In an exclusive interview with ifa, CoreData managing director Andrew Inwood said the current market environment is advantageous to advisers, and that investors without professional advice are likely to start falling behind.
“Over the past decade CoreData has conducted mystery shopping exercises, placing more than 100 people in professional financial planning,” he said.
“For the past five of those years, the benefit of being with a financial planner has been really unclear because the returns for those with a planner and without a planner have been pretty much on par.
“However for the past year, those that stayed with their financial planner have started to accelerate away from those investors without advice in terms of returns, and that’s because the planner has kept them disciplined and focused on proper long-term investing.”
CoreData research suggests investors, particularly self-managed superannuation fund trustees, are moving away from cash and towards investing in property and Australian equities. This more bullish investment market is conducive to financial planning, Inwood said.
“When cash is king, it’s hard for investment advisers to prove their value but as soon as equities start to run, which they are now, then advice clients are miles in front and unless there is a market crash, the others are unlikely to catch up,” he said.
Good for you guys.
So, with a sales income of $700 and 70% overheads that would yield an income of $210k – your reasonable expectation. Over a 45 week working year, that comes to a tad shy of $400 an hour billing rate.
Expense overhead of $490k per person PA.
You guys are jesting are you not?
One hell of a profitable business if you can overhead half a mil, per person and still make a very good living from your endevours.
Either you are living the life of Ripley and expencing OS trips several times a year, and other discretionary exs, or you should consider trimming your O/H somewhat.
Of course if you are expencing things that mere mortals have to pay for out of after tax income then your true earnings are well in excess of what you claim.
Do your clients know you are billing at between $330 and $400 an hour? Or is this hidden under the ongoing contract deal and nondisclosure of costs?
Dave H, that depends, are they an employee just doing a job. Are they an owner that has borrowed against the family home to buy their business. You need to separate equity returns from labour returns.
Equity returns should be a minimum 20% of the business value, a junior planner $120k plus bonuses, a senior one $200k plus.
70% overheads for a medium to small planning would be normal in my books also.
This actually poses an interesting question for discussion I think…
What sort of earnings (wages plus profit/bonus) do most planners feel is just reward for their expertise and hard work?
A: Roughly what is this now?
B: Roughly where would you aim for this to be.
If privacy is a concern, feel free to change your post name, but I’m curious to have some input from other planners on this as most planners I know are reluctant to discuss in person, at least here the anonymity might lead to a more open discussion?
Steve jj, my ‘overheads’ are probably a bit lower if I strip out some costs that are not strictly always going to be there (i.e. business debt, etc), but as many planners would attest to, with all the red tape and regulartion we manage, the admin side of our businesses is a heavy burden and with technology, compliance requirements, PI premiums, and finding decent staff, costs are as high as ever. I constantly look at ways to reduce the cost of doing business, but to provide the high level of service I do I don’t like to cut things that allow my service levels to be what they are.
As all of my clients are happy with my current fee structure and NONE of them blinked last year when I raised my flat dollar fees (i.e. they are very happy to pay based on the value they get) any increased efficiencies in my business would be my benefit for hard work and a job well done and not passed on in lower client fees. They already get an aweful lot for my relatively modest fees.
Dave H – fair enough.
Your overheads may need looking at as you are running at a very high rate of up to 70%. If they could be trimmed down to more normal overheads then you could probably offer the same advice for nearer $2/3k PA. A price I would find attractive.
You could then expand your business, take on more business and those reduce that % overheads down to more normal levels.
I have a quote that is $12 PA for ongoing advice from a large specialist in SMSF FA – they advertise in the Sundays all the time and are a national company. No property, no overseas investments outside of managed fund.
They will not quote until you have disclosed all your data and then I guess they see a SMSF with think end of $3m in it and maybe they think there is a pot of gold awaiting to be plucked.
Next adviser wanted $6k and then the next $8k.
At no time did I want investment advice . What I requested was smart well designed strategies.
You’re right Steve jj – $500k p.a. in fees, give or take, less overheads, etc leaves a profit margin around $150-200k pa. Most decent accountants I know earn at least that. It’s an appropriate level of earnings for a highly qualified professional who delivers value to clients.
You have made it clear you see no value in paying for advice and I would likewise see no value in taking you on as a client. Any relationship needs to be mutually beneficial. Win/win.
I use this forum to liaise with other profiessional advisers, not to justify my value or fees. My client feedback and satisfaction and results, together with my business performance tell me what I dont need anyone else to comment on – My business is successful and run on a win/win basis where it’s worth my time being here and worth my clients money having me assist them. There are no losers out of my business. Everyone enjoys the benefits, although my clients make far more from my advice than I make from them!
