Financial planners or financial advisers can be invaluable when it comes to organising your financial life and helping you achieve your financial goals. We’ve known many cases where financial planners add significant value, especially when their clients have complex financial situations.
You may have a self-managed-super-fund (SMSF), several investment properties, a family trust with a share portfolio, own several small businesses. It is virtually impossible to have all the available expertise to ‘DIY’ such a complex scenario. Chances are you’ll be hiring a good financial planner to manage your investments, plan your future cashflows, minimise your tax liabilities, protect against risk, plan for your retirement and making sure your succession planning is also on-point.
In the media, we often hear horror stories in the media about big bank financial advisers scamming their clients or sell expensive and unnecessary financial products in order to get a fat commission pay cheque. Ultimately, your financial planner should put your interests first (and not flogging complicated financial products). If you are worried that you financial planner is charging too much, or simply not delivery value, then we have compiled some important warning signs to watch out for.
A financial planner may charge you an asset based fee. The difference between 1% and 1.5% of your asset may not sound much at first. But the difference could be huge if compounded over many years. If you’re planner is making you pay up more than 1.5%, then it may be time to seek some explanation.
Given the technology available today, large managed funds and online investment advisers can greatly reduce the cost of running and managing an investment portfolio. Managed funds typically charge around 1% management fee and online investment advisers (known as robo-advisers) can charge you less than 0.5%. Your financial planner must be delivering additional value to charge a premium.
Typical questions to consider:
Financial planners often have an opportunity to overcharge their clients for regular and ongoing advice. Even though they may have delivered significant value during the initial delivery of advice.
If you’re getting help from your planner for areas like debt management or budgeting. Do they check in and give you support regularly to make sure that you stay on track? Consider how many times you spoke to, or met your planner in person in the past 12 months and what additional advice or value did they deliver? Ongoing support is supposed to prevent you straying from your financial goals. So make sure you’re getting enough value on an ongoing basis.
A financial planner is more than just a person executing trades on your behalf. A good financial planner also acts like your money coach and should be good at communicating and educating you on money matters. We hire financial planners for their expertise, and a wise financial planner can prevent you from costly mistakes and decisions. Very often, our families and friends influence our financial decisions, but a planner can help you cut through the noise. What have you learned from your financial planner in the past 12 months? Do they take steps to educate their clients and explain their recommendations? Or do they simply issue recommendations and implement them away from your view?
Similar to the point above, notice how your financial planner is justifying the his/her fees. If your financial planner has no unique perspective or views to add, very often they will show you lots of generic content that you can easily find on the web. This might be in the form of generic newsletters, videos, seminars and webinars. This is not a good sign.
A financial planner should have the knowledge and the experience to communicate knowledge in a personal way. Every financial planner should have his/her unique perspective and understanding. They should be communicating that perspective regularly by providing their clients with regular touch-points. If your financial planner is intent on blasting you with generic content, then you may have hired a financial salesperson and not a financial planner.
Fee disclosure is very important for financial planners. In your Statement of Advice (SOA), there should be a fee schedule detailing how your financial planner will be remunerated. While expenses such as an SOA fee, implementation fee, annual reviews and ongoing support are easy to understand, there are some other ways planners get remunerated.
Financial planners can get remunerated via commissions and brokerage for recommending you financial products. Typically, financial products such as insurance, mortgages, managed funds can remunerate financial planners with a commission trial. Due to legislative changes, conflicted renumeration will not be allowed and more and more planners are shifting to a fee-for-service approach. Nevertheless, be clear on your planner’s commission trial. By ensuring complete transparency, you can ensure that your planner is working for you and your best interests.
If you find that you’re indeed paying too much for financial advice, then it may be time to find a more suitable financial planner for your unique set of circumstances.
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