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Given the complexity of superannuation and financial products, and the widespread belief that financial advice is for “people with more money than me”, it’s fair to say there are many more Australians who would benefit from financial advice than there are those who seek it.
According to the Investment Trends 2022 Financial Advice Report, over 12.4 million Australians have unmet advice needs. The main barrier most often cited is cost, as rising fees and falling adviser numbers put advice out of the reach of many Australians.
Affordability was one of the issues addressed by the government’s Quality of Advice review, but at the time of writing the government is yet to respond to the report’s recommendations.
It appears many people assume financial advice is beyond their means, but is that the case? And who can you trust to provide advice?
Who can you turn to?
The cost of financial advice can vary considerably, depending on the type and extent of advice, your level of wealth and how you pay.
No matter what sort of financial advice you are after, anyone 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 information about an adviser 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, such as superannuation, insurance and 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 a self-proclaimed adviser or planner who is not currently registered with ASIC!
Financial advice fees
Financial advisers charge fees for advice tailored to your personal circumstances. (Low cost (or free) financial advice can be found but it is likely to be limited in scope and general in nature.) Fees for advice can include:
Fixed fees
- Statement of Advice (SOA) fee — A one-off fee for preparing your SOA. This fee is either paid upfront and deducted from your investments or added to ongoing fees for service.
- Fee to implement financial advice — A one-off fee for implementing financial advice — for example, opening accounts and purchasing investments. This can be an upfront fee based on the value of your assets.
- Fee for ongoing financial advice — An ongoing fee for advice and services, like reviews, reports, phone calls, emails and newsletters. This is often a monthly fee.
- Fee for review — A one-off fee for reviewing your financial plan and implementing any changes — for example, changing your investments to align with your goals.
- Investment platform fee — Fixed fee for the administrative financial platform used to manage your investments.
- Hourly rate — Fixed fee per hour to answer one-off questions that are not part of ongoing advice or services.
- Fee for service — Fixed fee for a service or a type of advice, for example, preparing your Statement of Advice (SOA)
Percentage-based fees
- Asset-based (portfolio percentage) — Percentage fee based on the total value of the assets in your portfolio. The more assets you have, the higher the fee. You pay this fee regardless of how well your investments perform.
- Investment management fee (performance percentage) — Additional percentage fee, based on the performance of your investments (usually measured by an agreed benchmark).
Source: Moneysmart.gov.au
If you have more complex financial needs, you should expect to 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 establishment and ongoing costs.
Financial advisers can set their own fees, so it’s worth shopping around. Don’t be afraid to approach several advisers to get a feel for what they might offer you and how much it will cost.
These days, many financial advisers offer a free initial consultation, which is your opportunity to ask questions, define your goals and priorities, and find out exactly what you’ll be paying for if you hire their services.
What are average fees for financial advice?
One of the barriers to more people seeking financial advice could be the lack of public disclosure and transparency around fees. Unfortunately, there is no single place you can go to find out what financial advisers in your area charge or average fees for various services on offer.
The figures that do exist are patchy and depend on the type and number of financial advisers surveyed.
According to the Investment Trends 2022 Financial Advice Report, the average amount advisers charged their most recent client for limited advice was $2,070. For comprehensive advice, the average cost was $3,280.
This is substantially less than CoreData’s finding that the average cost of advice was between $4,545 and $5,628 in 2022, depending on the client’s circumstances and the complexity of the advice.
Also in 2022, the University of Adelaide found that, for most advisers, fees for initial advice ranged from $2,000 to $3,999. Fees for the annual review were $3,000 or more for around 60% of advisers.
The above amounts don’t take into account the ongoing fees for advice if you maintain a relationship with your adviser from year to year. Ongoing fees are scaled according to the wealth of the client and the complexity of their financial affairs, irrespective of whether advisers charge dollar-based or asset-based fees.
Adviser Ratings estimates the median ongoing advice fee was $3,529 in 2021, up 41% from $2,510 in 2018. There was a wide range of fees, however, from a low of $800 to a maximum of $12,000, underlining the importance of shopping around.
Unfortunately, these and other industry fee surveys confirm that the cost of advice is on the rise. Adviser Ratings found a whopping 93% of advisers planned to increase fees in 2023 as rising inflation adds to existing pressure on the costs of compliance, insurance and staffing.
Source: Financial Planning Association (FPA) final submission to the government’s Quality of Advice Review. (The FPA merged with the Association of Financial Advisers (AFA) in 2023 to become the Financial Advice Association Australia (FAAA)).