Dave – that is not very EQ is it.
Good on you if you can make $330 an hour stick with clients – A cool .5M a year for 30 hours a week. Now I start to understand where the big fees are coming from.
I don’t think you could be worth that much to me, but as I say good luck to you in persuading clients that you are.
However if your crystal ball in advising when to move in or out of a market works then I guess it is very good value.
Stevejj
your assumptions are totally WRONG, As a planner we advise when to move if required and CERTAINLY not at the bottom or top. Inexperience (you) are responsible for your own outcomes-stop trying to pick our minds- go see a reputable planner or GO AWAY … BYE
I base my fees on roughly $330 per hour, and most clients need 10-20 hours of service/advice/work pa to work towards their goals. That’s what I’m worth. I have no hesitation in being proud of that. My average client pays an annual retaininer (flat dollar fees) of $4k. People who see value in that, pay it happily, people who don’t, don’t become my clients. Simple. Software and datafeeds represent about 1% of what needs doing to service and advise and interact with my clients.
With professional advice, you get what you pay for.
Dave in an earlier post on this thread you said ‘AND active management ==moving in and out at the right time.’
Assuming a ‘balanced portfolio’ how on earth do you decide to move into or out of anything at the right time? If you advise clients to go to cash in a downturn, when do you advise them to go back in. Dead Cat bounces are an easy way to destroy wealth.
The danger is that you advise clients as many retail investors do, sell towards the bottom, and buy nearer the top. Wealth destruction in my book.
I gave up trying to time the markets a long time ago, as the Crystal ball I purchased for $2 on Ebay (ex China)was not very good.
stevejj
at least you fessed up. is your accountant licenced to give advice? If not-look out.
10 hours a year??? rest assured that is basic- maybe you are missing out. guess what– you really have NO idea based on your cost estimates of what is required/actually done. For the record-I wear 2 hats–CFP and CPA so I have an idea of what is fair and reasonable. Maybe the service you need is within an industry fund. Remember, You get what you pay for, clients are NOT stupid, they pay for a service they require without issue-because they get what they want AND deserve. So SteveJJ, do you like restaurants or maccas-you can pay for the service or next please.
Dave – there are a few who try it on with annual fees of upwards of $10k PA. In Sydney anyway. No BS – I have the quotes, so can validate what I assert.
Accountants:-
I never said he fulfills ALL my needs, but he does a darned good job in a difficult area and I pay a very reasonable price. At his hourly rate it’s about 10 hours work per year.
Once setup, I’d expect a planner with good software systems and auto data feeds to be able to do a review and knock out annual advice for the same sort of effort. Predicated on no change to my circumstances or requirements.
If we allow double the effort, is a planner worth in excess of $100 an hour for his knowledge? Maybe. Where do fees of $5k / $8k / $10k / $12k come from?
Re your last comment – are you saying only planners should post on this site?
Being blind to customers,is not so good.
stevejj
so where did you get the figure of 10K and north WRONG.
Accountants don’t provide the same advice -they deal in history. If you believe your accountant satisfies ALL your needs-go for it-by the way, this is for planners not “someones client” making a point
What exactly is a strategic planner offering that is so complex and hard to understand that an accountant, in tax advice, does so differently?
If accountants can make a living on charging clients $2/3k a year, why do planners need to charge $10k or more for what is probably no different work effort?
For the record, I have company and personal (for a couple) taxes done, with phone calls and emails for ’emotional’ support, and inducing advice for $1500 per year.
Do I make it easy, for sure, as I keep full records in Quickbooks.
But with online data feeds from stockbroker, banks etc SMSF are very easy to monitor, and with the majority of SMSF (IMO) being invested in Cash, Shares, Term deposits, funds etc this should be dead easy to review.
For many, $10k PA in fees, is a high price to pay.
end.
I’ve read with interest these comments.
If a planner is about emotional support and strategic advice, very similar to what I can get from an accountant, why do some planners think their advice of worth north of $10K per year?
There is a customer acquisition cost and setting up their numbers in a database, but after that some smart software can automate a lot of the future overheads.
Is 1 hour a month, a few phone calls and a once a year meeting worth this sort of cost?
A client can expect this level of service from an accountant for maybe $2k a year and receive good strategic advice. This is not rocket science. If it were then the banks etc could not take people off the street and within a short time, they are accredited financial planners.
I understand accountants deal mainly with tax law, but that is very complex at times in itself.
