Professional Financial Adviser Fees

Kayman · 16 November 2010

Hi all. This is my first post here and hope that the subject matter is of an appropriate nature to this particular forum.

My financial portfolio, an allocated pension fund, which consists mainly of managed funds, is within a wrap account. Because of my limited knowledge in relation to financial matters the f/portfolio is since 6 years under the wings of a financial adviser.

The wrap account and financial adviser charge monthly fees (administration and ongoing advice respectively) which are based on the total value of my assets in my wrap account. Both fees are automatically debited to my cash account within the wrap account.

The ongoing advice fee includes a six-monthly formal review, recommended portfolio changes, long term strategic modelling - ensuring I am on track in terms of asset allocation of my f/portfolio.

I do realize that for quality professional services appropriate fees apply and need to be paid. I am not opposed to these payments. However, I begin to question the necessity of monthly fees for ongoing advice as my f/portfolio only gets reviewed twice a year and feel that the ongoing advice fee rather undermines the cost effectiveness of the wrap account.

I am now contemplating switching to another professional financial adviser who charges me a professional fee (hourly rate) for finacial advice.

Presumably, since an hourly rate is not tied to the value of my investments, or generated by the purchase of any specific investment, couldn't I be confident to expect & receive objective advice for a more moderate fee? Though I'd expect to pay a higher hourly rate for an experienced adviser.

I hope receiving some good comments, recommendations and/or guidance from participants of this forum who have more savvy in this matter that I have.

Kind regards...

awg · 16 November 2010

Re: Professional Financial Adviser Fees.

Kayman said:
I am now contemplating switching to another professional financial adviser who charges me a professional fee (hourly rate) for finacial advice.

Presumably, since an hourly rate is not tied to the value of my investments, or generated by the purchase of any specific investment, couldn't I be confident to expect & receive objective advice for a more moderate fee? Though I'd expect to pay a higher hourly rate for an experienced adviser.

I hope receiving some good comments, recommendations and/or guidance from participants of this forum who have more savvy in this matter that I have.

Kind regards...

Been thru this.

Good luck finding one

At that time, 3-4 yrs ago, there was virtually nothing, even in Sydney.

I believe such service is now available, you dont mention your location?

I see no good reason why at least some financial advisors should not be fee for service, exactly like accountants, solicitors.

Hopefully the recent enquiry into financial planners fees will lead to a more competitive stucture.

I guess another consideration, is has your portfolio outperformed?

Julia · 16 November 2010

Re: Professional Financial Adviser Fees.

awg said:
Been thru this.

Good luck finding one

At that time, 3-4 yrs ago, there was virtually nothing, even in Sydney.

I believe you.
A friend has been looking for this sort of impartial adviser, being dissatisfied with the fees being charged on her underperforming Super.

I ran it by my accountant to see if he could recommend anyone. This is his response:

Financial Planning””wonderful industry!!! I am not a financial planner now. Was, but pulled out, as the Licensed Dealers would only accept plans based on the sale of products that were on their product lists””all commission based. So I could not provide an authentic service that was truly unbiased, so I got out of it””I have to sleep soundly at night.

Her dilemma is common””where do I get genuine financial planning advice””answer””it does not exist to my knowledge. I don’t know any financial adviser who I would trust to do the right thing. They are all under the control of licensed dealers and I don’t know any licensed dealers that are in it to serve their client’s best interest.

To the original poster: educate yourself so you can manage your own investments. It is absolutely not as difficult as you might imagine.
Read through the Beginners' Lounge on this forum.
Go to www.asx.com.au and work through their very clear Education modules.

Good on you for at least being aware of what you're paying in fees.

I, too, would be interested to know what return they have been getting for you, net of fees?

Kayman · 17 November 2010

Re: Professional Financial Adviser Fees.

awg said:
Been thru this.

Good luck finding one

At that time, 3-4 yrs ago, there was virtually nothing, even in Sydney.

I believe such service is now available, you dont mention your location?

I see no good reason why at least some financial advisors should not be fee for service, exactly like accountants, solicitors.

Hopefully the recent enquiry into financial planners fees will lead to a more competitive stucture.

I guess another consideration, is has your portfolio outperformed?

My financial adviser is located in Sydney but I don't. Location is not important to me. The *ongoing advice* fees my financial adviser is charging are competitive and I am not suggesting that his investment recommendations are substandard; I am satisfied that my financial portfolio has performed well during the global financial crisis.

