The fees an adviser may charge
Moneysmart says the cost of advice depends on how complex your situation is, the type of advice, whether you want one-off or ongoing help, and how the adviser structures fees. Its list of common advice fees, in this guide’s words:
| Fee | What it pays for |
|---|---|
| Statement of Advice fee | Preparing the Statement of Advice, once. Often paid separately for first advice, and often folded into the ongoing fee for ongoing advice. |
| Implementation fee | Putting the advice into action, once: opening accounts or buying investments, for example. |
| Fee for service | Advice or another service from the adviser. |
| Asset-based fee | A percentage of what the adviser manages for you, so it rises as the assets do. Moneysmart says you should be given the dollar amount too. |
| Ongoing advice fee | Regular reviews, support and a contact point for your plan, often charged monthly. |
| Review fee | A one-off review of your plan, and making any changes. |
| Hourly rate | Advice or one-off questions outside any ongoing fee arrangement. |
What sits on top of the adviser’s fee
The products an adviser recommends carry their own costs. Moneysmart’s examples include platform, administration, establishment, contribution, investment management, performance and withdrawal fees, buy/sell spreads, brokerage and insurance premiums. These should be set out in the advice, and a product’s Product Disclosure Statement also lists its fees.
Advisers may also receive commissions on some insurance they recommend. Moneysmart says an adviser giving personal advice about an insurance product needs your consent to receive a commission for selling it to you, and that includes life, general and consumer credit insurance.
Moneysmart’s illustration. A person with about $400,000 to invest is charged $3,500 for a financial plan and $1,500 to implement it. The Statement of Advice then shows total fees and premiums of $13,000 for the first year and an estimated $8,100 for the second, because ongoing advice, platform and investment fees and an insurance premium sit on top of the plan. Moneysmart says the figures are indicative only, and likely to be higher for broader advice.
The questions Moneysmart suggests asking before you agree come down to five: what you pay upfront, what you pay each year, whether product fees come on top, how you will be charged, and what the total is in dollars.
What a Statement of Advice must contain
RG 175 says an SOA helps a retail client understand personal advice and decide whether to rely on it. It may be the way the advice is given, or a record of advice already given, by phone for example. ASIC lists what every SOA must include. Summarised:
- the title “Statement of Advice” on the cover or near the front;
- the name and contact details of whoever is giving the advice, and their AFS licence number if they hold one;
- if they act as an authorised representative, the authorising licensee’s name, contact details and licence number, and a statement that they are its authorised representative;
- the advice itself, and the basis on which it is given;
- the remuneration, commissions and other benefits the adviser and related people expect to receive that could reasonably influence the advice;
- any payment made to someone for referring you;
- any interests, associations or relationships that could reasonably influence the advice;
- a warning, where the advice is based on incomplete or inaccurate information.
ASIC adds that an SOA should be dated, and should normally say how long the recommended course of action remains current. Where advice recommends replacing one product with another, the SOA must also cover the cost of switching, any benefits lost, and other significant consequences.
When it arrives, and how long it is kept
If personal advice is given some other way, the SOA must generally be given at the same time or as soon as practicable after, and in any case before the adviser provides a further service arising from the advice, such as arranging for a product to be issued. The licensee must keep records of the advice, including copies of SOAs, for at least seven years after the advice is given.
Failing to give an SOA when one is required is an offence, and so is giving a defective one, such as one with a misleading statement or a required item left out. RG 175 says a client affected by a defective SOA may take civil action for loss or damage.
Reading it as the client
Moneysmart’s own checklist for an SOA adds the reader’s side. Among its points: your financial details are listed accurately, it explains what the advice covers and what it does not, it explains the level of risk in the strategy, and it shows every fee, how it is paid and who receives it. It also says not to feel pressured to accept recommendations, and not to sign anything you do not understand and agree with.
Ongoing fees need your consent each year
An ongoing fee arrangement exists when a client receiving personal advice agrees to pay a fee over a period of more than 12 months, however the fee is described. Moneysmart says you must give written consent each year to being charged ongoing fees, and that each time you consent the adviser must give you written details of the services and how often you will receive them. You can end an ongoing fee arrangement at any time.
If you pay an ongoing advice fee, Moneysmart says the adviser should review your situation and meet with you at least once a year. Ending an agreement may still carry notice periods or fees under its terms, so Moneysmart suggests checking them.
Who may call their advice “independent”
Section 923A of the Corporations Act restricts the words “independent”, “impartial” and “unbiased”, and words of like meaning, when used about a financial services business. As RG 175 explains, they may be used only by someone who:
- receives no commissions (other than ones rebated in full), no payments based on the volume of business placed with a product issuer, and no other gifts or benefits from issuers that could reasonably be expected to influence them;
- works free of direct or indirect restrictions on the financial products they deal with;
- is free of conflicts of interest from relationships with product issuers that could reasonably be expected to influence them.
The restriction reaches websites and advertisements, and an authorised representative cannot use the words if their licensee, or the licensee’s other representatives, receive commissions, volume-based payments or other gifts or benefits. An SOA must not describe a person as “independent” unless the conditions are met.
Paperwork habits Moneysmart suggests
Moneysmart’s tips for protecting your money while working with an adviser include:
- not giving the adviser power of attorney, and never signing a blank document;
- putting a time limit on any authority to buy and sell investments for you;
- having all correspondence about your investments sent to you as well;
- making investment payments to the product provider, not the adviser, and checking account transactions regularly.
Where a fee, a product or the advice itself turns out wrong, the route runs through the licensee’s complaints process, which sheet 06, if advice goes wrong, follows to the end. Who is authorised to advise on which products is on sheet 03.