Q: Hi Trish, great website, wish I had come across it sooner. My wife and I recently consulted a planner regarding strategies toward retirement. The initial consult was free. The process of developing the strategy had a cost of $1800, refundable if we go ahead with implementing the retirement strategy. To have him put these plans into place, and for him to provide ongoing service would then cost us $4000 each, plus a 0.88% yearly management fee capped at $4400. That means we’re $8000 down to start, and then the annual fees, and it would take a while to make up that first $8000 again. I’m of a mind to cut our losses at $1800 and look elsewhere. What do you think?
A: Thanks for your kind feedback about the SuperGuide website. In response to your question about the cost of financial advice, the answer always depends on what you’re getting for your money. I will offer you some general comments first, and then the President of the Independent Financial Advisers Association of Australia, Daniel Brammall, has kindly provided some comments on asset-based fees, conflicted advice and also your question.
Trish Power (TP): According to the Australian Securities and Investments Commission (ASIC), good quality financial advice should improve a client‘s financial situation (this is obvious in my view, but it seems that is not always the focus for some non-independent financial advisers). ASIC reports that such financial advice should have some or all of the following features:
- a clearly defined scope and a thorough investigation of the client‘s relevant personal circumstances
- assistance given by the adviser to the client to set prioritised, specific and measurable goals and objectives
- where relevant, consideration of potential strategies
- where relevant, consideration of the wider impact of the advice—for example, tax or social security consequences
- good communication with the client. This includes Statements of Advice (SOAs) that are logically structured and easy to understand, and verbal interactions that aim to ensure that the advice and recommendations are understood.
What do you pay for such financial advice?
TP: Without knowing what your adviser has recommended it is difficult for me to comment and I really don’t know what work may be involved in your particular circumstances. Assuming your wife and yourself have a combined strategy, then you are paying an $8000 fee for the drafting and implementing of the combined financial plan. If your circumstances are fairly complex, then you may have structural costs included in that fee as well, such as setting up a SMSF, or setting up a family trust or a company, or additional taxation advice from an accountant. I suggest you ask the financial adviser what is involved in implementing the plan, since it is going to cost another $6200 on top of the initial $1800.
In relation to the ongoing fee of up to $4400 a year, is that each, and do you pay that management fee for the first year as well, in addition to the drafting and implementation fee of $8000? Also, does that fee include the underlying management and investment fees for the investment or super wraps that you will be placed in? In short, ask what you’re getting for your money. Does it include ongoing advice, all fees, regular reviews of your strategy, and tax advice? If tax advice is additional, how much will that be?
Only you can decide what this financial advice is worth to you, although as you infer, whatever you pay in financial advice has to reward you over the longer term, and provide you with financial security in your retirement.
Response from Daniel Brammall, President of IFAAA
Daniel Brammall (DB): The path the reader’s being invited down looks like this:
- Free meeting.
- Advice that’s free if you act on it through the planner.
- Ongoing advice/service, with a floating fee which incentivises the adviser to sell more product/build funds under management.
DB: Advice with strings attached is not impartial advice. That doesn’t make it bad advice, it’s just conflicted advice, and from there it’s a slippery slope to becoming more like a sales pitch than advice. At what point on this slope do your interests come into conflict with the salesperson’s? How do you recognise that point and how do you protect your interests?
DB: If you’re asking these questions does it really sound like a trust relationship? Wouldn’t you prefer a relationship with someone who you can trust to look after your interests, someone who’s genuinely ‘got your back’? Here’s an alternative path:
- Initial meeting. Free? Sure, if you don’t want advice and the adviser is prepared to offer it as goodwill.
- Advice that costs the same whether you act on it or not.
- Ongoing advice/service containing specified deliverables for a specified fee, devoid of incentives, rebating all commissions.
DB: Which path is more likely to contain advice to repay debt, or invest in industry super schemes, or stockpile cash in an offset account, or in fact do nothing at all for a while?
DB: Here’s another question: which path makes you feel like you’re working with an adviser who has got your back? This is available nowadays…