Quality advice: how much will clients pay?

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The transparency and engagement through FoFA reforms has caused an increase in client awareness, so how much are they prepared to pay? Gunilla Haglundh investigates:

Since the Global Financial Crisis (GFC), clients no longer assume that their super fund will offer double digit returns year after year. Because of anxiety, interest or some other reason, most clients have begun to scrutinise a lot more.

“Clients want value for money. You need to be able to clearly show how you add value to their bottom line. This can be reducing expenses or increasing income,” says Paul Israel, investment manager at CIB Private Wealth Services.

“The business environment for our clients has been tougher for several years now due to government legislation and world events. This affects their revenue and forces our clients to make up the difference in cost cutting. And yes, people will be more or less sensitive depending on the value they perceive they are getting for their money,” says Graeme Bellach, partner of DFK Australia New Zealand.

Clients with little knowledge and time are still prepared to meet the advice fees, but obviously there are some that are price sensitive and wish to do their own research if they can.

In the SMSF accounting market, there are a number of specialist firms developing due to growth in the sector. They are generating scale and able to reduce the accounting fees through the use of technology and outsourcing.

“People are prepared to pay for more advice these days due to the growing technical complexities of issues and transactions, and the growing cost of getting things wrong without the advice. A great example of this is the Australian Taxation Office’s excess contribution tax where people have over-contributed into their super funds by as little as $100 and been given an extra tax bill for tens of thousands of dollars,” says Bellach.

“We focus on simple and transparent investments. When it comes to Australian shares, people are willing to pay for quality investment management and administration.  Our strong view is that cash and fixed interest, should be kept simple, and not attract an overall advice fee,” says CIB’s Israel.

Inevitably, there is a cost associated with advice. Those who can afford the advice are largely those with higher balances rather than smaller balances.

So to the crunch question, fee per hour?

“$120-$465 per hour depending on the type of work and advice required. We find we average about $190 p/h. If we are competing with the top tiers $465 p/h is cheap compared with their $900-1,000 p/h, whereas in the lower tiers some partners only charge $200 p/h. Clients very rarely ask for our rate as they rather have a fixed fee quote upfront,” says  Bellach.

“We specialise in actively managing Australian share portfolios.  Fee per hour may be more appropriate for more passive investments like cash and fixed interest,” says Israel.

Qualified advisers with the appropriate experience would likely charge $250 - $300 per hour. But several planners and accountants say that it is a loaded question.

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