‘Is this financial adviser charging me a crazy sum for a retirement plan?’

Apr 23, 2020
It's important to know when advisors are adding unnecessary items and costs to the bill. Source: Getty.

Q: My wife and I own our home, we have zero debts, I have a pretty good super balance and we have approximately $250,000 in the bank. However, retirement is approaching (I’m 63 and my wife is 57) and I thought it would be wise to seek professional help on our financial preparations for retirement, so I contacted my super fund and they gave me the name of a local advisor.

We’ve had the first meeting over Skype which was free of charge, and he has ‘pencilled in’ a rough plan but at the moment we have not committed further.

The thing that has us stumped is his fee plan. He is asking for $2,000 upfront for detailed planning, $2,000 to discuss, agree and implement that advice, $2,500 upfront per annum to manage my super and $2,500 divided into 12 monthly payments for my wife’s super which will be boosted out of savings. That’s $9,000 for the first year and $5,000 per annum after that. That sounds a lot to us, or is it about right?

A: Now that I’ve picked myself up off the floor, here’s the short answer – based on what you’ve told me about your situation, $9,000 in the first year is ridiculous.

Look, financial planners need to earn a living. Problem is, paying a lot of money doesn’t mean you’re going to get good advice. The average income for planners in Australia is around $90,000, so I’m guessing there aren’t many that can get away with stinging people nine grand in a year.

Here’s what I think: there needs to be a very clear distinction between paying somebody to draw up a retirement strategy and paying somebody to recommend investments. The financial planning industry hasn’t worked this out yet, and most planners still make most of their money by taking a cut of your superannuation every year (whereas it’s the super fund’s fund managers who’re actually making the hard decisions on investments).

For someone in your situation, a planner should be able to put a detailed retirement plan together in a few hours. It should be clear enough to be explained in a few pages of text, and (in my opinion at least) shouldn’t cost any more than $2,000.

For that, you should expect a comprehensive Statement of Advice that lays out concisely what your needs are, how the advice given will meet them, and how the advice is in your best interests. It shouldn’t be a hefty document filled with waffle and disclaimers.

Charging you $2,000 to ‘discuss, agree and implement?’ That’s a total crock.

Here’s a little tip. Financial planners aren’t investment experts (most have a basic knowledge, and can only recommend products on a list approved by their employer) and they’re certainly not fund managers. So paying $5,000 yearly for one to ‘manage’ your super is another crock.

Here’s what I reckon. First, get in touch with Centrelink’s Financial Information Service (FIS). You don’t need to be planning on getting an Age Pension, because the service is available to everyone, regardless of their financial situation. You might find that after meeting a FIS officer you’ve got a better idea of what your options are.

Then look for another financial planner. I’d go for one who charges a flat fee to prepare a Statement of Advice, and is willing to review your situation every six months or so for an agreed fee or a reasonable hourly rate.

Once you’ve done all that (and when lockdown restrictions have eased), book a table at your favourite restaurant, and spend up big. Buy the fancy wine. After all, you’ve probably just saved about $6,000 this year and a few thousand every year forever.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.

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