Why do financial planners charge a fee for service?
The short answer is changes to industry regulations to improve transparency for clients. More detail is outlined below.
The regulator (ASIC) recently changed the rules so that commissions paid to planners from super funds must cease completely from 1st January 2021.
Also, as many of you know, similar changes to industry regulations back on 1 July 2013 started the cessation of commissions paid to planners from super funds and the reduction by 50% of upfront commissions on insurance products.
Until now, the full cost of providing advice to clients was cross subsidized by commissions that flowed from certain super account. Unfortunately, past and upcoming changes in the law mean planners have no choice but to pass on the true cost for any services they provide.
Research undertaken by ASIC shows that 41% of Australians intend to seek advice to help navigate the complexities of Superannuation, Tax rules, Centrelink, Insurance, etc. Over half say they will be seeking this advice in the next 12 months. until
An upfront fee replaces the cross subsidisation in the past from commissions and this causes concern for some who’d like to employ financial planning services.
However, there is some good news. A 16-year study by Vanguard Investments has found that a planner adds around 3% to the long term value of investments. This means you not only get professional advice and peace of mind but have most, if not all, costs covered in the long run. The article ‘Value of advice’ explains this in greater detail.
From now on you’ll see a fee charged and that commissions will have ceased, but what has NOT changed is the advantage enjoyed by clients who get advice, examples below, compared to those who are left to their own devices.
- not paying more tax than necessary,
- avoid super fund that are high fees, high risk or poor performance
- avoid insurance policies with high premiums or below average quality
- get greater Centrelink benefits,
- get ‘best practice’ for managing your cashflow
- be certain your loved ones will get paid first
We look forward to starting a conversation about the sort of future you want to plan for. If you have any questions then please us the Contact Us form to ask.