In a Singapore Sunday Times’ article “Putting a price on financial advice” dated 1 November 2009 written by Lorna Tan highlighted about how three firms put a price on their financial advice…. Here is the summary for those who missed reading the article:
Providend:
Initial planning fee:
$300 (for a Will) to $4000 for a comprehensive plan for affluent customers
Retainer fee:
0.8% to 1.25% per annum of asset under advice. No upfront fee for investments. Minimum investment amount of $20,000.
Ipac financial planning Singapore:
Initial planning fee:
First meeting free. Subsequent $400 per hour.
Retainer fee:
1% per annum of asset under advice. No minimum investment but clients tend to have more than $100,000 to invest.
IPP Financial Advisers:
Initial advisory fee: 3% of investable amount plus separate fee of $500 to $3000 for written comprehensive financial plan.
Retainer fee: 1% per annum of asset under advice with investment amount at minimum $25,000.
Commentary:
All of them employ the IFA fee Model No. 2, making use of the recurring fee that is earned as a percentage of total investments assets under management (AUM).
In truth, most IFAs will employ a mixture of the various models. For me e.g I will charge a fee if after my comprehensive planning is done and the clients do not go with my recommendations. It is a fair trade for my time and their time on consultation plus planning. The planning fee will be waived by me for the first time if they agree with my recommendations and implement them, this is because, I am remunerated by their implementation of whatever planning is done through the commissions.
It is a fair exchange and being professional about it, it allows flexibility for the client and myself to engage each other on the fees. There is no hard and fast rule on how your adviser can charge on the fees. But again the profession’s estimated fees are as follows:
Planning Fee: Individual (Basic $250) – (Comprehensive $1,000) Per Annum
Family (Basic $1,000) – (Comprehensive $4,000)Per Annum
Per Hourly Basis ($250 – $400)
AUM: Initial Fee (3.00% to 5.00%) One off Fee, some may exclude it depending on the size of investments
Plus recurring Fee ( 0.75% to 1.25%) Per Annum
In Singapore, there are few advisers who uses purely fee-based financial planning. As an IFA, the goal for an adviser is to work with their clients, to engage in a dialouge that can benefit both ways. Hence a flexibility of the fees structure allows them to work together on a win win situation.
In truth however, the clientele in Singapore is very much immature over fees. Most often they will try to squeeze the “cheapest” fees from the adviser which is very unethical in that sense. Everyone is trying to make a living here, and if you want to engage an adviser to help you plan, at least engage them professionally and be open and respectful of the fees charge.
I personally met up with a potential client who does not wish to pay a planning fee, and yet wants to invest without sales charge and a low AUM fee of 0.50% all for the sake of $10,000. Guess what was the excuse. “Oh because I can do the planning myself and use Fundsupermart to invest without much charges.” I was stunned and insulted at the same time. If that person wanted to engage a adviser, he should have the basic courtesy to respect our job and time spent on him. He thought very highly of himself and was an investment savvy person according to him. If he could have done a better job at it why didn’t he do it by himself from the start?
If I was to engage this person, can you imagine the fees I would have earn for the 4hrs effort on this person? Yupz you guess it right. The total AUM fee is $50 for the whole year. Meaning I will get $5 gross revenue per month just for managing his account and doing up the planning. Fair? I do not think so.
Let me just add, why the fees you pay is relevant and justified. First, the amount of time you spend engaging the adviser on consultation and going through your finances. It takes time to diagnose and recommend solutions to you. For e.g an adviser who has access to research to know which financial tool is relevant to your needs can better advise you, like if you needed a mortgage loan, which banks suits your needs most with the best rates. If you were to do the research yourself, imagine in Singapore alone you’ve got a minimum of 7 banks dishing out these mortgage rates. If you were a client yourself making the rounds to find out more about their rates and spend 1 hr on each, you would have taken at least 7 hrs minimum to talk to each one of them. But with your adviser it is one phone call away.
For the AUM fees, investments requires research and quicker responses to events that may occur. Using a IFA adviser allows you to tap into their investment desks’ research and portfolio construction, that not only manages risks for you but also maintains a certain level of consistent performance. That alone justifies why you need to pay your adviser well. To do it yourself whilst being either employed or self employed, takes up time on your side, and to do the research on your own is a gigantic task alone. So using the adviser as a leverage to help you invest with engagement and dialouge allows you to minimise time spent and doing what you do best at work or enjoying time for yourself, while leaving the tough bit to your adviser to manage.
Saying all these, you and your adviser should be open about all the fees involved. Set our expectations right and do not over expect things but yet pay peanuts. If you pay peanuts expect peanuts, if you pay like a King, expect like a King. Same goes for an adviser, if you expect people to pay you well, you better provide the best advisory work for them.
I hope this short article will be helpful for those who are keen to engage a true professional to help you.
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