Many brokers are reluctant to charge a fee-for-service, but one broker says those who don’t are selling themselves short.
Many brokers are reluctant to charge a fee-for-service, but one broker says those who don’t are selling themselves short.
Tish Naughton, director of Black Sheep Finance, says she feels confident in charging a fee from clients because she is sure of the added value she offers.
“It all depends on what you’re actually delivering. If you’re just going to help someone choose a lender then I don’t think you have the right to charge because you’re not offering additional service.”
Tish's clients are mostly investors who are looking to build a portfolio. These types of clients often have complex situations and require multiple loans, says Naughton. She helps them to set up a structure and then will go the extra mile to ensure any other questions they have are answered, often contacting third-parties on their behalf and compiling reports at no extra charge.
“I think that when you’re a professional you charge as a professional and therefore you help people with additional services.”
Craig Morgan, director of Independent Mortgage Planners, charges a fee for service and rebates commissions, but says even under this model some clients are reluctant to pay a fee.
“Australians are not fans of paying for anything – I’m the same. Give me half price and I’m still going to want to haggle; give it to me for free and I’m going to ask where the discount is. The reality of life is it is a cultural leap for clients to understand that it is in their best interests to pay me.”
Naughton, however, says she rarely encounters these sorts of arguments as investors with complex situations “almost expect to be charged”.
For simple, one-off transactions Naughton says she won’t charge a fee, nor for first home buyers.
Some clients will question the fact that she is also paid by the banks, but Naughton says being upfront and explaining her added value eliminates these qualms.
“My explanation is if you’re not paying a fee that person is not going to be with you for a lifetime, that person is not going to do what is in your best interest."
Naughton says her model involves a single fee per client, not per loan - almost as a kind of “membership fee”, or an entry into her business.
Those clients are then “clients for life” of Black Sheep Finance, and can refer friends and family without the referred clients being charged an additional fee, says Naughton.
“I think it actually offers loyalty in the sense that people think if you haven’t paid someone for a service you don’t always feel comfortable asking them for a lot of help or extra things because you don’t want to take advantage. When you’ve paid someone you almost want to take full value on that so it means that customer will come back to you.”
Morgan agrees that a solid explanation of your model usually alleviates any hesitations clients may have about fee-for-service, especially as the initial commission rebate his model offers is often higher than the fee charged.
He disagrees with the concept of charging a fee as well as collecting commission, however.
“We call those people ‘cakepigs’,” says Morgan. “They have their cake and eat it too.”
Naughton, however, feels that as the roles of brokers and financial planners continue to intertwine, the cost of business continues to rise and commissions continue to be cut, brokers that don’t embrace the fee-for-service model are “shooting themselves in the foot”.
“A lot of people are scared to charge but you’ve got to make money and you’ve got to stay in business. It all comes down to the value you offer.”
Brokers that are unsure of their point of difference, or feel uncomfortable charging a fee, will always encounter problems, says Naughton, because clients will pick up on their hesitations.
“You have to be very upfront about it and if you seem confident and say ‘I’m not like most brokers. I charge a fee because of this reason; this is what I can help you do’, straightaway they know they’re getting a good service and are not just getting charged a fee for the hell of it.”
Ultimately, says Morgan, it comes down to choice, and consumers are free to take up the option they see as most beneficial.
“We’re not doing this to say we’re right and everyone else is wrong. I think a considerable segment of the market will always want to believe they get a free service and get looked after. I don’t know if that’s necessarily true, but that’s what they want to believe.”
