What to expect when you go looking for financial advice
What to expect when you go looking for financial advice
This is a response to a rather distressing letter about financial advice. Hopefully it helps you better understand advice, choose an adviser that's right for you and understand their fees.
In this edition - it’s a big one so take your time!
Feature - What to expect when you go looking for financial advice
From Bec’s Desk - Our new course dates have been released.
The Prime Time podcast - The ESSENTIALS of a modern retirement plan
What to expect when you go looking for financial advice
I got this distressing letter this week from Sally. It’s probably about the tenth letter this month that I have received about financial advice and financial advisers. So today I’m going to dive in and start a conversation about what to expect from financial advice right now. Last year I said I was going to write an eguide on the topic of getting financial advice, then the government announced one week later that they were going to change the whole structure of the financial advice sector, so that’s on hold for now. I will write one, but only once the dust settles on the new regime, which is still stuck on the path through parliament. In the meantime, I’m going to take it one topic at a time.
But first, the letter behind today’s newsletter…
Hi Bec,
Is it weird for me to think that you are my friend and you don't even know me? It's just that you and I spend a lot of time driving around chatting.. admittedly I don't tend to say much and I let you do all the talking.
Jokes aside, I wanted to drop you a note to say that I love your Prime Time podcast -- discovered after reading How to Have an Epic Retirement. I'm in my mid 50s and your book has really changed my perspective on my future from one of "aiyahhh, I can't keep up with the current pace, but I've still got a lot to do and give" to one of "springiness" (I know there's no such word - but it feels right). I'm even considering more study at my age AND realising that it is NOT a waste. When I hear folks like Bernard Salt explain the ageing demographics and Spencer Howsen open up about his financial goals for retirement, it's like a secret is out and there's a running track that will guide me to the so-called finish line.
I'm only about half way through the podcasts, but I'd love to get some thoughts from experts on how to select a financial advisor. I'm in the muck of finding one right now. One recommended firm has not been able to articulate what I will get in return for their fees. And, at $5500 for fees, that feels like I'm gambling rather than investing.
What's the average one should pay for such advice? Do you go for one-off fee? On-going annual fee? etc… When I go to my accountant and pay funds, I get a tax return done in return. When I go to a doctor, she solves a health problem. What do I get here? It's so unchartered for me. Would love some ideas.
best, Sally
This week, I want to talk about what to expect when you go looking for financial advice.
You are oh so right Sally! It’s confusing and difficult to work out what is going on in the financial advice sector and where to go, and what service you’ll get. And that’s because it is going through an extraordinary transformation right now, from being a ‘product selling’ service, which got shut down with the Hayne enquiry when they could no longer take commissions on financial products, to becoming a professional service, which ultimately usually charges for the expertise and time of the people providing it. And that’s a bloody hard transition to make as an industry.
When you go to the doctor, you go with one or two specific complaints, and you get 15 minutes of their time for about eighty bucks, and hopefully, in that time they offer you some type of solution to one problem. If you have two problems, they make you take a ‘long appointment’ and they charge you 180 bucks for 30 minutes. Then, you leave, pay for the time used, and the doctor moves onto their next patient. It’s a predictable business model that we’ve all learned how to access over a very long time. It’s transactional but your doctor ultimately builds up knowledge of you too.
Accounting is a little more complicated, but if you have an accountant, you know how much you are willing to spend to get your tax return done based on the number of hours they provide services for, or the amount of pain they take away for you. You know to call an accountant to set up a company, or a trust, to guide you on ‘tax strategy’, help with your BAS too, and you know ultimately you’ll save or make money by doing so. And if they get too expensive, you switch.
Financial advisers are on the back foot, because we don’t know how to buy what they are offering right now, and no one is taking a clear lead in telling us what to ask for or making the pricing very transparent. So it looks scary to many people. Not all advisers are good at explaining their value in simple terms either. Today I’m going to try to make it clearer. Advisers basically provide three different services, in a whole lot of different ways.
Super fund financial advice
This is the type of advice that your superannuation fund provides to review how your superannuation is invested. You can usually make an appointment with their advisers to evaluate your risk appetite and re-consider where your superannuation is invested.