Kayman · 17 November 2010

Re: Professional Financial Adviser Fees.

Julia said:
I believe you.
A friend has been looking for this sort of impartial adviser, being dissatisfied with the fees being charged on her underperforming Super.

I ran it by my accountant to see if he could recommend anyone. This is his response:

To the original poster: educate yourself so you can manage your own investments. It is absolutely not as difficult as you might imagine.
Read through the Beginners' Lounge on this forum.
Go to www.asx.com.au and work through their very clear Education modules.

Good on you for at least being aware of what you're paying in fees.

I, too, would be interested to know what return they have been getting for you, net of fees?

Considering the global financial crisis, the return of my investments basically equalled my cost of living expenses, in other words growth was negligible. I firmly believe that the current situation will improve and look forward to better times and 'returns' in the future. Thanks for tips in relation to managing my own investments....something to ponder about.

tech/a · 17 November 2010

Question

If you had an advisor who charged a fee on a performance basis.
IE no profit no fee.

What % of profit would you feel acceptable and why?

Mind you I dont know of one but am curious.

Julia · 17 November 2010

tech/a said:
Question

If you had an advisor who charged a fee on a performance basis.
IE no profit no fee.

What % of profit would you feel acceptable and why?

Mind you I dont know of one but am curious.

Yes, I'm similarly curious.

It is, however, a salient point. Much is made of the need to beat the index, something with which we'd mostly agree, I'd guess.

But isn't it going to depend on the individual circumstances of the investor?
i.e. someone already in retirement with more than adequate capital to see them out (ghastly phrase!) may feel to accept the returns from cash on capital guaranteed is just fine, as a compromise from the anxiety of being fully invested in volatile times when - if we have another GFC like the recent one - could see that capital halved.

I know people who are accepting returns which are quite poor derived from e.g. managed funds recommended by their financial advisers because they are not prepared to educate themselves and take control of their own outcomes. For many it's 'just way too hard'.

skc · 17 November 2010

tech/a said:
Question

If you had an advisor who charged a fee on a performance basis.
IE no profit no fee.

What % of profit would you feel acceptable and why?

Mind you I dont know of one but am curious.

In an ideal world here's what I would like to see.

A basic performance threshold equal to the RBA rate and on a benchmark, say ASX200 cumulative index, whichever is higher.

A 15% performance fee on the profit above the threshold plus 10% performance fee above the benchmark.

So if I have say $1m fund and it returned 15% ($150K), vs RBA rate of 4.5% and ASX200 cumulative index of 11%, I pay 15% on 4% (being my return minus the threshold, in this case the index return) which is ~$6K. In addition I pay 10% on another 4% (being my return minus the benchmark) which is $4K. Bring the total to $10K

In this case, the adviser is being modestly rewarded for beating the benchmark.

If my $1m returned 10% ($80K) vs RBA rate of 5% and index return of -10%, I pay 15% on 5% (my return minus the threshold, in this case the RBA rate) which is ~$7.5K. Plus I pay 10% on another 20% (being my return minus the benchmark) which is 2% or $20K. So in total I pay $27.5K.

In this case, the adviser is being rewarded for making good positive return despite the market downturn (which would see my lose $100K based on the benchmark).

If my $1m returned 8% ($80K) vs RBA rate of 5% and index return of 12%, I pay no performance fee. In this case the adviser is not rewarded for underperformance.

I've never used a financial adviser before so no idea if these fees are way off the mark or not.

To be fair a minimum annual fee of $2-3K might be justified to cover basic admin and other services.

El Toro · 18 November 2010

Kayman said:
I am now contemplating switching to another professional financial adviser who charges me a professional fee (hourly rate) for finacial advice.

What advice do you want? What hourly rate would you be prepared to pay for that advice?

I know of some Financial Advisers that work with industry funds and they charge between $220-$250 per hour. But then the advice is really limited to the industry funds that they deal with. They wouldn't look at anything outside of the industry superannuation, such as other investments or personal insurances.

There is also this link. http://www.aifa.com.au/

I haven't used either of these so I can't evaluate them for you.

The question is what type of advice you are looking for and who can deliver that advice to you in the best and most cost effective way.

Garpal Gumnut · 18 November 2010

Look up the definition of all four words.

Pick some key attributes you seek, and print the words that match on an A 4 page.

Leave your house and begin a walk around Australia in a counterclockwise direction.

On your return to your home I would bet London to a brick, you will not find an fp who will match your tattered page.

Professional
Financial
Adviser
Fees.

