A look at what getting professional investment advice costs in New Zealand
The short answer: it varies a lot and often you won’t know what they charge until you’re sitting in front of them.
In fact you'll find that it is very common for the websites of investment financial advisers to not state specifically (dollar amounts and/or percentages) what they charge for their services.
I found one financial advice provider who took this to the next level with ‘terms of engagement’ for their services. One of which was (I’m paraphrasing) you may not disclose our fees to anyone else.
Not only did they not freely disclose what they charged for their services...they also mandated that when you do manage to find out: you aren’t to tell anyone else what their fees are.
Doesn't get much more secret squirrel than that.
Because it can vary so much, understanding how investment advisers typically charge fees is very important.
This will best prepare you for your first (free) meeting with them (which tends be the first direct interaction with advisers).
Free First Dates – no cost for a first meeting to discuss.
Most advisors offer a complimentary first chat. Think of it as a blind date for your finances.
You get to see if their vibe aligns with your goals and if they answer your questions without making your eyes glaze over.
$0 – this seems to be pretty much an industry standard.
Credit: created by Christina Fidler https://www.christinafidler.com/
Fee-for-Service – flat fee to complete a piece of work
It’s quite common for advisors to charge a flat fee for the services or products they provide. This could be providing investment recommendations to meet a specific need (a statement of advice), a fee for implementation of recommendations, or it could be for in-depth financial analysis and the creation of a comprehensive financial plan as a one-off service.
Flat fees vary widely depending on the work requested. For example, providing simple KiwiSaver advice tends to have little to no cost attached to it (KiwiSaver is a very competitive market) versus creation of a full financial plan which can easily be in the ballpark of $2-4k.
% of funds under management (FUM) p.a.
This fee is very important to understand as this approach appears to be the most common way that investment advisers charge fees and works well for providing ongoing services (opposed to one-off advice/services). The fee is usually paid monthly, is calculated based on the amount of funds you have invested and is often simply deducted from your investment account and paid by the fund manager directly to the adviser (so is easy for both client & adviser).
Essentially it is an adviser specific charge, deducted automatically, that you pay on top of the standard fund management fees you pay to be invested with a managed investment.
The actual % charged varies a bit depending on the adviser and product but you can expect to pay anywhere from 0.25% p.a. to 1.5% p.a. of FUM p.a.
For non-KiwiSaver funds 1% seems to be the common level of fee charged by investment advisers.
Hourly Rates – paying for their time or time it takes to complete requested work
Pretty self-explanatory - some advisers charge for their time via hourly rates. This might be for meetings or for the time it takes to complete work i.e. creation of statements of advice or financial plans.
From what I’ve seen typical hourly rates are $250 – $300 per hour (excluding GST).
Consider also, other factors that may come into play:
Adviser incentives from product providers
Usually minor but still worth mentioning, investment advisers can sometimes get paid incentives by product providers to invest new clients’ funds with them. These incentives can be either:
An ongoing (trail) amount - in my experience, if this applies, it is commonly 0.25% of funds under management p.a.
A one-off flat amount either immediately or after a specific period has passed, for example $30 paid to adviser after a client remains invested for 12 months.
Though typically low in value your adviser should still be making you aware of any incentives they may receive as part of their recommendations as this could constitute a potential conflict of interest.
Minimum Investment
Some advisors have a minimum investment amount before they are willing to take you on as a client. This could be having a minimum of $50,000 or even $1,000,000 to invest.
Investment Complexity
The trickier your investment goals and portfolio, the potentially pricier the advice.
There is a big difference in the amount of work (and cost) between:
A recommendation for an appropriate investment to start saving for retirement.
(analysis of a clients investor profile, financial situation & goals to arrive at an appropriate investment recommendation)
versus
In-depth financial analysis of a client's full situation and creation of a comprehensive financial plan covering all the facets of their situation and goals.
(comprehensive analysis of all the different facets of the clients financial situation with multiple recommendations and projections on how to reach their financial goals).
Tip: Chances are the adviser you approach will lay out what they think is best for your solution. Knowing in advance exactly what outcomes you are looking for will help you both better understand what you should be paying and better avoid the hard sell.
Agreeing on the ‘scope of service’ (including what fees will apply) is the important first step when working with an adviser.
Bucking the trend of investment advisers not stating plainly what they charge...
..I’ve laid out our simplified fee schedule below:
Notes:
There is no minimum investment amount required to work with us.
FUM stands for funds under management. This is an ongoing fee where the adviser is paid a percentage of the funds that are invested i.e. a fee of 0.50% of FUM p.a. on $10,000 invested would equal $50 per year.
Client % of FUM fees vary based on investment products used and any relevant provider paid fees/incentives received. The total ongoing adviser fee (% of FUM) we receive for KiwiSaver (made up of provider and/or client paid fee) will not exceed 0.50% p.a. of FUM.
Some of the other services we offer like UK pension transfers & the Fisher Funds Individually Managed Account Service (IMA) are not included in the above table.
More in-depth information about the services we provide and the fees we charge can be found on our services page of our website: https://www.mckfp.co.nz/our-services/
The above blog was written by Reid Mckenzie a financial adviser working for Mckenzie Financial Planning (www.mckfp.co.nz).
The above information is general in nature as is not meant to constitute personalised financial advice. Reid recommends seeking personalised financial advice from a registered financial adviser before making financial decisions.