How much does it cost to get financial advice?
Traditionally it’s been a secretive sort of thing – the cost of advice. Advisers don’t talk openly about it even amongst themselves. I don’t see much point in being secretive, so here it is, a no holds barred look at financial advice and the cost.
Start at the beginning with advisers, financial advice businesses and their motives. Advice is a business and whilst the number one goal of the vast majority of advisers is to help people, it does need to be profitable.
Why? If it’s not profitable, the business closes and you have no adviser. Simple.
In order to open the doors, there are salaries, license and compliance costs, software, training, rent – it’s no different from any other business in that regard. There is a fixed cost to serve each new client and most businesses will know that number. To that, we need to add the profit piece from above.
Different ways to pay for advice:
Commission
This is where advice started. Your adviser sells you an insurance policy or an investment product. You pay the product provider for the product and in the background, the product provider pays the adviser. The more policies your adviser sells, the more they get paid. It’s not right or wrong, but it does come with inherent conflicts, the sort of stuff we saw at the Royal Commission. It still exists in insurance ( and makes your insurance about 25% more expensive).
Before you make your mind up about commission being right or wrong, ask yourself if you would be prepared to pay a fee for the advice about which insurance policy and how much you need.
% of funds under management
This model means that you pay your adviser a fee set as a % of the investments and super under their advice. The pros are that if the investments go down, you pay less, if they go up, you pay more, sharing your profit with your adviser. The cons are that as your super grows, as it likely will due to contributions and investment performance, you pay more. It might be that there are thresholds and the larger your investments, the lower the % you pay.
In any event, we see the inherent conflict again – the more you invest with your adviser, the more you pay. Whether or not it is acted upon, there’s an incentive to build that share portfolio instead of paying down debt or buying a property as an example.
Flat fees
This model means you pay a pre-agreed fee. Often based on an estimate of time spent on providing you advice. There are no surprises here, it’s a clean dollar-based figure. You pay your adviser for the advice, for their time. Under this model, you might choose to have your investments, super and commission-free insurances with your adviser, or do it yourself and use them as a sounding board only to help with strategic thinking.
Low-cost advice
The actual cost of advice will and should vary according to your needs and complexity.
Think about low-cost advice from the business point of view – it’s a very simple equation.
If they charge a “low” fee for advice, one of two things are going to happen:
- your advice fee will be supplemented by other fees – like insurance commission in addition to your advice fee
- they need to service way more clients to cover costs and make a profit. If there are more clients per adviser, you become one of many and you simply can’t hear from your adviser as much. A review might be 30 mins once a year.
The model we run at Sandringham Wealth is a simple one:
- We charge a flat fee, agreed in advance so there are no surprises.
- You pay for our time and expertise, nothing more.
- No nagging doubt about why a product is being recommended.
- Insurance commissions, if applicable, are paid back, direct to you.
- We look after a limited number of clients. As a client, if you call and say I need to see you soon, the answer is going to be – sure, what suits you?
Once the initial plan is written and in place (cost based purely on the amount of time taken to research, plan and implement), the majority of our clients keep us on hand to keep their financial future on track on an ongoing basis.
This includes:
- Helping you weigh up different options – do we buy a property or shares, do we pay down debt or build up savings, do we renovate or move, do we retire as soon as we can or later when we have more
- Talking to your accountant to ensure the best tax outcome
- Talking to your estate planner to ensure your family is protected
- Regular progress meetings to make sure you remain on track
- Being available for those times when something changes for you (good or bad)
- Cashflow and budgeting
- Investment
- Superannuation
- Personal insurance
- Bigger picture planning to help build wealth
- Debt management
- Retirement planning
Once in place, the cost of ongoing advice will vary based on complexity.
On a monthly basis, ongoing advice is a tax-deductible $375pm for simple advice, through to $650pm for complex advice.
The key here is not right or wrong, it is simply to pick the option that’s right for you.
I’ll leave you with a question, food for thought. What is the cost of not getting advice?
If you are ready to start the conversation around your plan, your financial future click here to book an initial chat https://meetings.hubspot.com/jm35