Sometimes I feel like a bit of a broken record, but I also get a lot of people coming to me saying they’ve been reading these pieces for 6 or 12 months or more and have just got around to doing something about it. After all, it’s far easier to live in the here and now than it is to be thinking about how to plan ahead for the next few decades. The issue is that if you don’t plan, life will have a rude way of letting you know down the track.

We’ve all seen the ‘Compare the Pair’ ads around superannuation for years now. This week I want to Compare the Pair when it comes to paying for financial advice and put you in an informed position to make the right decision for your situation.

Let’s compare advice paid for as a percentage-based fee vs advice charged as a flat, fee-for-service payment.

Different financial advisers charge fees in different ways, some charge percentage-based fees while others charge a fee-for-service. To most people, percentage-based fees of 1% or thereabouts often sound cheap, but let’s explore that by comparing it with a flat fee of $1,980 per year (i.e. $165 per month) for financial advice for a couple.

What do you see?

If we assume that someone with $200,000 receives advice to use the same strategies and products as someone with $1,000,000, why would the advice for that cost FIVE TIMES more than for the person with $200,000? This is why I don’t believe in percentage-based fees. On a like-for-like basis, it shouldn’t matter how much money someone has if the strategies and service provided are the same.

Now in fairness, there are situations where someone with more money has a more complex situation and therefore needs more complex strategies and product recommendations, but I’d argue those situations are actually not that common. For example, whether someone has $200,000 in super vs $400,000 in super, the strategies advised and products to implement those strategies are often the same or very similar, yet a percentage-based fee could result in fees being twice as high for exactly the same service!

Having more money doesn’t necessarily make your financial situation more complex. It’s only if the complexity increases that it would make sense to pay more. After all, you don’t pay more than the person next to you for the same car just because you have more money in the bank. Sure, if you have more money you may be able to afford a better car… but the key here is comparing apples with apples.

How you pay for financial advice matters! A percentage-based fee may sound cheap when you hear 1%, but it’s the cost in dollars that is the true cost.

Compare the pair!

Cheers,

Daniel