Joe Stephan and Ian Helmore
There is no shortage of information about superannuation and retirement income, but the challenge is to make sense of it and use it to your best advantage. Some can, some are overwhelmed. Financial planners are there to help, but what quality of advice should you expect and how much should you be paying them? Karin is looking for some answers.
Joe Stephan, CFP®, Director at Stephan Independent Advisory, and Ian Helmore, CFP®, Senior Financial Adviser at Crosby Dalwood, have come to the rescue.
My husband and I have finally employed the services of a financial planner after seeing three in that initial fee-free first meeting, but not proceeding further for assorted reasons. We are very happy with the 99-page booklet of advice he put together for us and we believe we got good value for the money we paid ($2400). Our financial planner has suggested an ongoing annual fee ($3200) but how do we assess if that is value for us? Does it come down to simple common sense?”
A. Joe Stephan
People will often buy a gym membership without questioning the fee, or hire an architect to build a home without hesitating or second-guessing the cost. It should be the same for your finances. In this day and age, it is absolutely essential to pay for professional financial advice.
When it comes to fees, there two key elements that you should consider.
First, the tangible costs. This is what you will see from them, the results of their research and the results of their advice.
After setting up financial and retirement plans for clients, financial advisers often hear their clients remark that they weren’t even aware these strategies were available, or how they would manage them.
Second, review, then review, and review. A financial planner should regularly review your financial plan and the outside forces (legislative and market changes) that can have an impact on it. Reviews take time, with their regularity depending on the degree of complexity of the client’s finances. Time, whether it be your own time, or that of an expert, equals fees. If you choose to manage your own affairs, how much time will you spend reviewing all aspects of your strategies? How accurate, non-conflicted or detailed would your reviews be? How effective and confident will you really be with your own review?
Every year, there are legislative changes to superannuation, tax and changes in market conditions that require ongoing scrutiny and analysis. How costly could these changes be to you if you are unaware of them?
Your financial planner should spend time remaining up to date on changes to financial products, legislation and markets. He or she will alter your strategies to take stock of your changing circumstances and the external environment. Your fee could very well pay for itself in tax savings your financial planner implements as a result of their expertise.
A financial planner will also engage in ongoing education. They will attend a range of professional development skills workshops, all with the aim of maintaining their skill set and ensuring their advice continues to evolve with the dynamic and changing economic landscapes. How much time and money would this level of education cost you?
Then, there are the non-tangible costs, such as peace of mind. You are paying for a professional to ensure that your affairs are in order and that they are being monitored regularly. This provides you with confidence. It also places you in a better position to confront issues that may (unexpectedly) arise, and which you may have neglected otherwise. You now also have a forum where you can discuss sensitive issues with your partner that were previously off limits or ended in disagreements.
Your financial planner will make considered, researched decisions. These will be based on knowledge. Without this professional service, you risk making emotional or dangerous decisions based on your own opinion – or on the opinions of unqualified family, friends and colleagues.
You should ask yourself what price you would be prepared to pay for the peace of mind that comes with professional advice?
And a final word on fees.
The abolition of commissions and a move to the transparency of a fee-for-service environment, with a few exceptions for certain products including life insurance, means your financial planner should be working harder than ever for their fees.
This should provide you with more peace of mind as the advice is not biased in favour of a product or financial institution. Instead, it is aligned to your goals.
A. Ian Helmore
The most important role of a good financial adviser is to identify a client’s concerns, hopes and dreams, to ensure the initial advice and ongoing service meets their expectations, providing confidence and peace of mind. Ultimately, all clients want to be able to enjoy life.
Setting an appropriate fee in line with their expectations will take into account the knowledge and experience the adviser brings to the relationship. Placing the client in a better position to proactively manage issues as they arise is crucial, as is the very strong trust that underpins this very personal relationship.
Drawing on that knowledge, the adviser will make recommendations that grow and protect wealth and develop the strategy as a client’s circumstances evolve.
The adviser can provide an informed and objective view, and quite often act as a sounding board, to help a client make the best decision. Obviously, the technical aspects of dealing with financial and regulatory changes are a key benefit.
Often this advice is about staying the course with investment decisions. Making an impulse decision in relation to investment market movements could derail a strong, long-term plan.
Fee structures in the past have been hidden and may have been higher than what will be charged in the current transparent fee environment.
Crucial to any fee for service is for all parties to be clear about their requirements, service offering, pricing and communications to provide the client with a sense of security and enable them to achieve their dreams.
The government MoneySmart website outlines several important points for hiring a financial planner.
It says the more complex your finances, the higher the fees will be.
You could pay between $200 and $700 for simple advice and between $2000 and $4000 for more comprehensive advice.
For ongoing advice, MoneySmart emphasises it is important to understand what your fee will cover.
Always check that you are only paying for services that you actually need.