By: Financial Planning Institute of SA
I am currently looking for a financial adviser to help me rationalise my investment and retirement strategy.
On average, do you know how much Certified Financial Planners cost?
The Financial Planning Profession is in transition when it comes to remuneration. One must appreciate that not all CFP® professionals are fee based, some still work on the more traditional commission basis.
The debate around fees vs. commission is certainly a lively one; however, the most important aspect in all of this is to be able to easily discern how much you are paying for what services, regardless of the payment source.
Another important aspect is that, if you choose a commission based planner, be certain that you are getting unbiased advice . This is where most of the disagreement takes place.
That being said, CFP® professionals abide by an ethical code far above the requirements of law and, therefore, provide a sense of comfort that objective and prudent advice will be delivered.
Many of the younger clients do not have the disposable funds to pay for advice so then commission, where the "fees" are collected over the term of a financial product, can play a role.
But, back to the original question… Due to the fact that the concept of fee based advice is still relatively new, the market hasn’t had sufficient time to settle on a specific charging scale.
The approach to fees in the South African context is centred on three broad areas:
Initial financial p lanning fee As the name may suggest, this is the fee relating to the planning and consultation phase of the engagement. This is where the planner would have sat with you (and potentially your partner) to establish and define your personal and financial priorities and goals. From there, and with the resources available to you, a plan would be developed and recommendations made.
In general, there should be at least two to three of these meetings to allow for meaningful advice to be delivered. The fee for this can vary between R2500 & R25 000 and is usually dependant on whether implementation fees are charged, or not.
Implementation fee This is aimed at what work is undertaken to implement the agreed plan which may include increasing/changing insurances or restructuring an investment portfolio.
The most common charging structure here is based on the investment size and/or amount of work involved in a portfolio reconstruction. For insurances, the premium dictates the commission.
Annual advice fee The most critical aspect of any plan is the reviewing and monitoring of it. This should, at a minimum, take place annually. This is to ensure that the original plan and corresponding financial solutions remain relevant and meaningful given changes in legislation or personal circumstances.
This is generally calculated as a percentage of investments that the planner is advising on.
From the above, the planner may charge on only one of the above or all three on a reduced basis.
Bottom line is that, before you enter into the financial planning process, a very clear distinction should be understood regarding how much will be paid in fees and where these fees are to come from (i.e. paid by cheque/EFT or as part of the commission from a product).
If the remuneration disclosed is not commensurate with the value being offered, you are entitled to negotiate with the planner or seek another one out that better suits your personal budget and circumstances.
Any planner worth their salt should be able to inject the value and expertise into your financial life to the benefit of your financial wellbeing and should supersede any fee being paid.
Working with a CFP® professional should work out to be an investment in your financial wellbeing and not an expense.