This blogpost is PART THREE, of our series on Financial Advice. Read on to learn all about the value of financial advice and a full-service advisor can work with you to achieve your financial goals.
Have you ever spent time thinking about what you are meant to achieve in life? Maybe your thoughts quickly move to considering goals and the resources needed to achieve these goals. Questions arise like, where do I start? How much do I need to save? When it comes to finance (investments, debt, tax, super and pensions) you may feel unsure where to start. If you are wondering whether it might be time to talk to a professional, read on.
This Financial Advice blog series aims to equip and educate you about the benefits of receiving various types of financial advice. If you missed the first two parts, we suggest you first consider how you can engage with your super via our online advice product SuperEquip. You should also consider whether the free or low-cost phone-based advice options available to Christian Super members may suit your needs. This blogpost is about full-service financial advice, the type of advice that considers a full range of investment decisions (not just your super).
Should you consider engaging a full-service financial advisor?
When considering whether to seek full-service financial advice, you need to balance the potential savings which can be achieved through advice with the fees charged for providing this advice. While there is no set minimum balance, we generally encourage members (individual or combined couple) to consider seeking full-service advice when their investment assets reach around $300,000.
N.B. when calculating your investment assets include your super balance but not your family home.
There are certain complex situations which may benefit from full-service financial advice even with if assets do not exceed our guideline above. This includes those with blended family arrangements, large redundancy payments, business structures, and property or other investment portfolios where significant financial decisions need to be made.
How the process works, and how much it might cost
Once you contact an advisor, they will book you in for an ‘initial appointment’. Advice will not be provided at this appointment; this is a time for you to get a better understanding of the approach taken by the advisor and for the advisor to understand your current situation and your goals. When approaching this initial engagement, you should try to be as prepared as possible, including understanding your current situation and giving some thought to what you hope to achieve through getting advice. This will allow you to make good use of this time. You are of course free to ask questions of the advisor at this appointment to understand if you want to engage them.
Some advisors will provide this first appointment free of charge, while others will charge an initial consultation fee (often in the vicinity $200 – $400). Any applicable fee should be communicated when you call to make the appointment.
Either preceding or following this initial appointment, the advisor may ask you to complete a questionnaire. Advisors will generally start with a review of your current situation including: family situation (marital status, children and living arrangements, etc), financial situation (income, assets, debt levels, superannuation, etc) and your goals. They will consider your family situation, and the finances of your spouse if applicable. They will seek to understand your goals and help you to understand if they are achievable, and what needs to be done to reach them.
Following the initial consultation and fact find, there will be a point at which you will need to commit to engaging the advisor to prepare a Statement of Advice (SoA). The advisor should clearly inform you of the applicable fees involved, and you will likely sign some form of acknowledgement. The advisor will then work to prepare a financial plan, based on your expressed needs.
The advisor may charge a ‘plan fee’, with a separate ‘implementation fee’ to be paid later if you proceed with their advice. Many advisors charge one fee, combining preparation and implementation of the plan. A typical fee range for the preparation/implementation of SoA may be $2,200 – $5,500+ depending on the complexity, for example, the number of issues they are advising on or the expected effort in re-structuring your financial affairs.
If an advisor does not feel they can help you make significant improvements in your finances, they may suggest you are not well suited to receive advice from them at this time. They should let you know during or after the initial consultation, before preparing a SoA.
You may request the fees or a part thereof to be paid from your superannuation account, however this can only occur for fees that relate to advice specifically about that superannuation. The rest of the fees will need to be paid from your personal funds. Christian Super has set certain caps on the fees which may be deducted from members accounts as we feel advice fees higher than a certain percentage of superannuation may result in balance erosion.
Once the SoA is prepared, you will generally meet with the advisor again to review their advice and decide how to proceed. Remember that you are still the decision maker and you are not required to implement every recommendation made. The advisor will be in touch with you as needed while they implement the advice.
You can also choose to engage a financial advisor for a specific issue only (such as for annual review on insurance policies) rather than for comprehensive goal-based advice.
