Recently, we learned of a case regarding a client concerned about the fees being levied against their superannuation fund for the level of service being delivered by their existing financial adviser.
There was an obvious lack of clarity around fees and when the client asked some clear questions, there was a distinct lack of clear answers. Not surprisingly, this left the client questioning the integrity of the relationship, which had existed for around 10 years.
Of particular interest is the client's recognition that during times when performance is positive, as was the case in the early years of the existing relationship, the fees are often ignored.
In response, the client made an appointment with the long term adviser of another member of his family. After a detailed inspection of the facts, the adviser was able to confirm that the total fees being charged against the portfolio were amongst the highest they had seen over the past 15 years.
The adviser then calculated the ongoing costs of an alternative administration system with an asset-class portfolio, and set a fixed retainer style annual fee in line with the service required by the client. When compared to the existing costs, the results were staggering.
This got us at The Trusted Adviser thinking. What could the difference in fees be for a client in a similar situation, over the course of 20 years?
Using all the facts and figures from our earlier example and a simple calculation methodology, we put the difference over a 20 year period at around $83,000*.
Bear in mind that the reduction in fees in our example includes the client having engaged a fee for service, professional Financial Adviser who uses asset class investing. Not a bad outcome in our view.
Naturally, there are an endless number of assumptions that can be made about what the results could be. However, a simple fact is: the higher the fees you are paying, the more return your assets are required to generate for you to break even. It really is a negative sum game.
This issue has led us to place some attention on a current marketing campaign of the National Australia Bank, commonly known as "Break up with your bank". We think this is an excellent campaign and the concept can be considered in so many other areas of life.
In relation to financial advice, it is so important that you are engaged with your adviser. That is how you are able to gain the most value out of the relationship. In our experience, clients who continually seek professional advice are taking action, as opposed to not taking action, which makes all the difference over a lifetime.
If you feel something isn't quite right, be sure to ask questions until you are satisfied with the answers provided. If this doesn't work, as the NAB suggest (at least on the topic of banking), maybe it's time to consider a break up.
* Starting capital: $300,000. Term: 20 years. Return: 5% p.a. average. No additional contributions. Fee differential $2,600 p.a.