Most superannuation funds will also provide you with retirement planning services, projecting how your superannuation could grow over the years ahead for each investment type suggested. If you don’t want them to dive into assets outside super in much detail, they can also help you plan for retirement and how you could use the age pension and your superannuation to generate income, and how much you can expect to safely draw down from each. The scope of superfund advice is under review. We all expect super funds to be able to offer more comprehensive advice in the years to come, but they can’t YET.
Single issue financial advice
Single issue advice is where you approach an independent financial adviser with a very specific issue, looking for one off independent advice on how to navigate it. (Super fund advice can be single issue but it often can’t take in your wider financial situation). It might be that you are about to receive an inheritance, and want to understand the most effective way to utilise it in building your future financial security; or you might want to have someone review how your household’s superannuation is invested.
Quite frankly, not all independent financial advisers like to provide single issue based advice and there’s a big reason why. They basically have to do just as much work as they would to provide you with comprehensive advice but you only pay them for a one-off hit of information. And you want to pay less, despite the amount of work involved. They figure their time is best spent getting to know clients who want to work with them, over a longer period of time.
The reality is that the legislation currently requires that advisers conduct a thorough and detailed discovery called a ‘know your client assessment” or KYC before they provide any kind of advice. And they have to document the advice process too, including their information gathering, your objectives, the advisers’ recommendations and the rationale behind them.
As I mentioned, the government is currently in the process of changing the legislation to enable banks, superfunds and financial advisors to provide single issue advice without the burdensome detailed discovery process. And, they are proposing a new tier of financial adviser be legislated into the system to provide this. So watch this space.
Comprehensive financial advice
This is where a financial adviser takes a holistic approach to your financial situation. They delve deep into your current financial position in great detail, and get to know your financial goals, circumstances, and risk tolerance to develop a tailored financial plan that helps you get where you want to go.
And the hardest part for most people is knowing what their financial goals are when they walk in the door. Because we aren’t actually taught much about this stuff and don’t know what to ask for.
We all need to bear in mind that every person approaching an adviser likely has different needs and wants. Sure, they might be built on the same basic foundations, much like seeing a GP is, but the problems you need solved are unique to you, and you need to take in the varying levels of financial hygiene people operate in before they get advice.
So when you walk in the door you might have some idea of what you want, but you might want to get clearer before you walk in on why you’re going, too.
Common reasons people see an adviser are usually one of a few things:
They want an adviser to help them focus on retirement at a point of time in the future, teaching them how they can save and invest for this window of life and usually they want to set the timer on when it will be possible. As a part of this process they want someone to understand their current financial position and draw projections on how to get them to an ideal future state, which, let’s face it, has to be mapped and agreed together if it’s going to be achieved. Then they want a view of what their ‘retirement income’ might look like when they get there too - more projections. Then, they want advice on investments too… see below.
Something happens in your life that changes everything and you need to reconsider your situation - your debt, your investments, your home and your income needs. This could be a death in the family, an inheritance, a divorce, the purchase of a new home (downsizing or upsizing), or another significant life event. And you see an adviser to help you navigate the things you should do, and guide you through the big decisions ahead. This is bigger than single issue advice, simply because many of these issues change EVERYTHING.
They want an adviser to look at their current financial situation and tell them how to get ‘on track’ for good financial health - regardless of their future retirement goals or timing. That usually means they want the adviser to help them learn to save more, use the right tax structures, and guide them on risk appropriate debt and investment strategies to have that money compound effectively over the long term.
They want someone to get to know their goals and ‘manage’ their investments so they don’t have to be hands-on. This is a tactical and ongoing process where the adviser, after developing a strategy with the client as mentioned above, then makes recommendations on where to invest, and places and manages those investments, reviewing them periodically to determine whether they are the best investments for the economic times ahead. They may also provide the investment platform and managed investing services in addition to their advice, from their company or a related company.
They want to manage the risks in their life and put themselves on a path for success. Early in our working lives, usually when we take on our first mortgage, and have a few kids that rely on us, we head off to a financial adviser to understand whether we have enough life insurance, total and permanent disablement insurance and trauma insurance. We fear something happening to us that will leave our families unable to manage, so we insure for it. As our salaries get bigger, our mortgages get smaller, and our children become independent, the amount of risk we carry might change, causing us to review our insurance needs.