Cont…
Oh dear – we have two ‘Steve’ poster again.
Is there a longer term method to avoid this crazy mess?
My only post prior was the first one with the name of Steve.
I’ve changed my name to Steve-jj for clarity 🙂
Steve: you are either a) not a financial professional and have no idea what you are talking about.
b) are a financial planner -> Get out now and become a plumber or something!!
Scottb
relevant questions
1 we have a limit on our client numbers and we communicate regularly throughout the year, the annual review is a formality given the work done during the year. Continual review of all assets we use and then drill down to client level if needed is another tool
2 again review and discuss options and ACT this is done regularly
3 don’t use such assets if our opinion is such. We avoided dot com, trees, gearing etc. if in this position refer 2
4 the budget starts day 1 and evolves. The necessary strategies/tools are used in line with the markets, the gillards etc, This one takes hours to explain-depends on client and current situations/circumstances. Happy to share
5 my crystal ball broke decades ago, I work on the assumption of 95 to 100 years. I use all the tools available including max centrelink and REVIEW regularly- not just yearly. The strategy remains the same, the tools change(Asset classes) Helpful ???
3. No, we never are. Risk management (downside protection) is as (if not more) important than chasing upside.
4. Taking into account current position vs desired position, prevailing market conditions, prevailing rules and regs, priorities, etc – determine best use of surplus funds at any given time, which will change over the years. May need to find surplus funds if not there or be more creative with ideas (which increases risk – i.e. gearing using home equity).
5. Conservative projections can give us a good idea of this. Although not a science, pretty reliable. I also use actual forecast dividends from specific holdings rather than just a blanket ‘7%’. Ideally, clients could live off passive incmoe and avoid using capital. Regardless, I like to work on the assumption my clients will live to 100 and I plan for that.
Hard to answer in much details in this forum but I hope that gives some insight.
Scottb, good questions. I’d normally take 2 hours to discuss these at a review, but will try and give some bullet point answers for you.
1. I get clients to rate how on track they feel out of 10. If last year they said 5 and this year they said 7, we are on the right track emotionally. We also look at financial position of course and make sure we are moving in the right direction (which is normally based on having acquired more assets (future income streams) or received increased income from those we have (as opposed to purely the capital value of them, although we of course discuss this).
2. If things aren’t going well, we spend considerable time discussing possible downside to each strategy/investment and weigh this up vs potential upside in staying the course. Depending on how they feel about these, we may tweak what we are doing. My job is not to make the decisions, just to provide the options and all the pros and cons and empower you to make the call.
Dave, could you share with us how you measure whether your client is ‘on/off track’ to achieve their investment goals and objectives?
In fact, if I was a client paying thousands in fees every year…here’s the 5 key risks that would actually matter to me every time I came in for my annual review:
1. Am I on track to achieve my goals and objectives?
2. If not, how bad can it get and what can I do about it?
3. Am I exposed to any investment risk that could permanently compromise the achievement of my goals and objectives?
4. How should I budget to achieve my goals and objectives?
5. Will I outlive my savings?
Could you answer these? How? What do you do to measure/track this?
Dave H, Johnson et al
Obviously you guys are expertly in tune with what planning is all about. That’s how I operate and I would hope the majority of planners do likewise. To the “‘returns only guys””cut the garbage, grow up, accept the real world or leave the industry. Sadly, you people are the sales cowboys that need to go because you do not have any idea.
Steve, what you are seeking to buy is not what decent planners are selling.
See a stock broker, who will promise you what you seek.
Good planners charge ongoing fees because their clients desire and need ongoing advice and service and MOST IMPORTANTLY, good planners clients pay ongoing fees for the intangible benefits of such a relationship and don’t measure the worth of their planner solely on returns, but rather more so on how well their emotional and intangible needs/wants are met and on how they progress towards the achievement of their (primarily lifestyle) goals.
The investment piece is a very small part of the advice and value provided (and sought!).
You say planners ‘shouldnt charge unless they add value’, in a long career I’ve met less than a handful of clients that equate value to returns.
I explicitry ask my clients what they ‘value’, what they want from me. I can tell you that I (and my clients) define ‘value’ differntly to you.
A financial planners primary role is to help clients achieve their lifestyle and financial goals – to deliver the outcomes they desire. When good planners ask the right questions they find that these outcomes are almost always emotionally based and never really about returns, even when a client may initially say ‘good returns’. It’s what the returns enable the client to do/have that they really seek.
As such, the role of a planner when it comes to investing is to (in conjunction with valuable strategic advice) invest in a manner which provides the greatest chance of the client achieving said goals, over their timeframe (from now until goal), with the least amount of risk.
