Is it worth paying for a financial advisor? We break down all financial advisor costs and how these services can help individuals and businesses reach new heights and achieve financial objectives.
Finance can feel overwhelming when there's a lack of knowledge and familiarity as questions about investments, retirement planning, and managing debt arise. As a result, many Australians feel stuck and uncertain about the next best financial decisions to take.
This guide explores the pros and cons of engaging a financial advisor in the Australian context. We'll also look into practical situations that can be relatable to you, along with expert opinions to provide more clarity and resolution. Read on.
How Much Does a Financial Advisor Cost in Australia?
The rate for financial advising services in Australia usually depends on the client's unique financial situation and possible requirements. Thus, the client and the financial advisor must discuss this before starting.
The average rate for financial advice in Australia is around $3,500pa, although this is a mean figure 'dragged down' by smaller account balances and basic advice needs. In our years of experience, comprehensive financial advice usually ranges between $5,000pa and $8,000pa, with costs increasing as complexity grows.
To learn more about these rates and fees, the Financial Planning Association offers valuable insights and resources about fee structures and industry standards. Visit the FPA website to learn more about what recognised financial professionals charge.
Recommended Read: What Is The Difference Between A Financial Planner & Advisor?
How Do Financial Advisors Charge Fees?
The common ways advisors apply when charging fees are flat fees, hourly rates, commissions, and percentage-based fees based on a client's managed assets. Let's take a look at each option:
Flat Fees
Flat fees, or 'project fees', vary depending on the service carried out. A reputable advisor operating on a 'flat fee' model will seek the client's approval on the work they intend to do and the fees associated with commencing.
The advantages of flat fee services are that you know what to expect on the final bill, and the client is clear on the scope of work. The main drawback, however, is that flat fees often include an additional component to provision for any challenges encountered during implementation delivery.
If a financial advisor proposes a flat fee structure, it's important to understand when your fees are due and payable. Below is an outline of common flat fee examples and when they are paid:
- Statement of Advice (SOA) fee — A single charge for crafting your SOA. You can pay this upfront, deduct it from your investments, or add it to the ongoing fee.
- Fee to implement financial advice — A one-time charge for carrying out financial advice, such as bank account setup and investment purchase. It may be upfront, based on your asset value.
- Fee for ongoing financial advice — A recurring fee covering services like reviews, reports, calls, emails, and newsletters, often paid monthly
- Review fee — A one-time charge for revising your financial plan, making necessary changes, and aligning your investments with goals, for instance.
- Investment platform fee — Fixed charge for the administrative financial platform handling your investments.
- Hourly rate — Set fee per hour for addressing specific questions outside regular advice or services.
- Service fee — A fixed charge for a particular service or professional advice type, like preparing your Statement of Advice (SOA)
Hourly Rates
Hourly rate is rare in financial advising in general, however, it's a convenient option for clients living in Australia. Experienced financial advisor hourly rates can easily range from $275 to $550 depending on their background and areas of expertise.
Under this payment method, clients with small projects may benefit the most as they only require an hour or two to reach completion. On the other hand, the final bill for larger projects can be very expensive—especially if there are delays in either the production or implementation of the service.
Commissions
Commissions are received by most financial advisors and financial planners in Australia, for instance, if a personal insurance contract is established on the client's behalf. In this case, it is the insurance company that pays the financial advisor directly.
Asset-based Fees
Asset-based fees are charged on the total investments managed by a financial advisor. Asset-based fees usually sit between 0.5% to 1% of a client's existing balance. The advantage of this approach is that your advisor is motivated to grow your portfolio, as this means their advice fee will be equally higher, thus compensating them based on your financial growth.
The major disadvantage, however, is that as your balance grows, these financial advice fees can cease to accurately reflect the work an advisor is doing on your portfolio and result in you overpaying them versus a different fee model.
Asset-based fees can be a percentage of the portfolio or based on performance:
- Asset-based (portfolio percentage) — A percentage fee calculated from your total portfolio value. The fee increases with more assets, payable regardless of investment performance.
- Investment management fee (performance percentage) — An additional percentage fee, based on the performance of your investments (usually measured by an ongoing agreement with the benchmark).
The clients must understand the implementation fee structure thoroughly before engaging with a financial advisor to keep transparency. This is to prevent unfavourable surprises and potential interaction with fraud.
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Factors That Make or Break a Financial Advisor's Value
Many factors affect the overall expenses involved in financial advising services. That's why having a thorough understanding of how these factors influence the fees is essential for anyone seeking professional financial help. Here's a look at some of the factors that affect the fee:
1. The type of financial advice
Basic services such as one-time consultations are cheaper. On the other hand, comprehensive financial planning advice, covering areas like investment, retirement planning, and tax minimisation, is likely to have high complexity and will cost more than advice that relates only to your insurance needs. Specialised services tailored to specific needs also vary in price based on their depth and expertise.
Keep in mind that the cost of a financial advisor depends on the type of advice you need.
2. The value of the advice
Not all financial advice has the same value. Some advisors exclusively provide generic 'one size fits all' advice, while others give a personalised and holistic plan that greatly influences the client's financial well-being. Although personalised advice may require higher initial upfront costs, they're generally more helpful in leading the client to a better financial position right away. Thus, making it more valuable.
