A fee model that gives planners 'more freedom and financial stability'

CEO of Ironshield Financial Planning explains the syndicate approach that helps overcome advice-product conflict

A fee model that gives planners 'more freedom and financial stability'

The problem of charging for advice rather than through associated products has left financial planning in a challenging place. With compensation models built on product sales as opposed to advice delivery, the general public are increasingly wary of “free” financial plans marketed as advice.

It’s a conflict Scott Plaskett, CEO of Ironshield Financial Planning in Etobicoke, Ontario, rails against in his op-ed for WP entitled A progressive solution to an antiquated industry, which advocates for financial planning syndicates as a “fee-based model on steroids”.

Plaskett’s practice charges for a financial planning process, from which a plan is developed and implemented through investment and insurance solutions, and third-party agreements using these syndicates. Plaskett argued they have become robust financial planning communities that provide foundational support, bringing together specialist relationships and customized technology to allow planners to deliver their most valuable skill – advice.

These relationships include referral relationships to high-quality, third-party portfolio managers across Canada and the US, insurance relationships, mortgage brokers, corporate reorganization specialists and more. Members have at their fingertips everything they need to develop and properly implement a client’s financial plan.

The marketplace is recognizing that the value clients are looking for comes from quality advice, not from the products sold, which are becoming increasingly homogenous. This adds fuel to robo advisors’ argument that there’s no value in active management so passive solutions, which bring fees down, are the answer.

Plaskett said: “There’s a lot of evidence to support that when you look at the numbers. The reality, however, is that people are looking for active solutions in order not to beat the market but to get the market return with a lot less risk – and that’s where active management supports that.

“When compensation models are all around product sales and not the value of advice, then everything is on product sales because that's how people put food on the table and keep the lights on. There’s not a lot of infrastructure support in the industry for an advisory channel.”

That's where Plaskett believes the financial planning syndicate model comes into its own and has been taken to the next level through alignment with professionals and better quality solutions.

Ironshield’s revenue increased because “a smaller amount goes to the house”. Firstly, it has been able to negotiate better rates and better terms with third parties, and as the owner of the MGA it can therefore offer the highest payout. It is also been able to get rid of a lot of the bricks and mortar infrastructure that so many other firms have to have. This included embracing technology, the likes of The Genie for Financial Planners and other cloud-based solutions.

Plaskett said: “The syndicate doesn't need to keep as much and so they can pay out more to the financial planner. As a result, the financial planner has more freedom and more financial stability.”

His personal practice now oversees about 85 households, with the firm’s head office managing about 200, covering between $110-120 million of clients’ assets and a large suite of insurance.

The approach and model is a world away from when Plaskett entered the industry in 1993 armed with a mutual fund licence. Believing that selling the product before the financial planning was done was a kind of malpractice, he got his CFP and tried to operate his business from a planning-first perspective.

He explained: “You'd never have a doctor prescribe a medication before they did a physical! I always approached it from that angle and really began to get a lot of resistance as financial planning awareness became greater.”

Regulators and, more importantly, the dealers, were being tasked with having to oversee financial planners, which they didn't like. Their business was in mutual fund sales and they were being asked to oversee financial planning practices that they knew nothing about. It became a challenge, especially from a marketing standpoint.

Then the dealer Plaskett was working with questioned why he still had his mutual fund licence when he was just referring directly to portfolio managers.

He said: “It was at that point we recognized, ‘wow, there's a huge opportunity out there’. We dropped our licence and really focused on financial planning and aligning ourselves with the best direct investment solutions we coulds find. As a result of that, we were able to bring fees down because we were not going through the retail channel but going through wholesale channel.”

The start was a test, Plaskett admitted; a small firm with $60-70 million under admin at the time trying to put together relationships with dealers who couldn’t see the value. But going direct eventually paid off and the firms who got on board now “love it because they don’t have to go out and find clients”.

“That’s really evolved,” Plaskett said. “We’re getting more and more phone calls from portfolio managers saying we'd love to work with your group. The reason is the group has become large enough to manage $500 million, which isn’t a huge number in the grand scheme of things, but it is a big enough number to attract the eyeballs of a quality manager.”

So what does the future of advice look like as financial planning becomes more prominent and products become more commoditized? Plaskett believes the trend is for the industry to be seen as more of a profession that can charge for their services separate to receiving commissions.

This begs the next question: how do you bill for your services directly? This is where the industry needs to spend the majority of its time and effort, he argued.

“The cost of bringing a financial planning process to the table, and taking a client through that, needs to come down. Most financial professionals have ideals of doing comprehensive financial planning but the response I get is ‘oh my gosh, you can't make money [from it] because it takes so long’. They’re following what they’ve been taught through the CFP program and the six-step process of scenarios based planning.”

This approach is based on the planner’s ability to identify all the different potential scenarios you might go through during your financial life and tell you which path is the most efficient for the client to accomplish their goal. But when something else happens in their life that is not covered, Plaskett said they are left in a “paralysed state” where they feel unable to do anything.

He said: “What we do is flip that on its head. We say to a client, ‘I have no idea what's going to happen to you in the future, nobody does, but I do know what's happening to you right now. And if we structure your affairs like this right now, it will bring you in line with what you're looking for’.

“Then we monitor that to make sure that you're staying on track. That’s the value that they're looking for and that’s an efficient system we can implement at a very low cost in order to make a profit from the fees that we charge.”