The answer to this question is provided in two sections: firstly, the fees you may be asked to pay to the financial planner; and secondly, the fees you pay through the financial planner to other service-providers.

Fees potentially payable to a financial planner include:-

  • advice fees;
    • this is a cost incurred by an investor only when they engage the services of a financial planner and only for the provision of ‘advice’: the fee is payable by the investor, usually after having negotiated the fee prior to taking the advice;
    • advice fees may include the cost of implementation of the advice if accepted by the client, but most often is for the strategy to be involved;
    • where the financial planner is to be engaged to provide advice, implement the strategy and report on progress towards achievement of stated objectives, this will be the first of a couple of fees that will have been negotiated at the outset of the engagement; and
  • ongoing service fees;
    • This is a cost incurred by the investor when they engage a financial planner to provide an agreed suite of services (often including an annual review of the progress of the strategy towards achievement of the agreed objectives): the fee is payable by the investor, usually after having negotiated the fee prior to taking the advice;
    • The service fee might cover supplementary advice during the year; it could also cover an annual (or more regular) meeting(s) with the financial planner; and will usually cover telephone and email requests for information/ updates of data – and may include many other services

Firms like ours are well-advanced in providing services on a fee basis, in many cases rebating back to the client, any commissions received.

Some other fees that an investor may be called on to pay by virtue of implementing an investment strategy include:-

  • brokerage;
    • a cost incurred directly or indirectly to the agent for making a transaction for the investor – and correctly payable by the investor;
    • incurred on share purchases/ transactions (whether directly; or through a managed fund or ETF)
  •  placement (initial) fee;
    • a cost incurred at the commencement of certain investments, covering account establishment and administrative costs for the investor’s account and appropriately paid by the investor;
    • usually only applies to managed funds (and in the current environment, usually only when an investor deals directly at the retail level with the fund manager)
    • can also apply to insurance bonds and annuities
    • when applied through a Financial Planner, should be considered for offset against the initial advice fee
  • administration costs;
    • costs incurred at various levels, but providing custodial services for – and reporting to the investor, services that the investor should feel comfortable to be paying for;
    • accountants to compile the tax elements of income earned from investments (whether shares, managed funds, rental properties, or cash)
    • accountants to determine the consequences of capital transactions on sales (whether gains or losses) and the taxation implications of those amount;
    • investment platforms to attend to the above and provide a single report covering the activities for the financial year in a simple format
  • reporting costs;
    • investors seek or require various reports at various times each year: these reports are compiled from information made available from the managers of the various investments owned by the investors – and the costs can readily be seen to be properly those of the investor;
    • accountants to compile returns received from investments, determining the performance of the portfolio
    • alternatively financial planners to undertake any of the above roles
  • commissions;
    • usually payable where a direct transaction is undertaken by an investor using an agent or broker – acting at the investor’s direction but understood to be a cost of the product provider;
    • where the investor acts through and advisor who is doubling as an agent, clear understanding should be held as to the role the advisor is to take: as Financial Planners our firm usually rebates this revenue – often to offset against advice fees charged;
    • commission is paid by ‘the principal’ (the provider of the product) and is not separately charged to the investor (and in many situations, does not influence the price paid);
    • instances where commissions arise include direct share transactions, direct real estate transactions and insurance product sales
  • performance fees;
    • these fees are incurred when a portfolio is managed to prescribed expected outcomes, providing a bonus to the investment manager when the performance of the assets they manage exceed given levels: the fee is deducted from the earnings of the investment and is considered to be a cost to the investor, but only in situations where they benefit from higher returns – and are accepted as being an indirect cost of the investor;
    • they are most often found in a limited range of managed funds
    • some financial planners and brokers negotiate such fees with their investor clients (but this is not a practice of this firm)
  • volume bonus;
    • this revenue item flows to financial planners in some situations: it is paid when the volume of sales of a particular product or service exceeds pre-determined amounts: it is a cost incurred by the product/ service provider and not a direct cost of the investor;
    • these fees are usually associated with managed funds and flow to financial planners through their Dealer Groups and/ or managed funds directly;
    • newly-introduced legislation(March 2012) restricts circumstances where this fee can be passed to financial planners – it is yet to be seen whether this will reflect in savings for investors

Many of the fees from the latter group above, will be payable by an investor regardless of whether they use a Financial Planner or operate on a DIY basis: the difference is often that a Financial Planner can provide access to a more diversified portfolio because of their affiliation with various product providers – and in many cases, the additional costs are minimal because they are provided at a wholesale level rather than at retail charge.