I have always been in two minds about financial advice. After seeing my parents get scammed by some dodgy planners, I have always tried to be more independent but after working with some high net worth people I wonder if there is more I could be doing to grow my wealth. Financial advice could be anything in this context whether its a buyers agent or a financial planner.
Do You Pay for Financial Advice?
aimon on 23/03/2021 - 20:45
Poll Options
- 12Yes, I pay for financial advice.
- 42No, It's not worth it.
- 2Yes, I pay, but don't really think it's worth it.
- 30No, I don't pay but think its a good idea.
Comments
Lol. That or reddit.
I didn't even think of that :)
…or whirlpool
I pay an adviser to manage my share portfolio. He only charges a performance fee ie. a portion of the portfolio's outperformance over the ASX200 benchmark. No outperformance = no fee. No fee model is perfect but this one means we're pretty aligned on outcomes.
Really? Don’t think so. Performance fees like this means advisor has no risk of loss if he/she recommends risky securities but benefits if they gain. I wouldn’t trust it. Personally I pay fee for service for fixed scope.
You are getting scammed mate
Does he pay you when it tanks?
I'm seeing a bit of negativity here towards performance fees. Fair enough you do what works for you, but I would say check out the fee schedule for your super fund…industry super funds such as Sunsuper, Australian Super, HostPlus all charge performance fees on a large proportion of their actively-managed strategies. To quote Sunsuper (one of the largest not-for-profit industry funds) "Sunsuper believes that performance-related fees encourages our investment managers to deliver sustained investment performance and avoids rewarding investment managers for underperformance". I agree with Sunsuper, Australian Super and HostPlus; I'll leave it at that.
"Sunsuper believes that performance-related fees encourages our investment managers to deliver sustained investment performance and avoids rewarding investment managers for underperformance"
Yes, it encourages performance. Up to a point.
Their effort now has an ROI. They could work harder and get you a better return (which in turn sees them get a better return), but at a certain point this is no longer "worth their time". They'd be better off spending their time getting more of their customers slightly better returns than getting you an even better one than they already got you.
And yes, it doesn't reward under-performance, but it doesn't punish it either.
"And yes, it doesn't reward under-performance, but it doesn't punish it either."
Is there fee model that does punish under-performance, for the record? If your portfolio under-performs the market by 10%, not only do they not get any fee [which is the above model] but they, what, have to dip into their personal savings to pay a penalty fee to you?
@Crow K: No there isn't (that I know of), and yes it is unrealistic to even have one.
My point I suppose was that while there's incentive to put in some effort, it has a diminishing-returns aspect: ever-increasing effort for an ever-decreasing reward. There ends up being an point where they are better off not spending their time getting you better returns.
And if they royally stuff up (i.e. your portfolio tanks), they still get some payment (as there is typically a minimum fee).
@Chandler: I suppose the argument hinges on how "easy" it is for them to outperform the market, then. If it really is that simple* then yes, after they ratchet up their win [let's not forget this is usually measured over a period of time - if they spend two months outperforming the market but then end the month underperforming, they don't get any fee? Or a pro-rata'd one anyway - it's not a set and forget thing], they wouldn't need to fight harder for your additional returns .. … but I feel like we're now returning to my point. Is there a flat fee model that would make them then fight harder for an additional return for you?
I would think the "flat fee for having me invest for you, not linked to performance" model would be the one where the morally dubious managers just want to recruit as many additional customers as they could than try to maintain your portfolio and ensure it's outperforming.
In the same vein, I think the "flat fee" managers also end up with more than the performance fee managers in the event of a royal stuff up/portfolio tanking?
*and I'm not sure it is that simple or they wouldn't need to do it for other people for a living
Pay fee for service. Not a commission model.
This is what turns most people off. It seems expensive when they give you an invoice as opposed to the hidden commission model which costs you significantly more in the long term.
Sometimes free advice is the most expensive.
yes
Can't afford the good ones so I do all the research myself. Ideally you should have more than one if you go down that path.
I trust me more than some random guy with self interests personally. Having said that it is always good to have access to different viewpoints based on your specific circumstances/objectivesImportant to have a good accountant in any case.
Unless you have investments or anything substantial. Most financial advice can be learned from google, a little research and a good brainstorm.
Financial advisors are mostly insurance salespeople.
Not if you say "I don't need any insurance". But given that most people are under-insured and your capacity to work/live will underpin any plan they provide, it's a legitimate question.
Had a free initial meeting with one recently. Fixed fee for a plan for wife & I is just shy of $9k. I've got a few questions but probably won't take it any further.
If there's anything I've learned in my life it's that "experts" are no worse at losing my money than I am on my own.
Does joining WSB count?
I’ve met and dealt with a ton of financial planners in my time and they are almost all scam artists of average intelligence. Unfortunately the best way to manage money well is through hard work of googling, studying and trial and error learning yourself. There is a lot of common sense stuff out there. It just takes time to get across it. But that is the safest and most effective way of protecting and growing your wealth base.
If someone is genuinely talented at managing money they are not spending their time helping mums and dads for pocket change. They are focusing entirely on their own wealth accumulation and if they are really awesome they are going to work at (or start) a fund management firm and playing with the big boys.
I'm sign up with the Motley Fool (U.S) service a lot of people give them shit but i dont mind some of there stuff and there podcast is good
In a world where WSB and meme stocks, the fundamentals still stand up not saying i agree with everything they say but there US service is a mile better then there Australian one
Financial advice is…getting advice about your 'finances'. But this covers a very wide scope, from education, to products, to cashflow, to strategy and problem solving. If you dont save any money, start with a spending/savings plan. If you dont know about your Super fund(s), start by getting the info and reading about it. If you need your weekly income, have debt and/or dependents, start with some protection options (cash reserve, insurance, Will). If you have all these basics covered, then start to think about a home or investing your extra savings. It sounds like you may be starting from a low base so I would consider some self education and basics, but if you want to pay someone to help/fast track/do it for you (like everyone does for other stuff) then search for a financial adviser that works in that space - you dont need a $9,000 plan (thats a fair whack) if you dont have complexity and existing wealth or income. There are plenty through social media that have starter courses, books or guides, 1 to many webinars or FB groups, cashflow only or are happy to focus on a single area. But there will still be a cost. To be a licensed financial adviser is costly and the compliance required regardless of how big or small the client task is a lot, which all adds up. They dont have a large client book like an accountant, fees arent tax deductible, no one is forced to use them and they dont charge massive fees like lawyers. So expect the equivalent of ~$330 per hour with a minimum cost, sadly its just not financially viable for them to do low value one off work anymore due to the requirements now in place.
Question could also be structured as.
Do you pay for someone else's Mercedes?
Most People just ask ozbargain.