We’re going to discuss the cost of advice in a minute. But before we do, I want you to think about some of the things an adviser has to work through before they can provide you with meaningful advice:
They need to understand how much you earn, and what tax you pay, what you have in assets and liabilities.
They need to understand what you spend every year, and whether that is generating any savings or surplus that can be put to use in building wealth. And, they might be able to guide you to have a better understanding of your spending and how you could generate savings more effectively.
They need to contemplate where those savings will best be deployed, considering whether to pay down debt or build up assets, and in doing this they consider the most tax effective ways of saving.
They evaluate your risk profile, and review where and how your money is invested, and whether it is getting a satisfactory return based on your own personal goals and ambitions, when compared to other options.
They need to explore what you want in the future, even if you can’t quite see it yet and try to set some markers with you of what success looks like so they can build a plan you can understand.
And, they need to understand your appetite for protecting yourself - AKA, how much you want to be insured for your death, or how much you could get in the case of your worst nightmare - that you could never work again and needed long term healthcare.
And only then, can they start building the plan and the actions you need to take to implement it. Then, once the plan is written, there’s a whole new job to be done in holding your hand on the road ahead as you implement it yourself, or managing your assets and ongoing strategy for you as the world twists and turns around you. It’s worth appreciating that a good adviser can guide you on ways to make clever tax savings, tax structuring and tax effective investment. They can help you understand how the age pension fits into your picture, and support you in making choices you might not even know exist. The value of that differs for everyone.
How do financial advisers charge and what do you get for your money?
First up I want to point out that the superannuation advice option is provided by funds as a part of your ongoing fees. That makes it look like it’s free. In reality, it is part of what you are paying 0.6-1.5% in superannuation management fees for. So if you aren’t using it regularly, you’re missing out on something you already pay for. Most funds don’t limit the number of times you can access it either, so don’t be afraid. They may charge for specific retirement services. Ask - they’ll tell you.
Next, let’s talk about the cost of independent advice. This is a lot harder to explain.
Every single financial adviser I know offers the first meeting for free. That meeting allows them to do a fact find, understanding what your problems are, and what you are trying to achieve. Then, the adviser will provide you with a proposal. They CAN’T give you advice until after you sign that proposal. When you read this proposal I want you to look for two things:
The advice fee - which is the upfront cost you are expected to pay for the deep dive into your financial situation, and the preparation of a detailed statement of advice. This is usually built out based on how the company classifies your complexity, that is, the company will have an internal classification system something like this:
Simple advice - This is some kind of single issue advice or advice on a not-very-complex financial situation that needs mapping out. You could expect to pay $1,500-$3,000 for this type of advice upfront.
Complex advice - This is the most common type of advice for people who have a significant life event and need to reconsider the impacts, if they don’t have complex investments and structures. This advice would usually cost between $3,000 and $5,000.
Comprehensive advice - This is deeply comprehensive advice that dives right into all facets of your more complex finances, your goals and your future timing. And you should expect to pay $5000-$10,000 depending on the complexity of advice and the expertise of your adviser.
Some advisers, not all, will offer the upfront advice for free if you take up an ongoing advice service, which, as you’ll see below, could end up costing you somewhere between 1.5% to 3.5% of funds under management.
Ongoing or future costs - You need to consider the reality that taking independent advice usually means you are looking to undertake independently guided investing and if you do, there will be ongoing costs. Ongoing costs are usually broken down into three areas:
Ongoing advice fees - where the adviser manages and oversees your investments, monitoring your situation and adjusting your strategy over time. Bear in mind that this doesn’t always include investment management fees. This fee could be expected to be somewhere around 1-1.5% of funds under management.
Platform fees - the cost of the platform you are investing through, which might be platforms like HUB24, AMP North, BT Panorama or Macquarie Wrap. This fee can often be in the league of 0.5% of funds under management.
