How much should a financial adviser cost?
A while ago a member asked the question 'how much should a financial adviser cost'? It's an interesting question that I suspect many members will have a view on (especially those who are financial advisors) so I thought I'd throw it out there for comments.
It's also an issue that has been raised with me many times previously and I have never ceased to be amazed by how much some advisors are able to get away with charging. In this day and age, when travellers can price hotels to the dollar via TripAdvisor or save $5 on a flight via Webjet, it is astonishing that one person might be paying thousands of dollars per annum more than another for what is the same (or an inferior) service.
So what should you expect to pay for a financial advisor?
I generally tell people they should expect to pay around $8,000 or so per annum for 'full service' advice (this will probably rise under FOFA). Administration of an SMSF (no financial advice) should cost $1,000 - $4,000, depending on whether a discounted online administrator, full service online administrator, or accountant, is used. Although I've also heard reports of people paying $5,000 plus per annum, just to get their accounts, tax returns and minutes done.
There will also be situations where fees of $10,000 - $20,000 plus per annum can be justified – for instance, high net worth clients might demand a far more sophisticated service – but if you're paying this much you should be able to identify the value add you're paying extra for. If you're paying $20,000 to have someone run your SMSF and make recommendations based on the share research they're getting from subscription services or brokers, then you're probably being ripped off.
Another interesting question, in the context of advisor fees, is percentage based fees. I'm not really a fan of them, since they often come with conflicts of interest (charging fees on leverage or not charging on cash/term deposits) and can be used to justify over-charging. $50,000 per annum doesn't sound as expensive quoted as 0.5% (of a $10m portfolio). But they at least don't come with the same shroud of secrecy (or as outrageous a conflict) as commissions.
Ultimately, 1% of $800,000 is still $8,000 and it doesn't really matter whether the investor is being charged 1% or $8,000 flat fee. The question for the investor is what they're getting for the money and whether they're going to be able to wind the percentage back if they add a substantial amount of money to the pot?
Before I hand over for comments I'll share some feedback I got from the original Q&A on this topic.
One member said they were paying $680 per annum for Online Super Fund and $699 for their bundled Intelligent Investor subscription. That's about $1,400 total per annum. Another said they were paying $1,400 to their accountant for SMSF tax return, $450 for the audit and $200 for audit insurance. Assuming they're also a bundled II member that's just under $3,000 per annum.
To add my own experience. I've just switched to Catalyst Super (a full service online administrator), which costs about $1,500 to $2,000 per annum, depending on which level of access you're after and whether you use your own trust deed. Adding in an II bundle, that would come in below $3,000 per annum as well. Even with some ad hoc accounting or financial advice at $300 per hour, I'm still unlikely to get anywhere near the $8,000 per annum figure.
However it's worth pointing out that, like many of you, I do a lot of my own reading and research. So it's not an apples and apples comparison since, for $8,000 per annum, I could just rock up to my advisor's office and ask to be pointed in the right direction.
Over to you. Please remember to keep the comments factual so we can publish them all.
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