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Financial planner fees

Discussion in 'Financial Planning' started by shake-the-disease, 31st Oct, 2006.

  1. shake-the-disease

    shake-the-disease Well-Known Member

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    There is an inherrant conflict of interest in any FPs (not just Navra) recommending any MFs where they receive any sort of trail or entry fees.

    There is an even greater conflict of interest for any FPs (not just Navra) recommending any MFs that are managed by their employer or related entity.

    I personally would not pay for such advice for the former, and I'd expect to be paid for my time to listen to the advert in the latter scenario. :p But then I have been burned not once, but twice, by FPs.....
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    It's a bit of a "damned-if-you-do, damned-if-you-don't" problem for FPs ... if you don't charge a fixed fee for advice, but rather, get your income from trailing commissions, you are deemed to have a conflict of interest. If you do charge a fixed fee for advice, you are deemed to be overcharging.

    In general, I hear a lot of people complaining (not just here) about how bad the FP industry is, but not a lot of suggestions on how to improve it.

    I personally don't have any complaints or suggestions, but then, I don't use a FP at this point in time either :D
     
  3. shake-the-disease

    shake-the-disease Well-Known Member

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    Alan Kohler has some excellent ideas. Separate advice from sales, advisors charge on a fee for service basis and do not sell product and do not receive commissions of any kind, sales don't advise and are called financial brokers rather than planners and they do receive the commissions.
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I agree that this is a sensible way to proceed on the surface, however, fee for service is a tricky thing.

    How do you justify your money ?

    How do you know if someone is worth the fee ? You won't until you get your returns, possibly years down the track.

    Should fees be performance based instead ? But how would that work ? And then where's the upside for the planners if they take on this risk without the reward of at least a trailing commission ?

    You need to be careful to separate out the advice and the administration aspects ... there are companies now offering "portfolio" and "financial administration" services who don't offer advice ... and I think this is a good thing - they just make the administration of investments easier ... something many advisors charge a lot of money for without real justification.

    So if we get back to the point of advisors just giving advice - and getting paid for it ... how do you justify what they get paid ?

    If it were a "degree qualified professional" type requirement similar to accountants and lawyers, with a high enough standard of education required to gain the respect of the community, then I think they can justify fee-for-service.

    As a general rule, if you are charging a fee for your service, that service must actually be worth something ... and many of the financial plans I see being written now are nothing more than a "here's what I hope will work ... good luck !!"

    I don't think fee-for-service on its own is enough to fix the problem - it introduces too many new problems.
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    (PS. I split these posts into a new thread to discuss financial planning fees in a more general context)
     
  6. shake-the-disease

    shake-the-disease Well-Known Member

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    Sim, I don't see it as that hard to be honest. People get advice from all kinds of people on a fee for service basis ; clairvoyants, reflexologists, chinese medicine practioners, and even lawyers :p .

    If it becomes too expensive then so be it. At least those people will know they are swimming with the sharks when they skip the too-expensive advice part and go straight to the brokers. At the moment they have no idea.
     
  7. hiflo

    hiflo Well-Known Member

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    Financial Planners

    I find that in complex world of finance Financial Planners are needed. The problem is that there is a conflict of interest between the financial planning company and the clients. Not all clients want same outcome with same risks.

    I've seen a few financial planners (free ones of course) to get an insight into what I should do with my income and assets and they were nothing but sales people (no offence to saleman though).

    But with my current standing spending 1-2% of my net assets for a plan is too expensive and I may not like it for some particular reason as I am looking for a property at the moment, for gearing benefits. But at the moment I am considering of seeing Navra because of the feedback that I am getting from this forum and from InvestEd night. It may be $1,100 well spent if I can get an insight into something that I am not aware of.

    Some people say financial planners are not needed and in some cases I can see that point. But when tax and superannuation rules are so complex as it is, you have to see a financial planner who knows more finer details to minimise tax and to increase your earnings.


    What is really important in our age(?) is that we understand how finance works and that we development an insight and judgment as to how good the plan stacks upto- which is also difficult to do but something that we have to do if we want to become wealthy.
     
  8. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I think the biggest problem (as hiflo mentioned) is the vast range of different needs and expectations that the average consumer has when it comes to seeking financial advice.