What a joke applied to fp's.

gg

awg · 18 November 2010

I manage my own investments now.

This requires a very steep learning curve, and much time and work.

I outperform the relevant benchmarks.

The saving on advisor fees is an annual 5 figure sum,

entirely compounding, and as I am relativly young, just this alone should eventually add up to be worth a VERY large amount, leaving aside any potential improvement in my own performance.

I did find some guys that were licenced financial planners who would give me advice, for between $250-350 per hour...but I didnt think I needed it.

At the end of the day, these guys are working X hours per week, and it seems the business model is entirely stuctured to be more profitable on a commission basis...you may be seen as a less profitable distraction.

My hugely experienced accountant has a loathing of fin P fee stucture, but that is mainly cause he wishes he could charge like that.

IMO there will eventually be fee-for-service, but I have been saying that for years.

breaker · 18 November 2010

Been down that road we are still paying for professional advice we recieved two years ago and have since found out all advice given was based on kickbacks ,do yourself a favour and take control of your own destiny and save yourself a motza

Kayman · 18 November 2010

tech/a said:
Question

If you had an advisor who charged a fee on a performance basis.
IE no profit no fee.

What % of profit would you feel acceptable and why?

Mind you I dont know of one but am curious.

Well, the best to my knowledge no adviser has control of the fund(s) and/or other investments he or she recommends. The performance of a particular investment (managed fund) is usually under control of a fund manager whom your are paying a Management Expense Ratio (MER) or Internal Cost Ratios (ICR).
The adviser job is among other things to recommend an investment to suit your financial goals. Experienced and good advisers study prospectuses, reading and interpret the fine print including technical lingo. They have a good handle on selected funds in terms of past performance alas non of them has a crystall ball

I am in for the long run and rarely switch funds but ensure that the asset allocations are adhered to. Pushing aside the current gfc, I'd expect to earn about 12% plus.

Kayman · 18 November 2010

El Toro said:
What advice do you want? What hourly rate would you be prepared to pay for that advice?

I know of some Financial Advisers that work with industry funds and they charge between $220-$250 per hour. But then the advice is really limited to the industry funds that they deal with. They wouldn't look at anything outside of the industry superannuation, such as other investments or personal insurances.

There is also this link. http://www.aifa.com.au/

I haven't used either of these so I can't evaluate them for you.

The question is what type of advice you are looking for and who can deliver that advice to you in the best and most cost effective way.

To review my existing f/portfolio annually (maybe semiannually), recommends portfolio changes, long term strategic modeling - ensuring I am on track in terms of asset allocation of my f/portfolio.
I'd be prepared to pay $350.- to $500.- per hour.
Thanks for the link.

Kayman · 18 November 2010

awg said:
I manage my own investments now.

This requires a very steep learning curve, and much time and work.

I outperform the relevant benchmarks.

The saving on advisor fees is an annual 5 figure sum,

entirely compounding, and as I am relativly young, just this alone should eventually add up to be worth a VERY large amount, leaving aside any potential improvement in my own performance.

I did find some guys that were licenced financial planners who would give me advice, for between $250-350 per hour...but I didnt think I needed it.

At the end of the day, these guys are working X hours per week, and it seems the business model is entirely stuctured to be more profitable on a commission basis...you may be seen as a less profitable distraction.

My hugely experienced accountant has a loathing of fin P fee stucture, but that is mainly cause he wishes he could charge like that.

IMO there will eventually be fee-for-service, but I have been saying that for years.

Interesting post awg!
I currently am paying a similar large sum of fee pa, excluding MERs/ICRs and wrap account fees. Any chances communicating with your contacts to kick-off a similar venture? I am prepared transferring an appropriate retainer.

Kayman · 18 November 2010

breaker said:
Been down that road we are still paying for professional advice we recieved two years ago and have since found out all advice given was based on kickbacks ,do yourself a favour and take control of your own destiny and save yourself a motza

Easy said, I'm retired and knew how to make motza, it's a different kettle of fish keeping it

How did you get enlightened and savvied up, what tools were or are available to you?

awg · 18 November 2010

Hi Kayman,

I will reply online, but feel free to PM me if you wish

I dont have the contact details anymore of the advisors I found that were prepared to do fee for service, it was 4yrs ago.

I went the low-cost SMSF route instead

If you want a fee for service advisor, Google and phone them, is my best advice.

