I thoroughly agree with Robert Gottliebsen about his preference for time-based fees instead of percentage of assets for financial advice (Advice charged by the hour will always be better, November 5). The investor receives advice, considers that advice and then makes appropriate investments. Fees based on a percentage of assets don't provide a lot of incentive for serious consideration of the preferred asset mix. 1% of $X is not much different to 1% of $0.9X or $1.1X so why would the adviser bother spending time monitoring and modifying the portfolio? I would consider an alternative where the adviser received a percentage of the earnings of the fund and/or a percentage of the capital gain in the fund. In a good year both the client and the adviser would benefit. In a not so good year, the client would effectively not be earning as much but then neither would the adviser. In a bad year the client’s portfolio may go backwards and the advisor would earn zero. If I haven't made any money then why should my adviser. This may create more incentive for advisers to show more interest and input into the portfolios they recommend for their clients.
Could not agree more with Robert Gottliebsen's advice that financial advice paid for by the hour is by far the best option. That's what other professional advice-givers do. Wherever the person providing the advice could also profit from the advice given (as is the case with commission-based “advisers”) there is always a conflict of interest or at the very least, the potential for one. And getting that wrong is way more expensive. I will never take advice from someone who stands to make money if I follow their “advice”. It can't possibly be free of bias.
Whilst I agree with the intent of Robert Gottliebsen's article, namely that asset-based fees are flawed, there are a few issues with his proposal of charging like accountants and lawyers (supposedly) charge. First, I think you'll find a number of accountants are moving away from charging by the hour and instead charging according to the value added. Second, financial planning clients do know how much they are being charged by virtue of the fee disclosure statements which need to be sent to them every other year; this is in addition to the initial Statement of Advice and the annual statements from product providers. Third, it is incredibly difficult for a planner to charge by the hour; having just voluntarily and behind the scenes reviewed a client’s portfolio, am I now expected to send them an invoice for it? If the advice is simply a case of meeting once a year, preparing a written document and then doing nothing, and having no liability, for the next 12 months, then an hourly charge can be used, but very few clients seek this arrangement. When there is active and ongoing monitoring and advice and/or investments, then it is difficult and ineffective to charge by the hour. The solution is to charge a fixed fee as opposed to an asset-based fee. A retainer if you like – just like a lot of lawyers do!
I see some sense in Robert Gottliebsen’s article and would like to pursue it. But where do I find an impartial and good planner? I like Platinum – but they have products. I appreciate that you may be hesitant in recommending one, but could you recommend a dozen or tell me where to look?
Editor’s response: Thanks for your letter. You're right, we can't recommend one planner, but a good place to start looking is the website of the Financial Planning Association of Australia: http://fpa.com.au/. This allows users to search for a planner by location. The site also includes information about things to consider when choosing and meeting a planner.
Enjoyed your interview about Bailador and tried to search it on the ASX but could not find it. How am I able to buy shares in this company? Again thank you for your reports.
Editor’s response: Thanks for your letter. The company has not yet listed on the ASX. According to the ASX website, the company's proposed listing date is November 19.
Collected Wisdom (November 3) mentions stocks RMD (Buy); GEM (Buy); AMP (Hold); AGK (Hold); DMP (Hold). Would you please explain why these stocks are not included in the Eureka "Share Recommendations" list?
David Gilmour’s response: Thanks for your letter. In Collected Wisdom, each stock recommendation represents a consensus view from material published in a wide variety of other publications including newsletters and broker reports.
Stocks which Collected Wisdom covers are not included in Eureka Report's share recommendation page because they are not Eureka Report recommendations.