Valuing Financial Planning Advice

The Value of Advice concept
… what you are paying for!

Valuing Financial Planning advice…
is that process different from valuing any service or advice?

Clients of financial planners have long been valuing financial planning advice.  Legislation by the then Labor government in 2013, has given rise to discussion as to –

• what value investors receive for the fees they pay to their wealth management service providers, so that
• Financial Planners now need to be able to demonstrate the value of advice they deliver.

‘Value’ as a term can be a difficult concept.  Rarely would two people agree on a value for any advice or service they receive. This reality exposes the elements of what constitutes value.  The key elements of value are –

• the money we spend for a product or service; and
• the emotional investment we make in seeking/ committing to that product or service.

Consider the experience of visiting a restaurant that has been recommended to us.  We attend, but have a disappointing experience.  Our disappointment could be from a number of factors, including that –

• the usually high standard of food and service just wasn’t ‘up to scratch’ at our visit;
• we may not have been in the right frame of mind;
• our referrer friend may have lesser expectations than we have in relation to this product or service, or
• our expectation has been elevated by a well-meaning referrer.

Regardless, our perception of the value in dining at that restaurant is different from that held by the referring friend. Has the product or service cost influenced our perception?  Our experience with the ‘activity’ influences our perception of its value.

Legislating the value of financial planning advice

Much of the discussion about valuing financial planning advice that arose from the FoFA (Future of Financial Advice). That legislation revolved around –

• the perceived high cost of financial advice; and
• that payment associated with the advice was made by multiple providers. These sources were not always transparent to the client, and led to conflicts of interest.

Legislators paid minterest to –

• the source of fees and other revenue received by advisers
• as a consequence of their providing advice to unwitting clients.

The interest extended to whether those sources of remuneration influenced the advice being provided.  Specifically, did they give rise to a conflict of interest on the part of the adviser?

The client’s confidence in their provider influences the perception of the value of services provided.  Clients build confidence in their adviser according to their –

• honesty,
• integrity,
• competence, and
• experience,

as well as confidence that the adviser, and

• their support team, have –
• the client’s best interest in heart and mind when dealing with their affairs.

This valuing process also includes having confidence that the adviser has ethical standards to which they adhere.  The perception of value of the adviser services is enhanced when advisers are held accountable to those standards.

Legislating value for any service is a difficult endeavour.  The government uses simplistic measures to determine whether promised/ implied service are delivered to the client.  The process of valuing that advice remains with the client/ user of financial planning advice services to assess.

What are the cost elements to consider in forming the ‘value’ assessment?

Discussion about the value of working with financial planners was historically, investment performance as being the single measure.  This measure has been misguided.   It has largely been influenced by television and print media advertising by Industry Superannuation Funds.

There are two main sources of cost involved in the provision of services by wealth management advisers (financial planners):

• Costs for advice and services provided by the adviser/ their firm; and
• Costs for products utilised in the implementation of that advice.

Advice and Service

The advice and services provided by the majority of financial planning organisations include –

• Determination of financial position and their financial resources available;
• Confirmation of the goals and aspirations of the investor;
• Assessment of the risk aversion characteristics of the investor and the timeframe available for achievement of their goals;
• Understanding lifestyle, family and business structures, personal attitude and preferences of the investor;
• Projecting and calculating outcomes potentially achievable using variations of primary strategic alternatives;
• Offering follow-up to the implementation of the financial plan at any number of levels.

They will draw these elements together in a strategic advice plan designed to satisfy the aspirations of the individual investor.  Having a strategic financial plan that has been so individually focused should serve to provide –

• a level of confidence to the client that
• their best interests are being cared for by their wealth management professional.

Product

The Products utilised in the implementation of advice include –

• Administration platforms: who attend to various roles, including trusteeship, accounting, and reporting – and in some instances, research about the investment products they approve for use on their platform. They also provide income and expense summaries, with Capital Gains Tax calculations in their annual reporting.  (A Platform Administration Fee is usually paid to these providers: the more complexity/ risk undertaken by the provider, the higher the fees are likely to be.);
• Superannuation accounts: which can range from personal superannuation accounts, employer-sponsored super accounts through to self-managed super accounts – and can include accounts in pension phase. These various accounts must also provide reports and account for taxation liabilities. (These accounts are usually subject to administration fees, but will also need to account to the Taxation Office and provide annual member statements and annual reports to regulators.);
• Managed Investment Schemes: which invest funds in prescribed asset types, actively trade and/ or rebalance, measure performance against benchmarks, undertake research and account for their performance. (These schemes, also more commonly known as managed funds, receive fees for placing the investments after their research criteria has been met as well as reimbursement of any transaction costs. In some cases, performance fees can also be charged.); and
• Direct Investments: Rental properties will involve costs of repairs, managing agents, insurance, rates, advertising, body corporate fees, land tax etc; and a direct share portfolio will involve brokerage on transactions. All direct investments will most likely give rise to accounting costs, varying in amount according to the number of transactions and the extent to which capital gains are involved and require calculation.

The perception of Value

Each of these carries their own cost structures: as products, their value is more easily measured as a unit return on amount spent: and just as with clothes, cars, domestic appliances and other commoditised products there are a range of qualities, from ‘standard’ through ‘average’ to ‘elite’. The cost of the product will vary according to the amount of ‘inclusions’ and benefits.

(Accepting the above, it is clear that the comments by Industry Super Funds are not being made on a ‘level playing field’ basis: they are only competing at the product level, without providing advice and options as to levels of benefits available so that you can confidently take up relevant offerings, nor flexibility to move between those available benefits as your circumstances change!)

This is part 1 of a two-part post about the ‘value of advice’. In the second part we talk about the value of advice delivered by our firm – and use reference to client testimonials to support the claim that the value proposition that we offer clients is being delivered in a practical way.

This company adopted a ‘fee for service/ advice’ policy at its inception and any commissions received have been brought to account against fees payable by clients – and disclosed to them as such in annual statements and/ or advice documents.

We welcome any enquiry regarding our advice and service offerings. If you would like to discuss what we could be doing for you to enhance your experience, please make an appointment with one of our experienced advisers –

• phone our office on 07-34213456, or
• at your convenience, use the linked Book A Meeting facility.

 

(This article was originally posted by us in January 2014.  We occasionally refresh/ update it, most recently in June 2025.)