I have an investment with Liberty/Stanlib into which I pay funds every year. I have just paid this year’s payment directly into the account as instructed. I have now received a form from a Liberty broker – who I deal with – which, if I sign it, gives him 1% of the funds. These funds are invested in a Stanlib account where of course there are other managers’ and other admin fees.
Am I under an obligation to sign this form giving 1% of my funds to the broker who I originally took the investment out with every time I make a deposit? I have expressed my concern over this exercise to the broker personally but he feels it is justified.
Fees are a particularly contentious issue in our industry and without fully understanding the service you are being offered by your financial advisor it is difficult to comment.
What I can do is explain to you how I philosophically view fees and you can reconcile how that relates to the service you are receiving. In our view, trust, mutual respect and tangible added value are essential components in the relationship between a client and a financial advisor and this should drive the fee discussion.
The industry is trending towards charging an upfront fee for compiling a financial plan. This involves the drafting of a full financial plan after discussions on needs, objectives, risk appetite, health status, tax efficiency, asset allocation and estate planning.
Thereafter you pay a fee for ongoing service and advice. This would include regular meetings with your advisor to:
- Make tweaks to your plan as you enter new stages of your life or as circumstances change;
- Assist with decisions on which investments to draw on in the event that large expenses have to be paid for;
- Rebalance your portfolio to keep it in line with the original plan, monitor and evaluate investments and introduce you to new investment products;
- Ensure that you contribute the maximum to tax-efficient products as tax laws change; and
- Assist with other financial decisions, for example budgeting for children’s education or evaluating the pros and cons of buying an investment property.
I don’t believe that it is necessary, or fair, to charge a fee for adding money to an investment that is static and unmonitored.
The question of whether or not financial advisors add value is not a new one. In March 2014, Vanguard, one of the world’s leading investment companies, released a report entitled ‘Putting a Value on Your Value’ which concluded that “working with an advisor can add ‘about 3%’ in net returns when following a disciplined framework for wealth management”.
Ultimately, if you believe the fees are not justified, then they probably are not.