*When assessing the worth of the advice received, clients should always consider its long-term financial benefits and positive impact on their bottom line and objectives.
3. The expertise of your advisor
As with any professional, highly experienced advisors are likely to charge higher fees due to their extensive knowledge and successful track record. This additional investment can be valuable, provided the advice you received for your financial circumstances reflects and showcases their expertise.
An advisor may have 30 years of experience, but if they have spent their entire career providing 'one size fits all' advice during the previous 30 years, it's unlikely that clients will receive much value anyway.
What to Look For with Your Advisor to Get Your Money's Worth
You'll want to look into these things first before hiring a financial advisor:
1. Are they evaluating your financial needs?
A great advisor starts by asking and looking into your financial dreams and challenges: identifying your short-term and long-term goals, and making sure that you have a clear vision of where you want to go. This means that achieving your individual financial outcomes should feel like a top priority from your very first meeting with an advisor.
At Northeast, our advisers specialise in understanding your goals and then crafting financial strategies tailored to your unique aspirations.
2. Learn what a financial advisor does.
Good advisers excel in every facet of money management and give clients a comprehensive approach to their financial situation. They learn about holistic services, from investment management fees and planning to retirement strategies. Making obtaining financial advice for clients convenient and effective.
3. Choose a financial advisor who teaches you
Best-in-class advisors not only handle your finances but also educate and mentor you so you can keep making informed financial decisions even by yourself. Expert advisors are committed to enriching more lives with financial wisdom and providing professional financial advice with a mantra of developing 'resourcefulness overreliance'.
4. Research financial advisors
Each financial adviser has individual expertise. Investigate, or ask, for their qualifications, experience, and track record to check for compatibility and if you're comfortable collaborating with them with your money.
How to Maximise the Financial Advisor's Fees
Even when working with us, we always recommend that our clients do these things to make the most out of any arrangement with a financial advisor.
1. Do your research
Before considering getting yourself a financial advising service, educate yourself with the right information through books and online resources. You can also ask family, friends, and colleagues you believe are credible or familiar with the topic. Make sure you research and filter potential advisors thoroughly. Investigate their credentials, client testimonials, and areas of expertise.
2. Take a look at how your advisor is paid.
One critical aspect often overlooked is how your advisor is compensated. Different advisors have various fee structures, from hourly rates to commission-based models. Knowing these intricacies is a must to avoid inconveniences and unpleasant surprises along the way.
3. Discuss your goals and financial standing with your advisor
Communication is key to a fruitful advisor-client relationship. Be open about your financial goals, aspirations, and current standing. Financial advisers need a comprehensive picture of your situation to tailor their strategies effectively.
4. Hire a new advisor
Finding the right advisor is crucial for your financial strategy and wealth management. Sometimes, despite efforts to make things work, a financial advisor might not align perfectly with your needs. Don't hesitate to explore new avenues.
Final thoughts: Is a Financial Advisor Worth It?
A financial advisor can be valuable and worthwhile if you find the right one advisor in harmony with your goals. Their extensive knowledge can navigate intricate financial choices, helping you come up with informed decisions, choose the right investments, retirement planning, tax reduction, and achieve financial objectives. As you know, tailored and ongoing advice can save money and offer reassurance, vital in uncertain economic times. To answer the question: Yes. It's worth paying for a financial advisor.
If you're looking for a financial advisor who will provide top-level advice tailored to your needs and goals, we at Northeast Wealth are always ready to deliver. Our goal is always to help our clients maximise their investment, whether it's on financial instruments or sound strategies and advice. Get in touch with us today.
Frequently Asked Questions (FAQs)
We've answered some of the recurring questions our customers ask. They're as follows:
What services do financial advisors provide?
A financial advisor or financial planner offers various services, encompassing personal financial advice, investment advice, retirement planning, estate planning, investment strategy, investment portfolio management, and insurance guidance.
How do advisors charge for their services?
The financial advisor fees offer various options and structures, typically imposing hourly charges, flat fees, monthly retainers, or a percentage of the assets they oversee. Some might also earn commissions from the financial products they recommend.
Are financial advisors regulated in Australia?
Yes. Financial advisors in Australia are regulated by the Australian Securities and Investments Commission (ASIC) and must follow the ethical standards outlined by the Financial Adviser Standards and Ethics Authority (FASEA). These regulations help maintain high ethical standards among advisors.
How can a financial advisor help with tax planning?
Advisors can optimise your investments to minimise taxable income. They also assist in understanding the tax implications of various decisions, from ordinary investments to complex financial investment decisions.
Can financial advisors help with debt management?
Absolutely. Advisors can offer strategies to manage and reduce debt effectively, creating a financial plan tailored to achieve financial stability. If you need additional support or seek advice, organisations like the National Debt Helpline can also provide valuable resources, comprehensive advice, and assistance in managing your financial affairs.
How does a financial advisor stay updated with financial regulations?
A qualified financial advisor attends regular training sessions, seminars on financial counselling ongoing advice, and workshops to stay updated with changing financial regulations, purchasing investments, and market trends.
James O’Reilly is the Director of Northeast, a fast-growing financial advice firm that empowers clients to achieve meaningful financial progress and well-being. He's also the co-host of the Australian Retirement Podcast, one of Australia's fastest-growing podcasts.