Financial advice costs
Paying for financial advice
It's important to understand how your adviser will be paid
before you engage them, and before you agree to implement any
recommendations.
Here we outline some of the fees you may be charged when getting
financial advice, your payment options and what to do if you're not
happy with the fees you've been charged.
The first meeting with a
financial adviser
The first meeting with an adviser is often free. During this
meeting, you and the adviser will discuss your advice needs and the
adviser can explain how they can help you.
The adviser will also explain how they charge and give you an
estimate the cost of the advice so you can decide whether you want
to proceed. Costs should be outlined in dollars, not just as a
percentage of the amount you have to invest.
Smart tip
Did you know you can negotiate the fees you'll pay your
adviser?
Simple advice on a single issue, such as choosing an investment
or consolidating your super, should cost less than comprehensive
advice that takes into account your goals and personal
circumstances. See types of financial advice for
more information.
Advice costs can vary significantly from one adviser to the
next. Some advisers charge flat dollar fees (also known as 'fee for
service'), while others charge fees based on a percentage of your
investments. Some charge a combination of both, for example an
adviser may charge a flat dollar fee for preparing a Statement of Advice (SOA) but ongoing
advice fees based on a percentage of your investments.
Statement of Advice (SOA) fee
If you decide to continue working with the adviser, they will
prepare an SOA that will formally document their advice. It will
include their understanding of your current personal circumstances
and financial goals, recommended strategies to achieve your goals,
and details of any financial products they recommend.
The cost for preparing the SOA will be billed to you or may be
deducted, with your permission, from the balance of your
investment.
If you receive advice about insurance, you may not have to pay
for the SOA if the adviser receives commissions from the insurance
company.
If you decide not to proceed with the adviser's recommendations,
you will generally still be expected to pay for the preparation of
the SOA.
Fee for
implementing financial advice
If you decide to accept the adviser's recommendations, there may
be a fee to cover the administration work involved with
implementing the advice. The amount charged should reflect the
complexity of the recommendations and the amount of work required.
You may be able to negotiate this fee with your adviser.
You may be offered a choice of paying upfront or having the cost
deducted from your investment.
Important: Never write cheques payable to your adviser
Never write cheques payable to your adviser if the money
will be used for investments. Make the cheque payable to the
product provider instead.
Ongoing financial advice
fees
If you've agreed to receive ongoing advice, it's important to
understand what your ongoing advice fee covers.
Services may include:
- regular reviews with your financial adviser
- regular reports on your investment portfolio
- phone or email access to your adviser or an associate
- newsletters and seminar invitations.
The adviser may offer different levels of ongoing service which
will determine the ongoing cost and the amount of contact you can
have with your adviser.
If your adviser charges a percentage-based fee, make sure you
know what this is - in dollar terms - as a percentage fee may look
much smaller than the actual dollar amount.
Annual fee disclosure statements
If you've agreed to ongoing advice, you will receive an annual
fee disclosure statement that outlines the fees you paid, the
services you received, and the services you were entitled to
receive for the previous 12 months.
Consider whether you have benefitted from the ongoing service
and are happy to continue for the next 12 months. If you are paying
ongoing advice fees for services you don't want, you can negotiate
the ongoing fee or ask for the fees to be switched off.
Renewing your ongoing advice arrangement
As well as an annual fee disclosure statement, your adviser must
also give you a renewal notice for the ongoing fee arrangement
every 2 years. If you receive a renewal notice and do nothing, your
adviser must assume that you do not want to receive ongoing advice
and must stop charging you ongoing advice fees.
You can end your ongoing relationship with your adviser at any
time by notifying them in writing. Make sure you give them a
reasonable amount of time to action your request and keep a copy
for your records.
Advice review implementation fees
If, after a review of your financial plan, you and your adviser
agree to make changes to your investments, you will be given a Record of Advice (ROA). You may also be
charged additional implementation fees.
Important: Getting the advice you paid for
ASIC has found a large number of advice clients have been
charged for ongoing advice they did not receive. If you are paying
for ongoing advice that you haven't received, lodge a complaint
through the licensee's internal dispute resolution system. You may
be entitled to a refund and compensation.
See ASIC's
media release for more information.