Contrast this with how much people say they are prepared to pay for advice.
In 2022, Investment Trends found that people were prepared to pay $770 on average for limited advice. This was a 28% increase on the previous year, but a far cry from the amount advisers actually charged.
One reason for the disconnect between customer expectations and the cost of providing advice could be that customers don’t know how much advice costs.
Source: FPA
Financial advice from super funds
For many people these days, superannuation is their biggest – and sometimes only – financial asset outside their family home. Which is why their super fund is often the first place they turn to for financial advice.
Financial advice via your super fund can range from free general advice over the phone or via the fund’s website to comprehensive financial advice.
Chant West general manager, Ian Fryer says there is no data on average fees for comprehensive advice offered by super funds. However, he says feedback from funds indicates the average cost of comprehensive advice is similar to the industry average, that is, around $3,500. However, he says some funds charge less – around $2,500 on average – although that may be because they provide simpler advice than other funds.
Some funds subsidise financial advice, whether it is offered by the fund’s in-house advisers or external advisers aligned with the fund’s values.
If you are considering getting financial advice and are a member of a large super fund, it may be worth contacting your fund for a quote.
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.
Daniel Brammall, President of the Profession of Independent Financial Advisers (PIFA) says, anecdotally, fees charged by independent advisers are probably in the same range as the industry overall. And, like all advisers, he says independent advisers also use a broad range of fee models including:
- Hourly fees
- Flat fees
- An ongoing retainer
- Transactional fees for service based on a menu of services.
Brammall says more experienced advisers often lean towards having an ongoing relationship with a smaller number of clients rather than transactional business.
Fee disclosure
Unfortunately, the only sure way to find out what financial advisers in your area charge is to make an appointment. Financial advisers are legally obliged to disclose their fees in the following documents.
Financial Services Guide (FSG)
This document should be provided to you when you first meet with a financial adviser. It must include information about how they will be paid for advice they provide you. Their fees could include any of the following:
- Fees for service: These are flat fees for a range of services, such as the adviser’s 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 if your financial affairs are not especially complex.
- Performance-based fees: This is an advice fee based on the performance of your investment portfolio. If your recommended investments perform well, the adviser can charge a percentage of the performance above a pre-determined benchmark.
- Commissions: An adviser may receive a commission on products they recommend and sell. However, it’s important to note that commissions on new superannuation products and investments were banned from 1 July 2013 under the Future of Financial Advice (FOFA) legislative reforms. Advisers can still charge legacy commissions on products sold before this date.
Statement of Advice (SOA)
This is a document that a financial adviser must give you when providing advice. It must outline any payments or benefits they will receive if you decide to accept their advice.
Product Disclosure Statement (PDS)
An adviser who recommends a specific financial product to you must give you the PDS before you commit to it. The PDS must outline any associated fees.
Annual Fee Disclosure Statement
An adviser must provide you with this document if you agree to enter into an ongoing arrangement with them. This document must outline:
- The fees you were 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, an adviser must formally renew any ongoing advice agreements with you every two years. You can 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. 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, their credentials and the quality of the services on offer
- 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.
Yes, it’s a hassle but do shop around and don’t necessarily go with the cheapest option. Remember the old saying that ‘you get what you pay for’, within reason of course. You don’t want to be paying for an adviser’s flashy car.
And be mindful that while cost is important, it’s not the only factor. Look for an adviser you feel you can trust and who ‘speaks your language’.
2. Negotiate
The financial advice industry is highly competitive. Be prepared to negotiate fees to secure a good deal, especially if you have significant wealth. So-called high net worth individuals are highly prized, so make sure you are also getting value for money.
3. Tax deductions
Financial advice is tax deductible only if the advice is directly associated with producing assessable income. Examples include fees 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 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 (tabled in early 2019) heard some shocking admissions by some of Australia’s leading financial institutions that some of their advisers were guilty of charging clients for advice they never received.
This highlights the importance of being vigilant in checking the fee disclosure statements that financial advisers 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!
The bottom line
Whether you are building wealth, wanting to make the most of an inheritance or planning your retirement income, the financial decisions you make can have important implications for your wealth and wellbeing. With so much at stake, it’s wise to seek professional financial advice to achieve your goals. If you do, take sensible steps to make sure you get quality advice for a competitive price.
Isabel Thistlewood says
Very helpful, well written. Thank you