A look at professional investment advice costs in New Zealand
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.
In looking 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.
As an aside: Do you need financial advice at all?
Not necessarily - but research does show that those that get financial advice have better outcomes and feel more secure about their financial situation. See Financial Advice New Zealand independent research paper: Trust in Advice - Research on the Value of Financial Advice in New Zealand:
To use an analogy: You don’t need a personal trainer to work out a gym. But for some having a knowledgeable professional guide them, keep them accountable/on track, and help them avoid mistakes makes a significant difference in outcomes and therein is worthwhile.
Whether it's worthwhile for you is something you need to determine for yourself.
Back to how much it costs....
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.
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 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 is the most common way that investment advisers charge fees, especially for ongoing advice 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 (making it 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
Often minor but still important to note, investment advisers sometimes get paid incentives by product providers to invest new clients’ funds with them. These incentives can be either:
An ongoing (trail) amount - if this applies it is quite 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 ~$100 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 simple recommendation for an appropriate investment to start saving for retirement.
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.
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.
McKenzie Financial Planning fees:
Information about our fees can be found on our services page and our Disclosure page.
As you'll see we use a combination of flat and ongoing financial advisor fees and there is no minimum investment amount required to work with us.
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.