How much is advice worth?

Maya Fisher French

16 SEP 2010, 11:10

4 min read

The results of our survey show that the majority of readers would pay up to R1 000 for a financial plan.

This tells me that people do value advice and are prepared to pay for it. Whether it is paid upfront or as a commission, as long as they understand the costs, people are prepared to pay.

The question, though, is whether R1 000 would buy an effective financial plan. According to Gregg Sneddon, a fee-based financial adviser in Cape Town, it takes about five hours to prepare a proper financial plan that would allow clients to make informed decisions about their finances.

The hourly rate for fee-based practices is between R500 and R750, so one would expect to pay about R3 000.

There are many ways that one could pay for this. A fee-based adviser like Sneddon charges no commission on implementation, not even on life products, resulting in reduced premiums for clients.

The financial plan fee is his only fee. Sneddon says for many people this is a large lump sum to pay and therefore clients are able to pay it off over several months.

Other practices would charge for a financial plan which would be offset by commissions earned through products that they recommend, or ongoing adviser fees. In this case you need to ask for the rand value of the commission you will be paying, not only for initial fees but on an ongoing basis.

Ongoing commissions would cover the costs of regular meetings. However, in the case of a fee-based practice the adviser would charge an hourly fee for those meetings and would not charge ongoing management fees.

Finally, there is the commission-only basis, which is the most common. The one problem with this model is that it is unlikely that you will receive an in-depth financial plan because no specific value has been placed on the service.

It is most likely that you would receive computer-generated recommendations based on a few basic questions. In this case R500 would probably be a fair fee, but you would not have a robust financial plan.

What is a financial plan?
A financial plan should follow the six-step financial planning process recommended by the Financial Planning Institute.

Define the relationship: The client and the adviser discuss exactly what is expected, how much it will cost and the method of payment

Gather information: The adviser not only gathers the financial information of the client but also their personal information — the goals, expectations, lifestyle, attitude towards money and the psychological tolerance towards risk.

Analyse the information: The adviser would understand the current financial situation and identify gaps or changes needed to reach the client’s goals.

Present the plan: The adviser would present the plan and discuss it with the client so that they fully understood the recommendations.

Implement: The adviser would assist the client in implementing the plan.

Review: The adviser and client would review the plan at least once a year to ensure that it still meets the client’s goals and review any changes in the client’s life.

Five major financial risks
There a five major risks that the plan will address:

Dying too soon: What is the risk, do you have dependants? Do you have a Will?

Living too long: Do you have enough for retirement or do you have opportunities to work past retirement age?

Disability: Protecting future income if you cannot work, having medical cover in place.

Fund for emergencies: Where will you draw the money from for emergencies? Do you have sufficient short-term insurance?

Debt: If you have short-term debt, pay it off before you start investing. Is your debt a symptom of your behaviour towards money?

A financial plan will also consider tax implications.

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