Hi Nicole,
Following on from your recent column about choosing a financial adviser, I had one recommended to me by a someone who spoke very highly of them. The adviser has been managing my financial affairs for three to four years now. I am happy with the provision of service apart from the fact that the fee goes up every year despite the fact he is managing less money as I am a self-funded retiree, and my finances are not complex. The reason given is "inflation" which I don't find a convincing reason.Â
I have briefly discussed this with the person who referred me to this adviser and although they did not state openly that this was not occurring to them he did seem genuinely shocked and suggested I should not continue to allow this. Could you clarify if this is appropriate and reasonable practice? I find it difficult to raise the issue. In every other way I trust and feel comfortable with my adviser.
I would really appreciate your advice.
Jennifer, Newcastle
Jennifer, what a client has with an adviser is a relationship – and one of the most intimate ones… this is your money we're talking about. By extension, it's also your future.
You're clearly uneasy, if only about the fact his time requirement is static or even going down each year while your annual fee is going up. This is quite a common new charging structure – and one that older clients who still pay commissions might not be on – but it might not be appropriate for you.
The Financial Planning Association tells me there's often a mechanism to increase fee rates on an annual basis where a fee for service rate is charged. However, "financial planners are required by law to consider whether their client is justified in paying a fee for the advice and services they are providing. There is no code or law on how much they can charge, but it should be reasonable and FPA members have a code of professional practice", says head of policy Benjamin Marshan.
By law, you must get a fee disclosure statement each year setting out what services you could have received for the fee and the services you did receive. Naturally, you shouldn't be paying for services not provided. For guidance, though fees and circumstances vary widely, you might expect to pay $1000 directly to your adviser each year.
You need to broach your dissatisfaction with him and at least get an explanation. More likely, however, he will either cease the indexation or revise your fee for any diminished workload. Bottom line, he wants to keep you as a client. Â
Because, remember, you can always go elsewhere.
Nicole Pedersen-McKinnon is a money educator and consumer advocate: themoneymentorway.com. You can write to her for help solving your money problem, or with a consumer question, at nicolehelps@fairfaxmedia.com.au.