Paying for nothing. Even when you’re dead. The Royal Commission into the finance industry has turned the spotlight on the appalling scams used by bank financial advisers to keep their customers paying.
The industry has created an extraordinary complex scale of fees and commissions. And if you think it’s designed to fool clients, you’d be right!
But here are Really Simple Money, we’re not against good financial advice. We think MORE people should be receiving it.
We supported the British idea of government funded vouchers so we can all get help managing our money.
But financial advisers have to eat. And someone has to pay. If we allow commissions, then client rely on their impartiality. They’ll push the products that pay the most.
Better to pay a fair price for impartiality. Former Association of Financial Advisers CEO Brad Fox explains in our magazine that we should consider it an investment in ourselves.
“Expert advice comes at a price. Paying for professional financial advice is much the same as paying for any other service.”
Most financial advice fees are structured in one of three ways:
- An hourly rate where the client pays on the number of hours that it takes to provide the advice and implement it. Depending on the experience and qualifications of your adviser, the fee would typically be between $175 and $375 an hour. These are similar hourly rates for many professions.
- An agreed 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. Be sure that the package will address the issues you want to solve.
- A percentage of your assets like your superannuation or share portfolio. The amount you pay will be directly related to the value of your investments. For example a 1 per cent ongoing advice fee on a $100,000 portfolio, means you will pay $1000 a year. This model is becoming lesspopular, Mr Fox says.
Every financial adviser has a legal document called a Financial Services Guide (FSG) which sets out how they charge for their advice.
Your first meeting with an adviser is often free, says ASICs Money Smart website. The adviser will tell you how much the advice will cost so that you can decide whether you want to proceed.
By law, financial advisers must put their fees in writing to you, so if you decide to continue with the adviser, they will prepare a Statement of Advice (SOA) covering your financial goals, strategies to achieve your goals and details of any financial products they recommend.
The cost of preparing the SOA will be billed to you.
Generally, financial advice is broken down into three steps:
* Step One. A strategy fee is where the adviser’s expertise draws out from you what you want to achieve in your life over the next 10 years or so. They will consider your financial position today, your desire to limit risk, your aspirations and work with you to achieve your goals.
This fee depending on the complexity could be as low as $1000 to around $8000 for more complicated family-type matters.
* Step Two. The implementation servicewhich involves the paperwork and applications, life insurance underwriting, consolidating superannuation accounts and setting up investments. They will quote and agree the fee with you.
* Step Three. Often day-to-day lifeand business gets in the way and you lose the discipline of staying on course. The financial adviser should take on the role of accountability coach to ensure that you stay on track with your financial plan.
According to ASIC, if you agree to receive ongoing advice, it is important to understand what your ongoing fee will cover.
This will include regular reviews with your adviser, regular reports on your investment portfolio and phone or email access to your adviser. Some advisers may consider that trying to contact you to offer an annual review fulfills their obligation to you. If your adviser cannot contact you, it may mean they continue to collect ongoing fees from your investments, in the short-term, without providing you with ongoing services.
If you have paid fees for services you have not received, lodge a complaint through the adviser or licensee’s internal dispute resolution (IDR) scheme as you are entitled to a refund and compensation, ASIC advises.