Why is Financial Advice 'Expensive' in Australia?

Let's first start with a famous quote from Warren Buffet: "Price is what you pay. Value is what you get."

Research by Vanguard and Morningstar has consistently shown that good financial advice can add up to 3% in net returns per year through:

• Tax efficiency

• Better asset allocation

• Behavioural coaching (e.g. staying invested during market downturns)

• Avoiding costly mistakes

• Strategic planning at key life stages

I personally like to view the value of advice through two pillars:

Quantitative (or tangible value) - which are all the tax savings, super & investment fee savings, insurance premium savings, investment performance and much more.

and

Qualitative (or intangible value) - which includes:

• Helping you define clear and considered goals

• Building a tailored plan for achieving your goals

• Having a professional keep you on track for meeting your goals

• Improving your feelings of financial security and financial freedom

• Providing clarity and keeping you on track for the future with our detailed modelling and projections

• Removing the time and stress from managing your personal finances

• Helping you avoid financial mistakes

• Helping you escape the opportunity cost of inaction

We know it is difficult for many people to assign a specific value to Financial Advice because there are very few similar services that you can attach a similar value to.

For example, sometimes we will hear something like "My accountant charges me $500 per year for my tax return, why is financial advice so much more expensive?". The simple answer it the amount of time and effort involved.

A basic tax return can be completed by a first year accounting graduate in a couple of hours. By contrast, the production of a Financial Plan (Statement of Advice) and the preceding appointment time can take between 12 and 30 hours.

Financial Plans often reach 100 pages long when you incorporate the recommendations, reasons for recommendations, alternatives considered, detailed financial modelling scenarios and much more.

The time and effort that goes into the production of advice ultimately needs to be significant, as Advisers are required by law to demonstrate that they are putting clients into a better position. This means having to fully understand a client's personal and financial situation and then providing recommendations only after considering a range of alternatives. This personalisation takes time.

Whilst the time it takes to produce advice is the most important factor contributing to the fees of financial advice, there are also considerable costs associated with:

• ASIC Levy

• CSLR Levy

• Licensing Fees

• Professional Indemnity Insurance

• Software costs

• As well as the usual costs businesses have such as staffing and rent

Think of it this way: Inbuilt into the cost of financial advice is the frequency of service of having a personal trainer, mixed with the education and training of a lawyer, the attention to detail of an engineer and the compliance & regulatory costs of a doctor.

However, fortunately, even though financial advice fees can never be cheap, in most cases, the value of financial advice easily outweighs the fees.

When clients understand and experience the value of financial advice, we know clients begin to perceive advice as a "fee for a valuable service" rather than an "expensive cost". If you would like to know whether you would benefit from Financial Advice, you can book a free chat below:

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