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The cost of financial advice can vary considerably, depending on a range of factors, including the type and extent of advice that you receive, and how you pay.
Firstly, it’s important to understand that any person who calls themselves a financial adviser or a financial planner in Australia must be an Australian Financial Services (AFS) licence holder (or one of their authorised representatives).
AFS licences are issued by the Australian Securities and Investments Commission (ASIC). ASIC is Australia’s corporate regulator and maintains a financial advisers register where you can find key information about an adviser or planner, including:
- Whether they are currently registered
- Their employment history
- Their qualifications
- Their memberships of professional associations
- The type of products they are licensed to advise on (e.g. superannuation, insurance, investments).
To maintain their registration, licence holders (and their authorised representatives) must be appropriately qualified and they must undertake regular training to ensure they keep their financial knowledge up to date.
Don’t pay for (or accept) any financial advice from an adviser or planner who is not currently registered with ASIC!
Financial advice fees
Both financial advisers and financial planners charge fees. These can include:
- Up-front consultation fees
- Fees for implementing their advice (after you have given them permission to do so)
- Fees for providing ongoing advice (if you have given them permission to do so).
It’s important to understand that if you have more complex financial needs, you’ll pay more for financial advice than others whose needs are more straightforward.
For example, if you’re setting up a self-managed super fund (SMSF), this can involve significant costs.
Financial advisers and planners can set their own fees, so it’s worthwhile to shop around. For example, many financial advisers and planners will offer a free initial consultation. That’s your opportunity to ask questions and find out exactly what you’ll be paying for if you decide to hire their services.
What are average fees for financial advice?
According to recent research from research company Investment Trends, average up-front fees range from $1,200 to $2,600, depending on the complexity of a client’s financial situation and the advice provided. Ongoing advice fees average $3,450 per year.
The Financial Planning Association of Australia conducted the CoreData FPA Member Research in 2018 which found that, on average, FPA members charge $2,435 to prepare a Statement of Advice for new clients, and $3,354 per year for ongoing advice for clients.
FPA’s research also investigated how their members calculated the fees they charged clients. 61% charged a fixed price, 38% charged based on assets, and just 16% charged an asset based fee.
The most common way to collect fees was through a platform, with 68% of advisers doing this, compared to 57% through a client’s super fund, and 51% directly from the client.
According to the recent Productivity Commission report on Superannuation, only a minority of Australians are currently seeking advice, with price being a major factor:
It is estimated that 20-40% of consumers in Australia access the services of a financial adviser or planner, with 48 per cent of Australian adults indicating unmet advice needs. Amongst the barriers to accessing financial advice is the high cost of advice and lack of funds to pay for advice.
30 per cent of consumers (who had not sought financial advice and did not intend to do so in the future) said that the high cost was a key reason for not seeking advice (FPAA 2017a). Estimates of the average amount consumers are prepared to pay for personal advice range between $300 and $400 (Rice Warner 2018a) to $750 (Investment Trends 2016, 2017) compared with the estimated cost of financial advice ranging from a minimum of $1500 (Rice Warner 2018a) for a basic regulatory-compliant offering to an average of $2500 (Investment Trends 2016, 2017).
A Roy Morgan survey in December 2018 found that less than 17% of super and managed funds were bought through an adviser, planner or accountant, and that this was heavily skewed to the most wealthy.
The report also found that, of the total value of assets managed by advisers, 63% belongs to the most wealthy 20%, and less than 1% belonged to the least wealthy 20%.
Independent financial advisers
Note that fees charged by independent financial advisers may be structured differently because by definition they don’t receive commissions, and many also do not charge asset-based fees. You learn more about the benefits of truly independent financial advice in the SuperGuide article Find an Australian independent financial adviser.
Financial advisers and planners are legally obliged to disclose their fees in the following documents that they must provide to their clients.
Financial Services Guide (FSG)
This document should be provided to you when you first meet with a financial adviser or planner. It must include information about how they will be paid for any advice they provide to you. Their payment arrangements could include any of the following:
- Fees for service: These are flat fees that the adviser or planner could charge for a range of services, such as their consultation time, the preparation of a statement of advice (SOA), the implementation of an SOA, or an annual review fee
- Investment portfolio percentage fees: These are an advice fee based on a percentage of the value of your investment portfolio. Be very careful if you have a high net worth and you’re being charged a percentage fee. Even if the percentage fee is small, the dollar amount could be huge and not justifiable.
