My last two posts – about what financial advice can cost, and how you can pay for it – went into a fair bit of detail about what goes into providing financial advice in Australia, and the many options you have for paying your financial planner.
In this – the third, and last post – I want to explore how much advice can cost, what you might get for that cost – and the immense value it can bring.
So, How Much Does It Cost?
This is the key question, isn’t it! And the short answer is – I have no idea what the fee will be.
Not now.
Not yet.
Not until I’ve spent some time to get to know you and what kind of work you’re looking for.
And not until I know what kind of work you’re actually going to need to get where you want to go.
Each situation – each adviser, and each person – is different, so the cost will vary widely.
Yeah, OK, But – How MUCH?
Seriously, I can’t say. I definitely can’t get specific about it.
What you need is going to be entirely different to what the person next to you might need.
It’s like hiring an architect – there’s no fixed dollar fee that applies to every client. Each situation is different.
This Is Why They Say Financial Advisers Can’t Be Trusted…
Ok, well, look, here are some ideas that I’ve seen in my years of practice. These aren’t concrete facts, mind you, think of them more as approximate guidance of what can be found out there.
There will be significant variance when you’re speaking with other advisers.
1. Initial Advice
When you first decide to work with an adviser, expect to pay them at least $3,500 in the first year of working together.
Of course, the actual fee is a function of their business costs, pricing model and the services they’re going to deliver, as well as the complexity in achieving your personal financial goals.
For really complex situations with a high degree of difficulty, expect to pay at least $10,000 in the first year – with the top end of that figure being impossible to know.
2. Ongoing Advice
This is even harder to predict. Again, it depends on what you’re looking for from an adviser.
Given the obligations in place for advisers now, expect to pay at least $3,500 a year for ongoing service and advice.
Anything below that is either an extremely efficient business, or one unconcerned with profits (or cutting corners somewhere…).
For a relatively intensive relationship – regular meetings, your adviser on-call, frequent changes, modifications or advice discussions – expect this to be more than $10,000 a year.
3. Ad hoc or Hourly Work
What’s a reasonable hourly rate for an adviser?
Anything below $220 an hour doesn’t really reflect the cost structure, including the ‘lingering liability’, in advice these days.
And I’ve seen some advisers hourly rates sit above $550 an hour.
What Do I Get For My Money?
The simple answer here is that you’re paying for certainty.
You’re paying for the knowledge that you have a third-party, with deep expertise in the financial world, reviewing your situation and keeping you on the path towards the life you want to live.
Somebody who helps you make consistently better decisions than you might make on your own, with less stress and angst than you get worrying about them yourself.
You have somebody helping you with the behavioural parts of money to make sure you keep on the path towards what you want, without the distractions or diversions which knock so many off track.
And you’re paying for:
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advice that’s required, legally, to be in your best interests (advisers have two distinct and powerful duties to act in your best interests at all times);
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licensing and regulation (there are four different avenues for complaints resolution, each with significant powers of remediation and restitution) and;
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education (advisers will be required to have a bachelor’s degree or equivalent).
In other words – you’re paying for a safe pair of hands to keep you on the (financial) straight and narrow.
I Need Value that I Can Measure!
Unfortunately, the real value of an adviser lies in the qualitative intangibles I’ve outlined above.
But.
I’ve found it can help to outline the ins and outs of the advisory process to give you an idea of what’s involved.
1. Initial introduction
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First phone conversation
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Back-and-forth emails to lock in details and a meeting time.
2. First Meeting
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Get to know each other meeting
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Some data collection, but primarily about getting to know you and how an adviser might be able to help
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Internal debrief and discussion after meeting.
3. Scoping Work
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Some Discovery research and investigation
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Detailed review of your needs, adviser capabilities and the work required
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Preparation of a detailed proposal and quote
4. Scoping Meeting
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Detailed discussion with your adviser around what they think you need to help you achieve your goals.
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Back-and-forth to finalise the scope of the work being requested.
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Detailed Discovery and Investigation commences.
5. Discovery Work
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Full Discovery and Investigation process.
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Data verification and entry completed.
6. Strategy Work
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Your adviser and their team will now work through the specifics of the advice.
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They apply their knowledge, experience and research to draft a strategy that fits you and your requirements.
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If products required, they’ll select products suitable for your needs.
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All advice drafted in a formal, legally binding, advice document.
7. Presentation Meeting
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Your adviser will take you through the specifics of their advice.
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This will include:
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Their understanding of you and your specific circumstances
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Their detailed recommendations
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Some alternatives – and why they were discounted
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The pros, cons and trade-offs of the advice
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The costs involved with the advice – now and on an ongoing basis
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Disclosure documentation for any recommended products
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The impact of the advice, specifically how it’ll help you achieve your objectives.
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We generally leave it there and arrange another meeting to talk action plans.
8. Action Meeting
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Your adviser will take you through the actions required to execute their recommendations.
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If your adviser is assisting on this, the required paperwork (of which there is sure to be plenty) will be completed and signed.
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If they’re not assisting, they’ll give you an outline of what’s required.
There are other steps that follow – a Completion Meeting, Review Services, etc – but they’re different for each client and practice, so I’ll draw the line there.
Looking at this rough outline, you can see why the hourly charging method makes it easy to calculate the fee.
There are around 20 hours of adviser time in this structure, and probably the same for their team.
Hours multiplied by rate equals fee.
But, as with so much, ‘simple’ does not equal ‘right’.
It Really Is So Much More Than That
I hope that – after everything we’ve outlined so far – it’s clear that the actual cost of the advice is influenced by so much more than the hours of work involved.
And this is before we even start talking about the difference between the cost and the immense value great financial advice can provide.
“Price is What You Pay, Value is What You Get”
This Warren Buffett quote is a really good encapsulation of what we mean when we’re talking the difference between ‘cost’ and ‘value’.
After all, value is what you’re really getting for the money you invest in the process.
And where you perceive that the value you’re receiving is less than the fee you’re paying, it doesn’t really matter how you pay for it – it’s not worth it.
This idea of value should be key to your decision about whether or not to engage a financial adviser. It is, in other words, the real answer to the question that started this whole series:
Is it worth paying for a financial adviser?
Because, yes, it absolutely is.
IF there is value in you doing so.
And this opens up a whole basket of things for you to consider. These questions can’t be answered by your adviser.
We can detail the value we perceive in the work we do – taking into account the myriad costs and requirements of the work, the services we believe you require, plus the actual benefits that you would receive and we can calculate.
But it’s up to you where the value is. (Incidentally, this is why we’re so transparent in these discussions, so that you’re making informed decisions about this).
Questions You Should Ask Before Seeking Advice
So it’s up to you to answer these questions – ideally, before you start seeking out advice.
How do you value progress towards your goals?
How do you value certainty?
How do you value peace of mind?
How do you value not laying in bed at night worrying about your money because you’ve got somebody taking care of it for you?
How do you value increasing the chances of achieving your financial goals?
How do you value actively designing your financial future, rather than reactively experiencing it?
And, some questions we’ve worked to answer at PlanningSolo – how do you value rebuilding confidence in yourself after your divorce?
How do you value taking back control of your life after separation?
How do you value feeling in control of your money?
How do you value having somebody you trust help you remove the financial fog?
These are big questions and, again, questions we can’t really answer for you.
We’re heading into new territory here – with things like personal priorities, objectives, values and beliefs within its borders.
And that’s well beyond a blog series about the costs of financial advice.
As always – any questions, just let me know.
Thanks for reading!