As such, I dont care how my investment advice (returns) compare to indexes, benchmarks, other planners, fund managers, etc. It’s not relevant. My clients dont care either.
They pay me to give them the best chance of achieving their goals, not to generate above market returns. Continued…
Touched a raw nerve hey Johnson? I strongly disagree with your comments. Read mine again, you read it wrong. Charge for your advice not investments returns. Stop sapping clients for fees post your advice basically, unless yourvadvice is directly related to investment returns & that resulted in over what any joe can do themselves. Pretty basic, but that doesnt pay your bills now does it Johnson? Too bad. Get your fist out of the cookie jar, times have changed.
I should have clarified that I was speaking of “value-added” (and the subtraction of value) in terms of “investment” advice and not “strategic” advice.
Investment advice is just as easy to measure and quantify as the value from strategic advice (such as saving $10k in tax), and yet…most financial planners do not measure the value added through their investment advice. I suspect this is because it would be universally unfavourable to do so (i.e. most planners subtract value when it comes to the provision of investment advice).
I should add, this is not a crticism of financial planners per se, rather it is a criticism of the industry standard approach to portfolio construction that is unquestioningly applied by 99% of planners.
Steve. You have no idea how to measure successful investment advice. It certainly cannot be done over the time periods you are suggesting and cannot be measured against an index. I doubt you have that much wealth yourself because you would struggle to build any with your mentality. What you consider to be ‘value’ is not what any decent planner offers and any planner who offers above market returns for clients won’t be worth seeing. Go and chat with a stockbroker, they sell what you seek, and they struggle to beat the indexes a lot more than most decent planners I know over a decent period of time.
Structure & tax advice etc etc etc should be charged out as an soa fee or an hourly rate. Real INVESTMENT Advice should be above market return or index returns otherwse you the adviser failed in adding any value & shouldnt be paid anything. As scott said & he is spot on, clients can buy super efficient index returns at a click of a button. As i have said before, advisers are on notice. Lift your game & know your market. Average below market returns with a birthday card pa is not advice & does not warrant you charging fees pa.
Dave H
thanks for explaining ” holistic” and what a planner actually does- I don’t think scottb understands
Scottb… So if my strategic advice saves a client $10,000 per year in tax, but the investments I suggest only equate to market returns, the clients has had no value? What about the $10k tax saving? Further, what about all the decisions they didn’t execute because of my council? What about the reassurance they get from calling me when times are tough? What about when I prevent their SMSF from big fines due to non-compliance because they didnt know abc. What about when I take care of things while they are travelling around Aust for 6 months in a caravan and dont want to put in the time and effort?
‘VALUE’ is about many things, not just returns. I survey my clients annually and when I ask them “why do you continue to participate in my Ongoing Advice Program in spite of the cost?” and “What do you value the most about our relationship?” The answer is rarely related to returns or relative performance…
Scottb
Planning is NOT just about returns, it is all about (in a word) holistic planning and YES capital preservation AND active management ==moving in and out at the right time. Returns are a part of the equation for fees. Active planners DO achieve goals using their brain. Something I feel is lacking in your court by the comment you make!!!
Sounds like a promotional spill. Talking their book, one feels.
‘CoreData-BM prides itself in identifying market trends at the earliest opportunity and formulating insightful quantifiable research that clients can use to help them stay ahead
of the market and better meet the day-to-day challenges facing their businesses. ‘
(continued from above)
It is a nonsense to suggest this situation changes, now that equities are rallying. The challenge not only remains…it gets even harder for advisers to demonstrate they add value.
Investors can buy and Index Fund, outside of a financial advice structure, for as little as 0.30% and for that…they get the ‘market’ return.
Financial advisers – if they are to justify their fees – must deliver some portion of return in excess of any adviser and manager fees to demonstrate they are adding value. Morningstar estimate this retail fee hurdle to be about 1.8%. This means unless advisers can deliver returns of at least 1.8% on top of the market return then they are still subtracting value.
Just because shares are going up and returns are positive, doesn’t mean investors are getting “value” from investing via a financial advice structure.
The only measure of “value” that matters is the extent to which the investment recommendation results in some additional return in excess of the costs.
Any adviser who recommended their client jump to “cash” in the aftermath of the GFC in 2008 not only locked in a guaranteed failure that their clients would harvest sufficient returns to achieve their investment objectives by the time they reached retirement, but they guaranteed their advice would not deliver any real return after fees and costs.
In both instances, the adviser subtracted “value”.
(continued)