    Some just want some help setting up a simple investment, others want a more comprehensive plan, others still want to get rich quick.

    Some are just looking for a couple of pointers, others want all the answers.

    The same style of service and the same fee structure won't necessarily serve each of these different needs and expectations.

    ... but at the end of the day I feel that education is the most powerful service we can offer - hence one of the reasons we started InvestEd.

    If we as a community here can empower people to judge the advice they are receiving from their advisors with a more critical eye and understand the implications of the advice they are given ... then I feel we have achieved a lot.
     
  9. Nigel Ward

    Nigel Ward Team InvestEd

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    Shake

    I see your point, but what I think would be a tragedy is for those people who aren't financially savvy to go without advice because the only option was financial planners who charged hourly rates.

    Ironically it's probably those people who aren't financially literate who would be most likely to refuse to pay $300-$600 per hour to access good advice when they're the ones who most need it.

    Personal risk insurance is a prime example of this. Ask most people to pay a couple of grand to be assisted through the medical underwriting process to get income protection, life and trauma insurance and they'd tell you where to go. But get them to basically pay that same fee over the life of their insurance contract through higher monthly premiums (which then pay the trails to planners) and they're more likely to agree.

    Just my thoughts. Sure it's an imperfect system, but it does help some people get advice.

    Cheers
    N.
     
  10. shake-the-disease

    shake-the-disease Well-Known Member

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    What about a government rebate on a visit to a true financial advisor (not a FP) every 5 or 10 years? At the very least at age 55 or 60??
     
  11. shake-the-disease

    shake-the-disease Well-Known Member

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    Nigel, under todays system they get a sales pitch, not impartial advice. Unfortunately it's a sales pitch dressed up as impartial advice. At least under the Alan Kohler proposed system, if they skip the FA step and go straight to the FB, then they know who they are dealing with.
     
  12. TryHard

    TryHard Well-Known Member

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    A bit more than a decade ago I was one of the great unwashed baulking at spending a couple of hundred bucks per hour for quality advice. Instead I went for the easy options and a financial planner who was lauded by workmates as 'free' and had me as a young 'un (actually it was nearly 20 years ago now I think about it :( ) sacrificing a stupid amount of salary into an income fund that paid her a motza in commission (which I never saw out till maturity).

    There are plenty of dodgy people around in every profession. I am sure there are some great FP's out there, just like there are some great car salesmen, re agents, nurses, and footballers. Probably a little unfair to tar a whole profession with one brush, even if some professions have their greater share of shonks than others.

    I think the quality of professional you encounter relates a lot to the company you keep - 80% of the population will probably only ever meet the bottom-feeders of the Financial Planning industry. I agree with Sim's point - InvestEd lets people critically look at what they're doing and what people are telling them - and is a great sounding board. It helps change the 'financial' company you keep, and change the way you think.

    I think the major achievement is to realise you need a financial PLAN, whether or not you use a PLANNER to arrive at it. Some people would be unable to do so without a planner, and a broker isn't much use to someone who doesn't know what it is they're asking the broker for :p

    If the professional charging the fee can show runs on the board and justify their fee, it doesn't matter what the fee is ... its good value if it contributes positively to your plan.

    I totally agree an FP should declare all interests in any vehicle they recommend and more importantly outline the risks and performance versus alternatives. It seems pretty apparent the industry isn't properly regulated. But then the car salesman should mention the poor crash test rating of the vehicle they're selling, the real estate agent should mention the quarry planned up the road from the house they're selling, the footballer should pre-warn 'after 15 beers I turn into an even bigger idiot', and the nurse should let patients know the rubber glove might not be pleasant. Unfortunately where human nature is concerned, its a jungle out there :rolleyes:
     
  13. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Could not have said it better myself ... very well done.
     
  14. Alan

    Alan Well-Known Member

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    Slightly off topic here, but FP related.........

    Can anyone direct me to a typical set of questions that Financial Planners use to provide the initial 'Risk Tolerance Assessment' and resultant Model Portfolios? Would obviously vary from FP to FP but I'd be really interested to see some examples.

    You know the sort of thing........based on your answers to these questions, you have a Category 3 Risk Assessment and therefore your typical portfolio at this stage should be X% Cash, Y% Equites , Z% Property etc.

    Thanks.