A clear understanding of fees, costs and the value they bring is critical in finding a financial adviser who offers a balanced, transparent approach that supports your financial goals. Our guide aims to make it easier for you to make a smart decision.
Overview:
Fees and costs are important considerations when seeking out financial advice, but so is the potential value you can gain from the advice process.
Fees rightly are often the first point of comparison. But these need to be considered alongside the potentially far greater costs of receiving inadequate, inappropriate advice that takes little account of your circumstances, preferences and goals.
Another variable that is easy to miss when assessing advisers are the often hidden product costs from fund managers and high fees charged for ‘active’ management on the false promise of market-beating returns.
Finally, and as with every investment, the price you pay should always be assessed in the context of value you receive. When assessing advice firms, don’t overlook the intangible value of having someone looking out for you, holding you accountable to your plan and keeping you disciplined through volatile markets and uncertain times.
Below is a primer we have prepared on how to juggle these multiple considerations when looking for advice and some key questions you should be asking:
What is the Value of Advice?
High-quality financial advice offers several benefits that can make a meaningful and valuable impact to your financial journey:
- Strategic Road Map
Good advice provides a clear framework or roadmap that outlines how to achieve your financial goals. This should give you confidence that, by following the plan, you will be optimally positioned to reach your goals without missing opportunities to reduce risk or enhance returns. A well-developed plan can significantly ease financial anxiety by ensuring you’re making the most informed decisions.
Without a roadmap, you can end up making disjointed financial decisions based on piecemeal advice, often from people who aren’t the best qualified to provide that advice. By contrast, an effective plan, built by a qualified professional, narrows the range of possible long-term outcomes and aims to ensure these align with your goals. In some ways, it insures you against missing key opportunities or making common missteps. - Disciplined and Durable Investment Strategy
Given the complexities of investment markets, developing a sustainable investment strategy is essential. Without this discipline, you risk making mistakes that can compromise your wealth outcomes. This is particularly the case in a market where so-called “experts” offer strategies that are often inappropriate for your goals, circumstances and risk appetite. A disciplined and durable investment plan should not only align with your risk and return objectives but should protect you from switching strategies impulsively. - Ongoing Advice and Support to Keep You on Track
Investors with significant wealth can find it invaluable to have a trusted adviser on their side to keep them accountable and focused on their long-term goals. Alongside portfolio management, this support includes both practical and emotional guidance through the market’s ups and downs. As market conditions and your own life circumstances change, a proactive adviser can help you avoid impulsive decisions and ensure your investments stay aligned with your plan.
Yes, these benefits come at a cost, but it is also true that high-quality advice can provide substantial net gains. Vanguard’s “Advisor’s Alpha” study highlights that advisers who encourage discipline and consistency can add as much as 3% to a client’s annual portfolio returns, primarily by discouraging emotional decision-making and by emphasising cost-effective, diversified investments.
The Cost of Advice and What to Look out For
Generally, the costs involved fall into three main categories:
- Advice Costs
These are the fees advisers charge for their work and advice. In a conflict-free model, this should be their sole source of remuneration. Advisory fees may be presented as a bundled cost or separated into strategic advice, investment advice, and administrative services. Strategic advice typically incurs a fixed-dollar fee, while investment advice is often a percentage of funds under advice.
Strategic advice costs typically range from $3,500 to $10,000 annually, depending on your needs and the complexity of your situation. In return, you should expect a comprehensive review and update of your financial plan each year, ensuring your strategy evolves with your life changes. Investment advice costs vary based on the services and portfolio size. For portfolios under $1 million, fees may range between 1.5% and 2.0%, while fees for larger portfolios are often lower at around or below 1%. - Investment Product Costs
These are the costs of the investment funds your adviser recommends. Although often not disclosed, fund manager fees can be significant, so you should be aware of them. Product costs vary widely, particularly between actively managed funds and low-cost ETFs or other systematic strategies. Actively managed funds can charge fees as high as 2%, often promising outperformance, whereas ETFs and systematic funds often have a fee structure in the 0.05% to 0.5% range.
Despite the hefty difference in cost structure, the SPIVA (S&P Indices Versus Active) report shows that about 80% of active managers underperform their benchmarks over a 10-year period, suggesting that low-cost, passive investments are often more effective in helping investors meet their objectives. - Investment Account (Platform) Costs
Diversified portfolios typically require an investment account or platform. Simple brokerage accounts are often free to set up, with the provider charging for each trade. More advanced platforms (wrap accounts) offer a wider range of investment options and enhanced features, like tax reporting and account tracking, for a percentage-based fee that typically caps around $2,500. With the right structure, platform costs have decreased significantly, making these options both practical and economical.
Understanding these component costs and the value they can bring are important tools for you in finding an adviser who offers a balanced, transparent approach that genuinely supports your financial goals.
Monitoring for Conflicts and Transparency
When working with a financial adviser, you should be aware of both the direct advisory fees and costs tied to the financial products they recommend. Many advisers don’t disclose product costs, which can often be the largest expense of the three layers. Pay attention to potential conflicts, such as back-end commissions or when products are issued by the adviser’s employer. Incentives tied to specific products may indicate a misalignment with your best interests.
The cost of the underlying investment products can be a good indicator of the professionalism and quality of an adviser’s recommended solutions. Some firms include high-cost active funds as a way of enticing clients with promises of exceptional returns. Yet, as SPIVA data shows, these products rarely live up to the hype and can expose investors to unnecessary risks and lock-up periods
Summary and Comparison
Considering the three layers of costs—advice costs, fund manager costs, and platform costs—the table below serves as a guide for what kind of all-up costs to expect. It also shows where Minchin Moore sits in the industry.
We understand this a lot of information to absorb, but we have found that those seeking comprehensive and effective financial advice will reap significant benefits by opting for professional, non-conflicted advice where both costs and value are perfectly clear.
We welcome any questions you may have.
