There was a gentleman from Sydney who called me to ask about the fees he is being charged by his financial planner because he wasn’t quite sure what they are. So he sent me some forms and I had a look to find out what the total fees were to manage his portfolio.

When I added everything up, it was about $17,000. S I sent him, with that information, back to his financial planner to ask the question "It sounds like a lot of money, what am I getting?"

His financial planner's defence was "Well, look at the industry standard, in fact it is below industry standard, we're charging you 0.5 per cent of your assets that we manage and a lot of financial planners charge more".

It is nonsense

It seems to me that his rationale is nonsense. I do not understand how the financial planning fraternity can tell you what it cost to roll out their service before they know what they're doing for it.

Treat it like a quote

I asked the gentleman to go back to the financial planner and pretend it was like a quote that his mechanic was going to offer to keep the car on the road i.e. what are all the things he is going to do for him to keep the car on the road: the maintenance, the services, keep the oil up, all those things. I told the gentlemen to ask him to actually put that into a list so that I could see whether $17,000 is fair value for what he is doing. I wanted to see if it is a commercial figure or whether it's just a bit of nonsense.

What you should do

I propose that you do the same when you go and consult a financial planner. Be very clear about the deliverables that you want to receive as part of that relationship. As I said, for a financial planner to decide a market standard, to charge you a certain percentage of your assets under management,does not mean it is actually the right way to go. You need to know what you are getting and ask yourself whether that is a commercially fair thing. Ask yourself whether that is value for you.

Ask tough questions

If you ask some tough questions, to a financial planner who has never questioned the way they work, then I expect they would feel uncomfortable with those sorts of questions. That doesn’t, however, absolve them from having to face up to it.

If you get a quote that's outlandish for anything, any service that you obtain, whether its professional or not, then you're entitled to say "Well, that seems a little bit steep. Can you tell me again why it's so high?".

Why don't people question financial planners

There is two reasons. One, they are unaware that is there any other way to go about it and two, because generally the financial planners have terms and say things like "This is the only way that we'll work". Those terms, generally speaking, have been spawned by a market ignorance that people say "Well, there's no other way. This is the way they do it".

There is a huge difficulty, however, with getting advice from someone who is receiving a fee based on an incentive. If you go to an advisor and they get remunerated based on how much product they're going to manage then generally that means there's an incentive for that person to recommend product. Whether the advisor does or doesn’t, it’s a perceived conflict and that conflict can make a difference.

You really need impartial advice not advice that's linked to some end result for the advisor.

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