At the time, Mark Bouris?, the loan fellow was bleating about setting up something called Yellow Brick Road ( or similar, which was supposed to be f-f-s, but I dont know what happened )

I am not sure from your post what your intentions are, but in my case I use ASF as a sort of Open University, and there is so much material available on the Internet, and I find it surprising that more retired pople dont take an active interest.

An easy transitional strategy is to replicate your advisors portfolio setup in a low cost SMSF.

If you have a properly setup wrap, that is formerly reviewed, then you should have documentation that outlines the investment strategies?

You can get exposure to all sectors via direct shares and ETF shares

any person find themselves paying excessive advisor/wrap fees for an account that holds a large cash component...well it must make them feel like self-harming.

my total fees went from over 1% to < .07%

MER is still present, as I cant utilise an ultra low-cost broker.

I must admit it feels great to shed the leaches and ticks, low tax pension and minimal fees means a long term compounding build (hopefully)

Julia · 18 November 2010

Kayman said:
Easy said, I'm retired and knew how to make motza, it's a different kettle of fish keeping it

Kayman, I'm puzzled by this, unless you mean you made the 'motza' via your job, rather than investments in financial markets?

How did you get enlightened and savvied up, what tools were or are available to you?

Investing in retirement is essentially no different to investing at any other time of your life: you still need to grow your capital to cope with cost of living, inflation etc. One expense you won't have if you're retired is tax. Presumably you're drawing a pension from your Super which doesn't attract any tax?

It's a bit hard to offer anything more until you let us know whether your 'motza' has come from financial markets or whether in fact in retirement you are effectively starting all over again with investing.

Kayman · 19 November 2010

awg said:
Hi Kayman,

I will reply online, but feel free to PM me if you wish

I dont have the contact details anymore of the advisors I found that were prepared to do fee for service, it was 4yrs ago.

I went the low-cost SMSF route instead

If you want a fee for service advisor, Google and phone them, is my best advice.

At the time, Mark Bouris?, the loan fellow was bleating about setting up something called Yellow Brick Road ( or similar, which was supposed to be f-f-s, but I dont know what happened )

I am not sure from your post what your intentions are, but in my case I use ASF as a sort of Open University, and there is so much material available on the Internet, and I find it surprising that more retired pople dont take an active interest.

An easy transitional strategy is to replicate your advisors portfolio setup in a low cost SMSF.

If you have a properly setup wrap, that is formerly reviewed, then you should have documentation that outlines the investment strategies?

You can get exposure to all sectors via direct shares and ETF shares

any person find themselves paying excessive advisor/wrap fees for an account that holds a large cash component...well it must make them feel like self-harming.

my total fees went from over 1% to < .07%

MER is still present, as I cant utilise an ultra low-cost broker.

I must admit it feels great to shed the leaches and ticks, low tax pension and minimal fees means a long term compounding build (hopefully)

Hey awg

Thanks for the option communicating with you directly, I appreciate that and may take you up on your kind offer if I get 'bogged down' in search of a suitable adviser.

I Googled and found a couple of interesting links which am currently pursuing. M.Bouris is in my humble opinion a bit too boisterous for my liking...(I realize that this is a rather subjective comment).

My aim is to rid myself of an ongoing advice fee based service. Mind you, my current adviser is really, really good but he takes a firm stand in charging ongoing advice although my portfolio is reviewed twice a year. I just can not see the value anymore for having ongoing advice.

Well, you are right of course - until recently I never paid much attention in relation to my investments other than during the time of portfolio review. Not all retirees are couch potatoes, there is golf, fishing, partying, red-wine...the list goes on

Considering your (fee) cost savings you achieved I probably will bite the bullet and eventually start managing my portfolio myself sacrificing some time on the golf course.
Yes, I am fully aware of the investment strategies which by the way are in conformance with my goals and have all documentation readily available.

Thanks for your comprehensive post.

All the best
K

Kayman · 19 November 2010

Julia said:
Kayman, I'm puzzled by this, unless you mean you made the 'motza' via your job, rather than investments in financial markets?

Investing in retirement is essentially no different to investing at any other time of your life: you still need to grow your capital to cope with cost of living, inflation etc. One expense you won't have if you're retired is tax. Presumably you're drawing a pension from your Super which doesn't attract any tax?

It's a bit hard to offer anything more until you let us know whether your 'motza' has come from financial markets or whether in fact in retirement you are effectively starting all over again with investing.

I made my 'motza' while in the work force.

Your presumption is correct.

My apologies for finding my original post ambiguous.

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