There has been significant public scrutiny about the cost of advice. Much concern has centred on the charging of commission which is often not aligned with the hours of service provided.
Such concern raises the question for many Australians – how much am I paying for advice and what do I get for that?
The government’s introduction of the Future of Financial Advice (FOFA) legislation in July 2013, aims to help improve the trust and confidence of Australian investors when seeking advice and to ensure that high quality advice is available at an appropriate cost. A key element of FOFA aims at banning fee structures such as commissions. This is in favour of a fee for service model, which reduces the ambiguity of fee charges and costs.
As consumers, we’re accustomed to the cost of a product or service being clearly advertised so it can be measured against the value of what we’re receiving. Although the price of a coffee might vary from one cafe to another; with a known price consumers can select a preferred barista based on qualities they value.
It seems fair to know the price of something before you purchase it. So why should it be different when seeking advice?
Dixon Advisory is an advocate for the fee for service model and firmly believes it to be the best approach for providing financial advice; our business has operated this way since its inception in 1986. As fee for service is a pay-as-you-go system, you will only pay for the advice received, unlike a commission-based model where your advisor may receive remuneration without delivering advice or services.
Unfortunately, even after the implementation of FOFA, consumers face difficulties in comparing options as some financial arrangements still pay commission or uncapped fees to existing financial advisors. Some questions you need to ask in relation to your advice:
• What is the total annual fee for my superannuation and investments in both dollar and percentage terms? Do they offer a maximum dollar fee limit?
• What type of advice am I paying for within my superannuation and investment accounts – specialist, personal, general or intrafund?
• What do the investment management costs provide access to? Am I to attend investor updates and make changes to my individual investments if my situation requires?
• If I prefer to pay upfront for the advisor’s time, how much discount will I receive on my annual life insurance premiums?
Just because you can’t see the fee, doesn’t mean you’re not paying it. Fees can add up over time and if you‘re not getting what you need from your investment or advice arrangements you could be spending money on charges you may not need to pay.
Dixon Advisory provides a rebate service that has rebated millions of dollars to people who were paying commission but not receiving ongoing and valuable support from their advisor.