Ongoing or once-off advice
Usually as the SoA is being prepared, the advisor will consider whether ongoing management of your finances is recommended. This will depend on the complexity of your situation and your life stage.
If they recommend an ongoing advice relationship and you agree, they will charge an annual fee for the continued management of your portfolio. This fee will vary but may be a similar amount to the fee charged for preparation and implementation of the SoA. It may be a fixed annual amount, or it may be a percentage of the assets they are advising you about. The ongoing fee amount should be made very clear to you. You can expect them to be abreast of any legislative changes and to proactively make recommendations to you, and then implement these on your behalf. You will need to inform the advisor of any significant changes in your personal circumstances which may affect your finances.
A once-off fee advice arrangement may suit someone with no foreseeable changes over the next 5 – 10 years, for example, perhaps you have paid off your house and are now looking to make additional contributions into super to maximise retirement savings. An advisor can help set up a strategy and advise how much to contribute each year, advise on the right mix of pre/post tax contributions, and get the right mix of high growth and stable investments. You could potentially follow this strategy for several years if nothing changes but you may need a level of financial knowledge to do so. The advisor will not necessarily make contact if legislation changes and you are affected; the onus is on you to contact them if your circumstances change and/or if adjustments need to be made to your financial plan based on regulatory changes, with ‘initial’ advice fees likely to re-apply.
Some clients choose a once off fee arrangement when they envisage little change for several years, follow this plan, and then opt to move to an ‘ongoing advice’ arrangement as they near retirement.
The value of financial advice
There are a number of reasons why getting professional financial advice can be a valuable exercise, and it’s not just for financial improvement. Research indicates that many clients report receiving value from their advisor in three broad ways – Portfolio, Financial and Emotional outcomes.
Portfolio value comes from building a well-diversified portfolio suitably matched to the client’s risk tolerance that generates better returns, after factoring all fees and taxes.
Financial value is found in the achievement of goals, stewarding resources well and obtaining tax savings and other benefits. A portfolio exists to serve one or more financial goals, such as providing for a well-resourced retirement, housing needs, education funding, or giving goals.
Emotional value is evidenced in peace of mind. This is subjective and may be based on trust in the advisor, and the investor’s sense of confidence and/or perception of success. This may manifest in feeling on track to meet specific goals or feeling that you are being a good steward of the resources that have been entrusted to you.
More specifically, advisors add value through;
- Encouraging you in your goal setting,
- Highlighting spending / saving behaviour (small changes can be significant),
- Reviewing and advising on debt reduction (e.g. helping to decide whether it is best to repay existing debt, or to make additional contributions into super or other investments),
- Identifying tax savings and strategies,
- Advising on investments within and outside super (appropriate to your life stage),
- Retirement planning (including maximising age pension eligibility if applicable),
- Providing structure to aid in your cash flow management (particularly for businesses),
- Legacy/bequest/estate planning (helping to clarify your goals and intentions),
- Insurance and risk protection,
- Coaching in times of market downturn to ensure rash decisions are not made,
- Reassuring you that a specialist is looking out for your financial interests.
One final major benefit of using a financial advisor is mistake prevention. People who receive advice tend to be more informed about current investment and legislative conditions than those who do not receive advice helping them to avoid financial missteps.
Full-service advisors are educated and skilled professionals, but this does not mean that everything they touch will turn to gold. They can be a valuable partner to walk alongside as you endeavour to be a good steward of the time and resources that have been entrusted to you.
Our Member Care Team is here to help you with questions you may have around the Value of Financial Advice.
Phone: 1300 360 907
9:00am – 6:00pm (AEDT) Monday to Friday
Please note that the information contained in this post is a summary and general in nature. It does not take into account the personal objectives, financial situation or specific needs of individual members. We strongly recommend that you refer to our Product Disclosure Statement (PDS) and Investment Guide for the full terms and conditions and obtain professional financial advice to determine the appropriateness of the information, taking into account your own personal circumstances.