Are you thinking about enlisting the help of a financial advisor but are wondering how much their services generally cost? To help answer this question and more, we’ve called on CEO & Founder of AdviceMarket, Spiros Christoforatos. In this blog, he runs through the common charges when it comes to financial advice, so you can decide whether it’s the right choice for you:
Whether you are investing your hard earned savings to create wealth or planning for your retirement there are many options available. In order to avoid common pitfalls and find the right advice strategy for you it is wise to engage a reputable financial advisor that will guide you along the way.
Whilst there is no shortage of people licensed to provide “general advice” only a qualified financial planner can provide tailored advice to suit your personal circumstances. This is a very important distinction because advice is personal and should be based on your very unique situation – this is not a one size fits all approach.
There are many steps along the way to reach your financial goals, some with fees attached and others without.
1. The Initial Meeting
More often than not, financial planners will conduct the initial meeting at no cost to you. This is not something you should have to pay for as it is usually considered a marketing cost for the planner and should be built into their pricing strategy already.
The initial consultation is an investment in time from both parties and to ensure you get the most out of it make sure you are prepared. This is your chance to ask lots of questions and get a good understanding of whether or not they can meet your needs. They too should be asking lots of questions to get an understanding of what your goals and objectives are.
By the end of the initial meeting the financial planner should disclose their fee structure in dollars, not just as a percentage. Take the time to fully understand all they have to offer, not just the costs but also whether their personality and values are aligned with yours.
2. A Statement of Advice
Once you have chosen your financial planner, they should prepare a Statement of Advice (SOA). This lengthy document will advise you of the strategies your Financial Planner recommends and any financial products suited to your objectives. The SOA done properly does take a lot of time to prepare and as such incurs a fee. There are two options with the fee, you may choose to pay it as an invoice up front or it can be deducted from your investment. This cannot be done without your authorisation.
As a guide, the fee can be up to $1,000 for simple advice, or up to $5,000 for a more comprehensive SOA. Extra complexity can also add to higher fees. Be aware of an advisor that offers free SOA preparation as they can often be more expensive in the long run. The SOA itself should outline all applicable fees and charges including any ongoing advice fees if required. Note that these can be negotiated.
Implementation fee or otherwise known as an entry fee is normally charged to invest a lump sum. They usually range between 0%-3% and may also be charged if you want to change the financial plan once the review has taken place.
4. Annual fees
If you are receiving ongoing advice throughout the year, your financial planner will provide you with a fee disclosure statement. This statement will outline all the fees you paid and should be a time to consider the value you have been receiving over the past 12 months. Be wary though as the fee disclosure statement is very basic and you should ask additional questions so you know that your hard earned money is working for you and not being wasted.
So what is a fair fee? Your financial planner is only obligated to tell you the fees they have charged you for ongoing advice. In most circumstances however; they may also receive a commission from any personal insurance they have placed which is known as a trailing commission. Many insurers provide this and can range from 10-30% of your annual premium.
If questioned, financial planners will claim this fee is to cover the costs for lodging, managing or even processing a claim when it arises. In which case, you may be better to come to an agreed fixed fee should you need to make a claim. If this is agreed upon then all trailing commission can be refunded. Care should be taken when taking this approach as the incentives for the financial planner to keep an eye on your insurances can diminish. It also means that your reviews may not stay up to date so in the event you do need to make a claim you may end up with less than you thought or less than you need at the time.
Over time personal circumstances can and do change. What was an appropriate strategy yesterday may not be appropriate today or tomorrow. This is why it is important to have your annual review, making sure your strategies remain true to your personal objectives and current economic environment.
The cost should be part of your ongoing advice however if there is not an ongoing advice agreement already in place then you may be charged for the review.