Podcast on financial advice fees
Listen to Senior Executive Leader, Joanna Bird, talk about how
ASIC is addressing advisers' systemic failures to provide ongoing
advice services to customers who paid fees for those
services.
podcast
Interviewer: Hello and welcome to ASIC
View, the official podcast of the Australian Securities and
Investments Commission. On today's episode we'll be discussing
ASIC's report into the extent of failure to deliver ongoing advice
services to financial advice customers who are paying fees to
receive those services. My name is Andrew Williams and with me this
time around is Jo Bird, Senior Executive Leader, Financial Advisers
at ASIC. Jo, thank you very much for your time.
Jo: Thanks Andrew, good to be with
you.
Interviewer: Can you tell us more about
the kind of fees we're talking about here? Why are customers paying
these fees in the first place?
Jo: Basically the customers are paying
fees to receive an ongoing advice service such as an annual
financial advice review. However, they're not receiving the
service. There are basically two reasons why they don't receive the
service.
The first is they don't actually have a financial adviser
allocated to them, because for example, their financial adviser has
left the licensee or has retired. But they're still being charged
the fee for the ongoing advice, which they're not receiving.
The second situation is where the customer does have a financial
adviser allocated to them, but that adviser doesn't provide the
advice they've agreed to provide, even though the fees are being
taken out of, for example, the customers investment accounts.
Interviewer: Are there particular
organisations that the advisers covered in this report are
associated with?
Jo: This report is part of our Wealth
Management Operations project, so we're focusing on the conduct of
six of Australia's largest banking and financial services
institutions. So we're looking at AMP, ANZ, Commonwealth Bank of
Australia, Macquarie Group, National Australia Bank and
Westpac.
Interviewer: And it's my understanding
that's nearly half of the overall market? It's about 40% of the
overall market.
Jo: Those institutions account for about
40% of the advice market.
Interviewer: So what led to ASIC looking
into this issue in the first place and producing this report? And
what did you find?
Jo: Okay. We started this project as a
result of information we obtained including through breach
notification from some of the licensees. That information suggested
to us that this conduct of charging fees and not providing any
services was occurring. AMP, ANZ, CBA and NAB have all identified
systemic issues in relation to the charging of ongoing advice fees
and failure to provide those services for the fees.
Westpac has also identified a systemic issue, but in relation to
one adviser only. Macquarie hasn't actually identified any systemic
failures of the fee for no service variety. That isn't really
surprising to us actually because Macquarie has quite a different
business model to the other institutions.
So in the course of the project, well we've discovered that the
problem exists and we've successfully negotiated a range of
positive and improved compensation outcomes for the affected
customers. We've said to the institutions, you have to make sure
you fully compensate all these customers for these breaches.
And, we've made sure that the institutions have correctly
identified the customers who have been affected by the breaches.
We're making sure that the way they're calculating their
compensation is fair. We're also insisting that they go in there
and do some further reviews to make sure that they don't have these
problems elsewhere, that they haven't identified.
Furthermore, we're actually asking them to make changes to their
businesses to make sure that these failures don't occur in the
future.
Interviewer: Is ASIC going to take any
enforcement action in relation to the conduct outlined in this
report?
Jo: ASIC has commenced several enforcement
investigations in relation to this conduct. But regardless of those
investigations, we think it's really important that the licensees
compensate affected customers and make changes to their businesses
to make sure that these problems don't occur again in the future
and the report we've just
published is about that part of our work.
Interviewer: Now you mentioned the
importance of compensation here, can you talk a little bit about
what the compensation process so far has entailed and what we can
expect to happen in the future?
Jo: Certainly. So, as of 31 August 2016,
the compensation arising from the failures outlined in our report
was approximately $23.6 million. And that's been paid, or agreed to
be paid, to 27,000 customers also. We expect the amount of
compensation to substantially increase in the coming months. We
have asked all of the institutions to give us the estimates of how
much compensation they expect to pay for those breaches that they
have already identified. And they have estimated that they will be
paying $154 million plus interest extra to over 175,000 further
clients.
So that will take the total compensation to more than $176
million.
Interviewer: Yes. And that's the estimate
at this point?
Jo: Yes. I should add, obviously the
earlier figure I gave you, the $23.6 million, is money that's clear
and that money's been paid or about to be paid. The future figures
of $154 million plus interest is an estimate.
Interviewer: And the amount of
compensation that each individual customer gets will differ
depending on the kind of fees that they've been paying in the first
place? So it's not a uniform average?