Funds management fees - the costs being charged for the management of funds invested into ‘managed investments’ by an internal or external funds management team, if that is how your chosen advice firm does things. This could be in the league of 1-1.5% of funds under management at the extreme end, depending on how they do things. These costs should be detailed in your initial proposal, and will be in your statement of advice, but they might not be in very large print and you might not know what they mean. There are ways of minimising these costs, by looking for the types of advisers that guide your investment into lower-cost investment options like ETFs. However you need to be aware of, have an appetite for, and ask about this.
So how do you choose an adviser? That’s for another day. One thing I will say is you need to know why you’re getting advice before you rock up at the door, so you appreciate and get the value you are paying for.
I will declare openly - My husband and I get financial advice on an ongoing basis. Our adviser waived the upfront fee when we signed up for that service. We invest quite simply for the long term with advice in low cost ETFs and equities through a platform. There’s plenty of good advisers out there. It’s up to you to find them and work out the value they can offer you.
Sally, I hope that helps!
I have really BIG NEWS. The ‘How to Have an Epic Retirement Six Week Flagship Course’ is back! We have two new course dates that have just launched for the months ahead. And 25% off one early bird discount - for a limited time!
WINTER EDITION - 6th June - 17th July 2024
SPRING EDITION - 8th August - 18th September 2024
Both programs are identical. So it’s just the dates that differ. They include:
8.5 hours of education delivered in 14 modules (100 short punchy videos that are easy to absorb)
A NEW exclusive 100+ page digital workbook, which my publisher Hachette is preparing with me right now - ready for these new programs.
6 Live Q&A sessions with some of the industry’s most esteemed leaders. These experts got RAVE reviews last time. (See more in our brochure)
One community group coaching session to work through finding our purpose with others facing it alongside you with Bec Wilson as your guide.
An online community and the ability to do the program with a synchronous cohort, so you can learn from their questions as well as your own.
A signed copy of How to Have an Epic Retirement - the book
And, I’m offering a 25% early bird discount for a limited time, because I want everyone to come! Also, it helps me to know how many books to order - so help a girl out and book early! 😆
Our Autumn edition was a RAGING success. I’ve included a couple of testimonials below. They bring tears to my eyes. There’s more in the brochure!
You can download a brochure and book your place here.
“I would recommend the course to anyone who has ever wondered whether they really know what a truly fulfilling retirement looks like, or could be. Thanks to what I learned over the six weeks I'm now looking forward to my own retirement with confidence and a sense of excitement that simply wasn't there pre-course.” Maryanne
“If you want to prepare for an epic retirement this is the course to explore all your options. It gets you thinking and planning on your different stages of your prime time in an extremely informative way. It makes you think about the fun stuff as well as the tough stuff in a positive way. I highly recommend this course and am now primed and looking forward to my epic retirement.” Sarah
“I found the course invaluable, the overall content was excellent covering many relevant topics for the new stage in our life to be truly epic! We have the tools and so much more knowledge which combined with your book we're on our way to the fantastic years ahead. I would highly recommend both the course and the book.” Leigh
“Great course. Great content. I found it very helpful to think about the various facets of retirement that have been raised.” Tom
“I would highly recommend the Epic Retirement course to everyone planning to retire in the future, as well as those that have already retired. The information provided was exceptional, as was all of the speakers.” Susan
“It has been absolutely brilliant. I was hesitant to sign up - no clue why - but I am so glad I did.” Sue
That’s humbling huh! Huge thanks to our special guests in the AUTUMN EDITION which is now finished; and to the more than 250+ people who attended too!
I can’t wait to host the next ones. I’ve found my true sense of purpose in this! Have a great week - make it epic!
Many thanks! Bec Wilson
Author, podcast host, columnist, retirement educator, and guest speaker
In case you haven’t got a copy yet - you can buy How to Have an Epic Retirement, the book on Amazon and Booktopia and in many of the major bookstores.
When you think about what goes into your retirement plan, you might start with a long list of financial items, and stop at your superannuation. But there’s so much more to think about than that if you want to have an EPIC retirement.
This week, I’m joined by Peter "Grubby" Stubbs, a seasoned radio personality and a vibrant advocate for living life to the fullest. Together, we're diving into the essentials of a modern retirement plan, breaking down everything from when to retire, how to plan for your desired lifestyle, managing your finances effectively, and why it's never too early to start preparing. And boy does Grubby make it a fun and relatable conversation.
