Pressure goes on adviser fees
Low interest rates are likely to shake out financial advisers who are charging fees that are are no longer viable, it has been claimed.
Tuesday, May 10th 2016, 6:00AM 
3 Comments
by Susan Edmunds
Chris Lee
Kapiti adviser Chris Lee said there was huge variation in the market but those financial advisers who were charging 1% or more were on borrowed time.
“The model might have worked when interest rates were 8% but how does it work when bank rates are so low – we have money in a call account with ANZ earning 0.75%. Why would you allow anyone to charge 1% for that?”
He said the regulator had left it to the market to work fees out but many investors did not seem to understand how much they were paying.
“It’s almost beyond belief that the public don’t realise there are savings to be made by shopping around. If a company is charging an annual management fee and a monitoring fee and an administration fee and a trustee fee, the whole lot can add up to 2%.
“The world thinks interest rates are going to stay at virtually nothing, and investor returns of 5% would be pretty good, but if you have to pay 1% or 2% to get 5%, it does not make a lot of sense. They are taking a risk they don’t need to take because they could get 3% in the bank.”
While share markets had delivered good returns over recent years for investors in equities, he said they were nominal and did not reflect the risk that investors were taking.
It was hard for advisers to argue they were adding value if all that was happening was that the investment was rising with the market, he said.
Lee said some intermediaries were telling investors that unless they paid their fees they would not have access to new bond issues.
Another adviser, Brent Sheather, said low interest rates were focusing attention on fees.
He said he had one client come to him who had $4 million invested and was paying $50,000 in tax, $50,000 in fees to the bank managing it and only earning $50,000 a year.
New Morningstar research shows fees are the biggest predictor of returns.
Investors paying the least for their managed funds were three times as likely to succeed as those in the most expensive funds, Morningstar said.
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