Jo: That's right. It differs for each
customer depending on how much they've paid and how long they were
in an ongoing fee arrangement for.
Interviewer: Speaking of those customers,
if anyone is currently paying for financial advice, or maybe
they're thinking about paying for financial advice in the future,
what advice do you have for people that are going into this
industry and maybe looked at this report and had concerns?
Jo: Okay. My first tip would be to go to
ASIC's MoneySmart website. That's a really useful resource for
people who want to get financial advice. It gives them some
guidance about how much financial advice might
cost, and it really explains the advice process. My second
piece of advice would be that customers should always check that
they're receiving the services that they're paying for.
Fortunately, in the advice space, the Future of Financial Advice (FoFA)
reforms have made it much easier for customers to check
that they are getting the advice they're paying for. Every year a
customer who is in an ongoing advice relationship should receive a
fee disclosure statement that will set out exactly what they're
paying and what service they're getting for what they're paying.
And then every 2 years they will have to actively opt-in to the
continuation of that ongoing fee arrangement.
The last point I'll make was that actually if you feel like you
might have paid fees for services in the past that you didn't
receive, you might be entitled to refunds and compensation. And you
should, in the first point, lodge a complaint through the bank or
the licensees internal dispute resolution system. And if you don't
get satisfaction there, you should go to the Australian
Financial Complaints Authority (AFCA).
Interviewer: That's good advice Jo. Thank
you very much for your time.
Jo: It's a pleasure. Thank you.
Interviewer: The
report and the
media release relating to the report can both be found on
ASIC's website. Just go to asic.gov.au.
We'll be back with another episode very shortly. Thank you very
much for listening.
Financial product
commissions
Commissions and volume-based payments for recommending financial
products can influence the advice given by financial advisers.
Commissions were banned on new investments and super products
from 1 July 2013; however, the adviser can still receive ongoing
commissions from financial products bought before that date. The
commissions will continue to be deducted from your investment until
you leave that product or end your relationship with that
adviser.
Your adviser can also still receive commissions on some
products, for example, life insurance. Information about
commissions does not have to be included in your fee disclosure
statement.
How to find out if you're paying commissions
Ask your adviser to explain the products you have bought and
whether they are receiving commissions. If commissions are being
deducted from your investments and you're not happy with this
arrangement, speak to your adviser about your options.
You may be able to switch to a product that doesn't pay
commissions, or arrange for the commissions to be rebated to you.
Any fee you pay reduces the money you have to invest.
Case study: Edward asks to see all the fees
Edward visits a financial adviser. His investments,
including super, total around $400,000. After taking the time to
understand what Edward wants to acheive, the adviser offers to
put together a financial plan for $3,500 with a
further implementation fee of $1,500. The adviser
explains that there will also be investment fees for the
products they have recommended. Edward agrees to pay for the
financial plan.
At the next meeting, Edward receives the plan which, along with
the strategic advice recommendation, outlines all the fees
payable if he implements the advice. The fees table in the SOA
summarises the fees for the first year, and who receives each
fee:
Fees payable by Edward |
Fee charged ($) |
Fee as a percentage of investments |
Fees received by |
Financial planner |
Investment platform |
Product issuers |
Upfront
fees |
Financial plan fee |
$3,500 |
- |
$3,500 |
- |
- |
Implementation fee |
$1,500 |
- |
$1,500 |
- |
- |
Ongoing fees
based on $400,000 in investments |
Ongoing advice fees |
$2,000 |
0.50% |
$2,000 |
- |
- |
Platform administration fees |
$3,000 |
0.75% |
|
$3,000 |
|
Investment management fees(1) |
$3,000 |
0.75% |
- |
- |
$3,000 |
Insurance
premiums |
Insurance premiums year 1 (100% commission to
adviser) |
$1,000 |
- |
$1,000 |
- |
- |
Total fees in Year 1 |
$14,000 |
- |
$8,000 |
$3,000 |
$3,000 |
Estimated ongoing investment fees and
insurance premiums |
$9.000 |
2% |
$2,000 |
$3,000 |
$4,000 |
(1) Investment management fees are usually
deducted from investment returns before they are credited to your
account which means investment returns quoted are usually net of
investment management fees.
Edward now understands that the total fees for the first year
are $14,000.
An adviser must be remunerated for their
services; however, it's in your best interest to know how much and
how often you will pay for the advice you receive.
Related links
Last updated: 03 Dec 2018