working under the same roof.
I also think there’s value in the ‘checks and balances’ that come from your accountant, solicitor and financial adviser all working for different companies. And, there’s less incentive for your financial adviser to recommend a strategy that profits your accountant, when they work for different organisations.
I’m not saying a one-stop financial advice shop cannot provide some benefits. I’m just suggesting you ask questions and check your financial strategy is prioritised above that of the firm providing your advice.