- Investment performance percentage fees: This is an advice fee based on the performance of your investment portfolio. If your recommended investments perform well, the adviser or planner can charge higher fees.
- Commissions: An adviser or planner may receive a commission on products they recommend and sell. However, it’s important to note that adviser and planner commissions on new superannuation products and investments were banned from 1 July 2013 under the Future of Financial Advice (FOFA) legislative reforms. Advisers and planners can still charge legacy commissions on products sold before this date.
Statement of Advice (SOA)
This is a document that a financial adviser or planner must give to you when providing you with financial advice. It must outline any payments or benefits that they will receive if you decide to accept their advice.
Product Disclosure Statement (PDS)
This document must be provided to you by an adviser or planner who recommends a specific financial product to you before you commit to it. The PDS must outline any associated fees.
Annual Fee Disclosure Statement
An adviser or planner must provide you with this document if you agree to enter into an ongoing advice arrangement with them. This document must outline:
- The fees you have been charged by the adviser or planner over the last 12 months
- The services you received
- The services you were entitled to receive.
Under the provisions of the FOFA reforms, a planner or adviser must formally renew any ongoing advice agreements with you every two years. You have the option to terminate the agreement at any time.
Tips to help you get value for money
1. Do your research
This is crucial. Look for referrals and testimonials from people you trust and create a shortlist of potential advisers/planners. Most will offer a free initial consultation, so take advantage of that opportunity to evaluate them.
Ask plenty of questions. They should:
- be able to clearly explain and demonstrate their track record, credentials and the quality of the service they can offer you.
- ask you lots of questions to help them understand your financial needs.
- clearly outline their fees both verbally and by providing you with their FSG.
Shop around and don’t necessarily go with the cheapest option. Remember the old saying that ‘you get what you pay for’.
The financial advice and planning industry is highly competitive. Be prepared to negotiate fees to secure a good deal, especially if you’re a high net worth individual. You’ll be a lucrative potential client for a financial adviser/planner.
3. Tax deductions
Financial advice is tax deductible only if the advice is directly associated with producing assessable income. Examples of situations that meet this criterion include a financial adviser/planner’s fee for:
- Actively advising on/managing an investment portfolio that generates assessable client income.
- Actively advising on/managing an SMSF portfolio that generates assessable income.
The following financial advice/planning expenses are not tax deductible:
- Consultation fees
- Fees for preparing a financial plan.
- Fees for preparing a statement of advice.
4. Check your fee statements!
The Financial Services Royal Commission recently heard some shocking admissions by some of Australia’s leading financial institutions that some of their advisers were guilty of charging their clients for financial advice that they never received. An ASIC investigation found that over 330,000 people may have been charged more than $200 million for ongoing financial advice that was never provided to them. The offending financial institutions included the Commonwealth Bank, ANZ, NAB, AMP and Westpac.
This highlights the importance of being vigilant in checking the fee disclosure statements that financial advisers/planners are legally required to provide to you if you have an ongoing agreement with them. Make sure you’re getting what you’re being charged for!
Note: Financial advice was a big focus of the recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. There were 10 recommendations that were made in the final report that could significantly change the ways financial advice, including banning grandfathered commissions, annual fee renewals and the disclosure of lack of independence. These have been supported by both the Liberals/Nationals and Labor, but they won’t become law for some time due to the 2019 Federal Election.
Financial decisions are among the most important that any person ever makes in their life. It can be a wise decision to seek professional financial advice to achieve your goals. If you do, take sensible steps to make sure you get high quality advice for the best price.
Learn more about financial advice in the following SuperGuide articles:
- Financial coaching: What is it and why may you need it?
- Find an Australian independent financial adviser
- Independent financial advice: Why it’s important, and how to find it
- What makes a financial adviser independent?
- 8 warning signs that you’re with a bad financial adviser
- Financial advice: What are the risks and benefits?
- Super advice: How to find a suitable financial adviser
- How to find low cost (or free) financial advice
- SMSFs: What advice can an accountant provide?
- What are the different types of financial advice available?
The information contained in this article is general in nature.