Is 1% of $510,000 a fair fee to pay an advisor for a Super Pension account?
Loretta in NE Melbourne
Top answer provided by:
Simon Capp
Is 1% of $510,000 a fair fee to pay an advisor for a Super Pension account?
That does sound like a lot of money, however, this might be the best money you ever spend. Let me explain;
There are three components to the question that are important to address. Critically the concept of value, fairness and then the structuring of the fees.
Value
I strongly believe that clients in a long-term financial planning relationship will find value both in an obvious and tangible way, and a more lasting intangible way. Tangible value can be easy to spot and can be found; reducing product fees, insurance premiums, investment returns, saving tax and strategies that will boost your financial position. These are benefits you can touch, see and feel. You can quickly determine their worth and assign a dollar value. The intangible benefits are harder to articulate, they are personal and only you can decide their true value.
A study* in 2015 showed that Australians who have a long-term relationship with a Financial Planner have;
- 13% greater levels of overall personal happiness
- 21% overall increase in peace of mind
- 19% less likely to have arguments with loved ones
I believe that these intangible benefits are only captured by working with a trusted adviser, as together you will march with confidence towards the future you desire.
Fairness
We all demand fairness, and as a consumer in 2019 it is now easier to obtain. In the digital age we can be more educated and there is much more transparency. When addressing whether a service is priced fairly you would assess two components;
- What does it cost to provide the service?
It is fair to say that the cost of providing advice in Australia is on the rise.
The cost of providing the advice is directly linked to the complexity of your situation. It’s important to know, for every hour a financial planner spends with you, they are probably spending 10-15 hours working on your file to ensure that the approach and advice is optimal and documented appropriately.
- If I went somewhere else what would they charge me?
You will need to be clear on what you are comparing, it would be a mistake to compare two services being provided based on cost only. So, it will be important to understand the service being offered.
The Financial Planning Association of Australia (FPA) conducted the CoreData FPA Member Research in 2018 which found that, on average, FPA members charge $2,435 to prepare a Statement of Advice for new clients, and $3,354 per year for ongoing advice for clients.
From this research an ongoing fee of $5,100 would be more typical of a complex situation or a premium service offering.
The final incidental issue is around whether you are charged a flat fee or a percentage-based fee for the provision of the service. This is a preference issue, and most Financial Planners will be happy to match your preference.
At our firm, Treehouse Financial Planning, our preference is a flat fee; as we feel it is more professional, transparent and allows us to better match complexity of the advice to a client fee.
I would encourage customers to focus on value. If they are worried about value or fairness, then it’s your right to ask more questions or seek a second opinion.
* IOOF: The true value of advice (2015) https://www.ioof.com.au/financial-advice/understanding-financial-advice/how-financial-advice-can-help
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.
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Comments5
"A fee should be based on Complexity, and the program you agree on (3mthly, 6mthly or yearly catch ups etc) - not value of account. In saying that the compliance that is done in the background is enormous, you could not make a profit on charging 1% on a portfolio of $100K - especially if you want the Adviser to update Centrelink too! Remember though, you have the opportunity to Opt-out and if you forget that, a new agreement has to be drawn up every 2 years, if you dont think you are getting value then opt-out and be charged no more ongoing fees. Be careful too and ask what is also included in the fee in regards to further advice. I have known companies who charge for Advice every time a Statement of Advice is required (on top of the ongoing fee) - and other companies have a policy that the ongoing fees cover all further advice required - that is a huge difference. An example of this may be you receive an inheritance, what to do effectively especially with Centrelink, or changing Platforms for your Pension, new cheaper systems do come along and this may be worth rolling over to. "
Josie 12:51 on 18 Mar 19
"A % fee often suggested by a planner is for 'portfolio management' - however I bet they aren't making the client an extra 1% per year. Why don't they take a performance fee, 20% of anything over an agreed benchmark... with refund for anything under the benchmark, i suspect those planners will change to a fixed fee model real quick, and the client back into index funds. If they aren't charging for performance, but 'other tasks' - like managing refresh/rollovers etc, then services can be a fixed fee... For those who say "More funds under management more liability" - thats BS - a client is either advised well or poorly.. its just that the person with more money is more likely to sue you... If you're worried about being sued - you're doing something wrong. "
Hub T 19:08 on 15 Mar 19
"Expanding on Simon's response it also comes down to what you get out of the advice fee. Is it solely to manage the investments inside that pension fund? If so is the adviser actually actively managing the investments, or using managed funds/ETFs where you get charged a second lot of fees. Or does the advice include Strategic Advice? In my opinion the best type of advice, and that which adds the most value. This expands on 'use this product and invest this way' and focuses on what strategies can you implement to support your goals outside of the investment piece which should only be a small part of the overall advice."
Darin T 15:33 on 15 Mar 19
"I could see potentially more complexity with more money - so maybe a higher fee is justified, but I don't really like the percentage paid fee. Managing $10 million versus managing $100 million is a big difference in fees based on 1%"
Cam 15:30 on 15 Mar 19
"The more funds under management, the more liability the adviser holds, so it makes sense to charge a larger fee - whether % or fixed."
Paul S 15:01 on 15 Mar 19