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Are my financial advisor’s fees justified?

Am I under an obligation to give 1% of my funds to the broker who I originally took the investment out with every time I make a deposit?

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.

  

ADVISOR PROFILE

Peter Nurcombe-Thorne

Rosebank Wealth Group (Pty) Ltd

COMMENTS   21

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To my mind, the broker does not deserve any fee. Get rid of the broker’s name on your investment. He had nothing to do with the acquiring of the money so why should be benefit?

As for the fee for ongoing assistance with investments, well that is the way I operated. None, however, ever provided me with regular service – phone calls and emails were ignored, regular meetings cancelled or forgotten and so on. Why? Small investor and not worth the trouble.

While I do think advisor fees need to come down how do you know (for certain) that with the assistance of a quality financial advisor you would not be better off? You don’t. The reality is there are good advisors out there and parts of the industry is extremely professional but there is not enough quality advisors for that quality to filter down into the ‘mass market’.

Be very careful with trusting a financial advisor that works for a company. Rather opt for an independent advisor.

Also, once they have your upfront fees, and signed up for ongoing fees, you wont hear from them again until oneday they call you to sell you something new/else (and charge you for that as well). You never get a courtesy call just to check how your financial status and needs are, cos that way they are not making any money out of you.

If you paying ongoing fees, you MUST get ongoing service , which seldom happens.

Rather be careful of advisers that don’t have CFP (Certified Financial Planner). Visit http://www.fpi.co.za .Ask your adviser what qualifications they have. Most “advisers” don’t even have a financial degree.

A Financial Planner should most certainly have to do work to earn his or her on-going fee. If you don’t have a long term financial plan then your broker is not doing his job.

Go to the FPI website and you will be able to find a qualified Financial Planner who can add real value.

Look at the way you use your house docter.
You go to him, he makes a diagnosis and give you a prescribtion. Yoy pay him.
Wether you use the prescription or not is up to you.
If you need him again you go to him, he makes a diagnosis and prescribe something and you pay him. You get my drift.

You fin planner – you go to him and you pay him his “prescription” fee for your “prescription”.
That’s it.
If you use him 8 months (say) later you pay his consultation fee.
That’s it, finish and klaar.
No ongoing fees year in and year out. No commissions.
AND STAY AWAY FROM FIN PLANNERS WHO WORK FOR INSURANCE HOUSES.
In my naïve days I had an Old mutual broker. I never saw him in 3 years. But he received (regurly) his fees.

Think of it in terms of the cell phone industry – “Pay as you go”
ie “pay when you use him”

There are a number of ways in which a financial advisor can add value and the remuneration for this is not just as simple as your proposed “pay-as-you-go” which would definitely discriminate against smaller clients.

The greatest value an advisor is probably going to add will be to protect you from your own mistakes such as switching to a more conservative portfolio “after” a correction or getting too aggressive when returns have been above average.

Your advisor is probably no better at predicting future returns (especially in the short term) than anyone else but he/she can assist you to use appropriate products based on tax efficiency and requirements for access to funds.

With regards the selection of funds for a portfolio, the most important considerations would be that the overall portfolio should be suitable to your needs, and there should be no additional incentive to use one Fund Manager’s funds over another. Start asking questions about incentives if you find that you are invested ONLY in the product provider’s funds.

Happy to disclose that I am an Independent Financial Advisor with a passionate mistrust of all investment products offered by traditional Life Insurance companies (and banks…).

Like Medical Aid for your medical payments, there can be innovative ways for the small investor to pay for his “Pay as you go advice”

Yes, 2 hours at R800 can be expensive if paid up front, but it can be funded through a 1% fee on Assets Managed, but the “commission” will stop once you have settled the full fee.

What you get is transparrency in the WHAT you pay part and conveniance in the HOW you pay.

