A NEW law will require financial advisors to provide annual summaries of services costs as well as getting written authority from clients to deduct fees every year.
This legislation comes after the Banking Royal Commission found that many people paying for financial advice were being charged fees for no service at all. As a result, the big banks had to pay back almost $6 billion to customers.
Since the new rules there have been major changes to the way fees are charged for financial services, but many people are still in the dark.
For financial advice you can be charged several ways:
- There are fixed fees. These fees are an agreed dollar amount to be paid from you to the advisor. This is the most transparent fee that can be charged, but it is important to ask how your fee is determined.
- You can be charged an hourly rate. This is less common than fixed fees and there are common fears held in the industry that hourly rates encourage inefficiencies or ‘bludging’ by advisors looking to earn their keep.
- There are also asset-based fees. This type of fee is quite contentious in the finance world. This type of fee sees advisors paid a percentage of the investments they manage for their client. With this fee model, advisors earn more when their clients own more assets so there are fears that advisors will suggest that their clients invest in new assets so they can earn more rather than suggesting the most sensible investment options.
The Banking Royal Commission has ended some scandalous practices, but the complexity of the finance world remains.
The most viable form of getting financial advice if you have limited savings is to go to an adviser who charges an hourly rate and ask her how best to invest.