The price for financial plans revealed

Latest research shows investors prefer to pay a fee for investment advice, but aren’t prepared to pay big dollars.

Thursday, October 21st 2010, 7:00AM 1 Comment

The research, prepared for AMP by Colmar Brunton, shows that investors have a clear lack of understanding about how advisers earn their money or how much they pay for advice.

There is a significant proportion of investors (42%) who don't want to pay up front and still prefer to paying by commission.

The research asked what investors thought was a reasonable amount to pay an adviser for developing a financial plan.

It showed there was a wide range of values and the average was $320. When asked about the expected hourly rate the figure came out at $97.

There was a range of numbers for developing a financial plan. While $320 was the average investors who go to a bank employee expect to pay between $51 and $100 for developing a plan. Investors who go to accountants expect to pay between $201 and $1000 (46%) or $501 to $1000 (15%).

When it comes to hourly rates investors suggested a rate of $106 for accountants, compared to $97 for advisers and $163 for lawyers. Plumbers, builders and electricians had suggested hourly rates of between $56 and $58.

Several different payment ideas were proposed for advice with an agreed dollar value coming out as the most preferred followed by a percentage of assets under management, then an hourly rate, and fourth ranked was a combination of the first three.

The research says there were a number of investors who spontaneously mentioned an alternative approach. This method was that advisers should be paid a percentage of the gain made on investments.

Half of respondents said that the customer should be able to negotiate with advisers over how they pay for advice, while 26% said the industry should set fees and commissions and 15% suggested it was the role of government,

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Comments from our readers

On 10 November 2010 at 1:49 pm Andy said:

Given that the initial analysis and proposal construction can easily exceed 3-4 hours, this magic number of $320 will easily be diluted. On top of that, the regular reviews prescribed will diminish any income significantly. Allowing operating costs of 50-60% (including non-producing assets - admin, premises etc) it would make more sense to drop the pens and pick up a hammer and saw OR seek the comfort and security of a bank, without the hassles. Where will the public go then for independent and experienced advice? hmmm - I think the uneducated Kiwi DIY attitude really needs to be addressed here, rather than legislating those who are already doing it right!