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Financial Planning Fees

Photo by Peter Bond on Unsplash

Many financial advice firms promote the benefit of offering a one-stop shop, where you can get all your financial advice in one place.

These firms tout the convenience of only having to deal with one firm and they claim you will get a better overall service if your accountant, estate planner and financial adviser all work for the same company.

While there may be some benefits to this model, I think there are elements of a one-stop service that can conflict with your best interests. I think potential conflicts need to be examined and considered whenever you receive advice from a bunch of specialists all working for the same company.

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Who's Really Paying Your Financial Adviser

Photo by Randall Honold on Unsplash

Despite a series of financial planning scandals over the last few years, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has shocked the country as it uncovers extraordinary levels of dishonesty and unethical conduct.

Many people are probably wondering if they should trust anyone in the financial services industry ever again.

If you’re one of those people, I understand how you feel.

To help you make sense of what’s been uncovered, over coming weeks, I’d like to break down some of the individual stories to help you understand what happened and how you might avoid similar problems.

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Justin Brand

Every week I’m asked:

How do I check if my investment advisor has given me good advice?

My answer:

How is your investment portfolio performing against the index (or average) of the markets in which you are invested?

And in my experience, the majority of people I ask tell me that they don’t know.

There are other factors that determine good investment advice besides performance. But it surprises me how many intelligent people don’t think to check the performance of their portfolio against the average market return. Especially when they’re paying an advisor a fee for investment advice.

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Photo Credit: caseygoodness via Compfight cc

Photo Credit: caseygoodness

There are biases that affect the quality of advice we get every day of our lives. And not just financial advice.

When a real estate agent shows you houses for sale, they are working for the seller, not you. This affects which properties you are shown and your ability to negotiate the best price.

(This is why buyer’s advocates have become popular. As you are paying them to find your ideal property, your advocate’s interests are aligned with yours.)

In assessing the quality of any advice, it’s worth considering which party the seller is working for: you or the owner of the product.

There are other more subtle influences on the advice we get. While the medical profession manages potential conflicts by operating under a professional code of conduct, your GP may be influenced to prescribe some brands over others, due to a relationship with the pharmaceutical company (this could be done unconsciously…see below).

 

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Photo Credit: smiscandlon

Have you ever thought about how much you’re really paying for the advice you got from your financial planner? The direct costs are one part – and I think you should look at those closely to ensure you’re getting value – but take a look at the indirect costs.

Keeping costs down are a key to wealth – high costs put your future at risk.

Some of the most significant costs are hidden in your portfolio and are caused by product selection and your advisor’s bias towards actively managed funds.

Although most financial advisors recommend actively managed funds, in reality, the net return of active funds are consistently below most passive investments or index funds.

But apart from the underperformance and additional cost of active funds, there is another cost, which is often overlooked when investors compare active and passive (index) fund portfolios – a cost I’ll cover later in this post.

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Photo Credit: Itani stock photos

Photo Credit: Itani stock photos

“He was actually a little uncomfortable and embarrassed”.

Last week I was contacted by Ross, a lawyer in Melbourne, who was concerned he was being charged unfairly for financial advice. He told me that his planner seemed “uncomfortable and embarrassed” about the fees he was obliged to charge.

Ross used the words “fee grab” to describe his current financial planning company’s new policy to charge an asset based fee (brokerage) for switching managed funds.

Financial planners need to charge for their advice and service. But in Ross’s eyes, this fee seemed to be excessive and incidental to the service.  

But this fee is not what gets me worked up. 

Ross‘s financial planner seemed to think this fee was disproportional to the value his company was providing for this transaction.

It’s hard not to conclude that this financial planner is putting the interests of his employer, and in turn his own interests, before his client’s.

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Photo Credit: Auntie P

Photo Credit: Auntie P

To many people, commission is a dirty word.  It is synonymous with a back hander or under-the-table payment.

And for good reason.

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Questions to Ask Your Financial Adviser

What questions can you ask a financial adviser to help ensure you get advice that suits your interests and not theirs? 

There are some great checklists available to help you choose a financial adviser, especially if you have no idea where to start.  But, most focus on basic questions such as experience, professional membership and the services they offer.

While these are helpful as a starting point, they don’t get to the heart of what determines the quality of the advice and service your financial adviser provides.

I think there are a few additional questions you can ask to help ensure you get great advice and support.

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