By David Lamb CFP™ MCSI
The cost of the service is an important factor when deciding to work with a financial planner, but equally important is to understand the value that the planner provides.
Obviously financial planners need to be paid for their service, not just to earn a living or cover their business expenses but to cover the liability they take on when they provide financial advice.
Traditionally the cost of financial advice was met by a commission on the sale of a financial product, creating an incentive for a financial ‘adviser’ to sell a financial product. Since 2012, the cost of advice has usually been covered by an ‘adviser fee’ paid from a financial product.
But genuine financial planning should not dependent upon the sale of a product; you should be prepared to pay a separate fee for professional services.
In your initial meeting with your prospective financial planner, spend time getting to understand their fee structure. Do they charge by the hour, one overall fixed fee or a series of fixed fees as you progress along the process? What is right for you?
If the fee is to be paid from a financial product, the ‘planner’ will be relying on selling a product. At this point, it is probably best to end the meeting and look for somebody else.
Once the financial plan is complete, you may require financial advice and it is important to understand how you will pay for this. Will you be invoiced or will the fees be deducted from the recommended product? If the fees are deducted you need to understand, not only how much they are, but the effect on your investment these fees could have.
What rate of return does the planner expect to achieve for your investments (the research should not be based upon past performance)? Consider these returns then deduct all fees. Is this value for money?
If the fees are based on percentages and are to be deducted from the product, consider if you would write a cheque separately for this advice. If not, look for another financial planner.
What are the charges for ongoing advice? Are they solely taken from the product? If so, this could cause a conflict of interests because the adviser may not want you to spend your
money. Again, you may want to look to look elsewhere.
Ask the adviser how they will measure the value of their service. Can they provide specific benchmarks to help you achieve your objectives and your desired lifestyle? If not, the search for a good financial planner continues.
