In our experience my people do not examine closely the fees and charges of their financial planner. Many have a tiered system of a plan fee and then implementation fees, which, when added together become very high. It can also make the adviser commission driven when making investment recommendations.

When shopping around we suggest that you establish the following with your adviser:

1.  What is the Statement of Advice Fee (Plan Fee)?

A Financial Adviser should be able to determine this before he/she does any work for you.  From our research this can range from $500 to $10,000.  Usually it will depend on the work involved.  It is better to use an Adviser that charges a Statement of Advice fee-the old adage that you do not get anything in life for free.

2.  What are the charges for implementing the investments?

Usually a percentage taken from your funds invested e.g. 2%. We have found that this can range dramatically from 0-5.125%.

3.  Does the Adviser invest in generic balanced funds or do they invest you funds sector specifically?

This can be invaluable to find out before you invest.  We do not invest in any balanced managed fund because we feel that they will under perform compared to a portfolio of well selected funds that are the best of the best in their specialist sector.  We prefer to research best and then blend them so that they are complimenting one another.  The relevant Fund Mangers can then concentrate on their specialist investment sector (ie cash, property, Australian shares etc).

4.  What are the Ongoing Management Fees? 

This is crucial.  The more active the fund (ie Share based funds) the higher the fee.  If you are thinking of investing in a balanced or index based fund the ongoing fees should be minimal as they are not actively managed by the Financial Adviser.  The Fund Manager does all of the managing and therefore the Management Expense Ratio (MER) should cover all of the management fees.  A financial Adviser cannot rebalance or optimise a generic fund.  Therefore, you have to ask the Adviser what the fee is for.  How does the Financial Adviser justify it? Make sure that you dig deeper to establish what sort of management you will get (i.e. rebalancing, optimisation, blending, reviews and switching of funds). We have found from our research that Advisers charge anything from 0-5% for Ongoing Management.

5.  What Portfolio Administration fees are applicable? 

You will find that a good Financial Adviser will use online software to support their management and reporting.  This can also be accessed online by you, the client so that you can also monitor the performance at you leisure.  We have found that this can range from 0.4 to 1.1%.

6.  Do they use an Administration Platform for investing? 

Try to find out why they use a particular Administration platform.  We have found that many Financial Planners use a brand of platform because a large financial institution (Bank) owns them and therefore it is mandatory).  It is usually better to find a planner that uses an Administration platform because it is better for their client, rather than them.  Always ensure what type of Administration Platform is used by the Financial Adviser (ie a Master Trust or WRAP account)?  This is paramount.  They seem very similar on the surface but they are in fact very different.

·          If the Financial Adviser uses a Master Trust, and in the future you decide to leave them (for whatever reason), you will have to redeem all investments and could end up paying Capital Gains Tax (CGT).

·          If the Financial Adviser uses a WRAP account, and in the future you decide to leave them (for whatever reason), you will not have to redeem all investments.  Instead you can simply appoint a new adviser to take on the management.

We only use WRAP accounts so that our clients do not feel locked in. They simply stay with us because they are happy with our management.

Please be aware that when you meet with a Financial Adviser all their associated fees will be (or should be) disclosed very clearly in their Financial Services Guide (FSG).  This should be handed to you when you first meet with them.  

7.  Are they owned or controlled by a Bank or Fund Manager?

Many financial planning firms are majority owned or controlled by a bank, fund manager or large financial institution. This often means that the parent companies products must be recommended to clients. Ask if your adviser is controlled and told where your money must be invested.  

Other Areas of Interest

   Fees and Charges

   Our Fees Compared

   Frequently Asked Questions