Paying First Class Prices for Economy Service?

We often come across clients that are paying large ongoing fees for advice on their superannuation and investment portfolios. These fees may be upwards of $10,000 per year in some cases, and are usually justified by an approach used by banks and larger firms which is becoming more and more outdated in the Financial Planning industry – percentage based fees.

**Sally Patten of AFR Boss Magazine said it clearly: “…if you don’t understand the percentage game, you won’t know how [institutions] are making a fortune out of your fortune”.**

You could be paying for First Class but receiving Economy service!

Some firms call this an ‘asset-based fee’ or a ‘trail’, and it is a percentage based on the total value of the assets in your portfolio. Therefore if your portfolio is $1m, your 1% fee may be $10,000 pa. On a $2m portfolio, this 1% may be scaled back in a tiered structure, for example to 0.7%, so $14,000 pa.

This pricing model ignores the complexity of your requirements, and solely focuses on the portfolio size – as if to suggest that the more you have, the more work your portfolio needs – it also suggests that you can simply afford to pay more! But why is managing a $2m portfolio so much more work than a $1m portfolio? For most investors, this is simply not the case…it’s a range of factors, based on your needs, which should determine the price you pay for ongoing advice.

The solution to how much you should be paying for ongoing portfolio management lies in the detail – the type of strategies being implemented over time, and the complexity of those strategies. At JustInvest, we offer ongoing pricing levels which are based on flat fees (subject to CPI). Pricing your ongoing advice fees is simply a matter of matching your advice requirements to a flat fee level, based on complexity, scale and services required. This flat fee can then be modified over time, as your needs change.

We believe that the most important purpose of seeking Financial Planning advice should be to assist you to reach your financial goals. At JustInvest we offer you full transparency about the advice areas that we can assist with, the fees that you can expect to pay, and the outcomes that you can expect to receive. Your key goals may include optimising your financial structures for tax effectiveness, investing in line with your ethics, or finding the appropriate risk/return profile for your current situation.

At JustInvest we believe that your Financial Planner should be your trusted Adviser who can assist you to deal with life events as they arise, whether they be good or bad. This trust is developed over a number of years. Many clients of banks and large firms report dealing with a steady flow of new Advisers, which makes it difficult to build a trusted relationship – especially if you need to ‘reset’ the relationship at each review. In addition, when seeking advice from a large institution, you are paying for their large overheads, including support staff, elaborate offices, advertising and other ‘corporate’ expenses.

Don’t get taken in by firms that tell you that you ‘qualify’ for certain investments, or that promise a new strategy or product which delivers ‘better’ returns than everyone else – it’s likely to be riskier! If your Adviser can’t explain the strategy or product to you in plain language, then be very careful – many complex products came unstuck in the global financial crisis. In addition, be especially careful of Property spruikers, including buying ‘off the plan’, which is often high risk.

When choosing a Financial Planner, we recommend that you do your research and use a ‘Checklist’ approach – the Barefoot Investor has some tips (barefootinvestor.com) and MoneySmart has useful information:

https://www.moneysmart.gov.au/investing/financial-advice/choosing-a-financial-adviser