I stopped going to a doctor 20 years ago.
You go to a doctor – you tell him what’s wrong with you and he gives you meds. It may or may not work.
I go to my vet. I tell him my symptoms – he tells me what wrong with me and prescribes meds. Works every time.

When you greet your vet/doctor do you go woof woof

Be very careful when signing your documents. You must ensure that they are all given to you as normally the last document catches nearly everybody because that is where you see what the advisor takes when you call up your investment. In your case you should do that now because they take a little upfront and then hit you from behind. Its many THOUSANDS of Rands.

The only fee that is justified is a fixed up front fee which you negotiate based on anticipated returns within a certain timeframe which the advisor must agree to refund if his “expertise” was not good enough to get that right (you can as it is actually claim it back from your investment houses by the way)

Any ongoing fee after the investment is done is a pure rip off.

Never, never, never pay any ongoing fee to anyone. You and you alone are responsible for the outcomes of your action/decision, whether on any “advice” or otherwise.

It is outrageous that any FA should claim any right to any performance, or charge a percentage of what you invest, AND charge for every transaction on the investment. A doctor does not charge according to the severity of your illness or the success of your recovery. Neither do I as a consultant engineer.

I once inherited a large sum that had been managed by a finance house. I had to close the account to terminate the monthly thousandths being charged for (incurring a significant CGT, but at least that was one-off). You can’t stop these deductions for “advice” etc., and you can’t get any “advice” or other “contracted services” out of them.

Just DON’t. Or you will regret it life-long. You can pay an agreed fixed fee once off for any professional advice only, or like me, after being burned once, not at all.

Educate yourself, take full responsibility for your investment actions, and never again pay these parasites.

My two cents. You pay him a initial fee for structuring your investments. After all he/her have spent time and utilised his/her knowledge to enable you to hopefully grow your money. There after I think a fee, a percentage calculated on the growth of the investments per year is in order. In the non banking environment, stocks, gold, etc. Beware of the so called banking investment advisor. They usually sell the banks’s products.

Your first two sentences are fair

But to pay a percentage for ongoing growth? Well do the math and one does not really see performance as every percent extra on existing management basically nullifies the reason to invest

So in good humor I shall return one cent

Whilst I believe that paying a fee is fair, how is it fair if basen on a percentage.

Like you said, the up front fee is paid for the time spend structuring things. Are you suggesting the advisor spends less time on the R1 mill estate vs R10 mil estate? Because percentage based fee would suggest so.

How is that fair
– Either the advisor spends less time on the smaller estate, and 10 less time, which I would suggest is irresponsible and probably illegal if you consider the true needs of the smaller estate or
– He uses the fee from the big estate to cross subsidise the smaller guy

So, which one is fair? I would suggest none but a transparent hourly fee.

For years my financial advisor made an annual appointment to discuss my portfolio. All he ever did was update my personal details and give feedback on performance. I always thought it was an absolute waste of time, until I learnt these visits were being charged for via my investments…..

The day I vowed to educate myself and cried when I found out my total fees.

Sickening its still happening to this day

I wonder how many people get caught moving wealth that they had managed to accumulate, without a young MBA, over 30 years, into the latest greatest MBA advice

Wooosh : advisor takes 1.5% of thirty years of savings and growth on savings.

BAM! : next year the MBA takes another 1.5%

and so on, etc etc etc He had NOTHING to do with your R10m nest egg, now he sucks the yolk

Compound income is a miracle
Compound fees is its fugly cousin

What is the definition of a financial adviser? You should know this definition very well before you decide to employ him.

A financial adviser is a person who wrote an exam to get a licence from the FSB to sell a product he knows nothing about for a fee. The FSB requires him only to determine your risk tolerance and your FICA status, in other words, he should know you very well but he is not required to know anything about the product he sells to you.

In all fairness, nobody knows much about this product because its attributes are determined by future(unknown) events. So in essence you are paying your financial adviser an upfront fee as well as a management fee to drink coffee with you and to have a long conversation with you about stuff he knows nothing about.

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