Financial advisers have moved from selling products and receiving commissions to the more transparent fee system. Here’s how you can work out what you should pay.
Paying for professional financial advice is much the same as paying for other types of professional services. It comes down to the size and complexity of the issues that you want to solve. Simple problems cost less than solving complex ones.
Most financial advice fees are structured in one of three ways:
An hourly rate, where the client will be charged on the basis of the number of hours that it takes to provide the financial advice and to implement it. It is important for clients to understand how many hours are likely to be required and what the hourly rate is. Depending on the experience and qualifications of your adviser, this fee would typically be between $175 and $375 an hour.
Some advisers will agree a flat fee for a clearly defined package of advice and services. It is important that you fully understand what you get for the flat fee and be sure that the package will address the issues you want to solve.
“As the client you always have the right to discuss the fees you are paying to make sure you are receiving good value.”
Others will charge a per centage of your assets that they advise on – this will normally exclude things like your house. With this method the amount that you pay will be directly related to the total value of your investments. Where your investments go up in value, the remuneration to the adviser will increase. The reverse will also occur – if your assets decline in value, the adviser’s remuneration falls, aligning them with your interests. An example would be a 1 per cent ongoing advice agreement on a portfolio of $100,000 means you will pay $1,000 a year.
Just remember if you have extra funds to invest, the adviser will be paid more if you add to you porfolio rather than, say, paying off debt. Make sure this has been considered.
Some advisers use a combination of the fee models. It is possible for fees to be paid from your investment or superannuation account rather than you making a separate payment from your bank account. There are tax advantages to consider here that you can ask your adviser about.
Financial advisers disclose all fees at the time of providing the advice and are required to give you an annual fee disclosure statement setting out the fees paid over the last year and services provided. As the client, you always have the right to discuss the fees you are paying to make sure you are receiving good value.
And by the way, advisers can’t be paid by commissions for any new superannuation or investment accounts that they arrange for you.
What about paying for life insurance and income protection advice? Life insurance advice can be paid for by hourly rates or flat fees, or your adviser may offer you the choice to pay all or part of their fee by way of a commission. This means that from the cost of the insurance that you pay to the life insurance company, the insurer pays part of that amount to your financial adviser. If you choose to pay a commission, your adviser will clearly explain in writing to you what they will receive before going ahead with any advice. Commissions can make it easier to afford quality advice but the choice is yours.
Generally financial advice is broken down into three steps and these days most advisers charge a separate, clear amount for each one.
Financial advice usually starts where you and an adviser discuss possibilities, and then agree what it is you would like to achieve. The expert creates a financial plan to get you from where you are today to where you would like to be. Depending on complexity this could range from as low as $500-$1,000 for simple matters.
Financial advice businesses offer an implementation service so that your financial plan moves off the paper and gets put into action. This involves things like the paperwork, applications, life insurance underwriting, consolidating superannuation accounts and setting up investments. They will quote and agree a fee with you.
Of course, overseeing investments is important, but the greatest value can be in helping you stay on track with the promises you make to yourself about using your money.