I get a lot of enquiries asking about what a "typical" plan costs, given the hourly rate or fixed fee mentioned in the previous few articles.

First of all, there is no such thing as a "typical" financial plan. Every plan I have done so far has been so unique that large sections had to be written from scratch (none of this global search and replace stuff that some advisers pass off as customised advice). Each one had its own unique attributes and these needed to be taken into consideration when I gave a quote on the cost.

I prefer to charge a fixed fee, instead of an hourly rate or asset based fee. Hourly rates theoretically should be the most "fair" way to charge, but in practice it has problems because I can only roughly estimate in advance how long a plan is going to take me to prepare and hence there is no certainty in how much the plan will cost. I have found that I do tend to underestimate the number of hours a plan takes to prepare a plan (not on purpose), so if you want a tip I suggest you'll probably get a better deal by fixing the price in advance.

Before I do any work, we discuss my fee in the context of what needs to be done. I prefer to fix the fee before anything is done because then everyone knows what is expected before any work is done. When it comes to money most people don't like surprises.

I'm not keen on charging an asset based fee. I leave this option open because some people feel more comfortable with this, but really I prefer to work for a fixed, pre-negotiated price that relates to the work I put in, not how many zeros I write on the application forms.

To get a complete financial plan done - the 100+ page one - costs a minimum of $1,100. If there are hugely complicated issues to do with your plan then the report itself could take 20 hours to finish, which if you went by my hourly rate would cost $5,500, but most normal plans cost between $1,100 and $2,750.

A limited advice plan takes less time for me to do, and is therefore less costly. Limited advice is where a client says "I'm not happy with the fees I'm paying for my super plan, can you roll it over into something cheaper?", or "I have $50,000 and want to invest it in a couple of share funds. What do you recommend?"

These plans are easy for me to do, obviously I already know pretty much what funds are available and would suit most clients, so after finding out a bit more about your risk requirements and how long you intend to invest the money for I can fairly quickly write up a minimalist document that covers the basic information and disclosure stuff that financial planners need to do to be legal.

At the bottom end of the scale, the minimum cost of any advice is $330 for advice that goes little beyond a transaction. You ask for a super fund, I give you a super fund, and roll over your super into it.

Slightly more complex advice that doesn't go as far as a complete plan but still involves a bit of work can take me a couple of hours to do, and generally costs about $660. This would be where someone has a bunch of existing investments and some cash to invest, wants my opinion on his existing portfolio, wants advice on asset allocation, but has no interest in getting advice on any other financial matter.

The number one determinant of value is really what you get out of my advice. I've done limited advice plans for people, moving their money into cheaper super funds, and have charged $660 for a switch that saved the client $2,000pa in management fees. Another client paid $1,100 for a full advice plan and after implementing my recommendations to restructure assets was then entitled to over $10,000pa in social security payments. Sometimes the benefit a client gets is immediate and dramatic, but other times it is longer term. How much of a price do you put on these sorts of advice?

Type of advice	Minimum fee	Maximum fee	Typical fee	Minimum number of hours	Usual maximum number of hours
No advice	$330	$500	$330	1	4
Limited advice	$500	$1,100	$660	4	10
Comprehensive advice	$1,100	$5,500	$2,500	10	50

The difference between limited advice and full advice is the degree to which I am proactive. I generally tell full advice clients what needs to be done, including advice on many issues that the client had never even thought of before. Clients often have financial problems that they are not aware of, or are not aware of certain opportunities that they could be capitalising on to save tax or improve their investment performance. If I do a full advice plan for you, I'll scrutinise your situation carefully and will bring these problems and opportunities to your attention.

If you specifically don't want comprehensive advice you'll get a report addressing the issues you asked me about, with a limited advice disclaimer.

Limited advice is more about carrying out a specific task that someone has requested. I get a lot of overloaded employers wanting me to organise a super fund for their employees to take their super guarantee contributions and get the ATO off their back, or people who have a bit of money to invest and just want to know where to stash it. If you look toward the end of my client questionnaire (look under the "clients" section of this site), you'll see a table where I ask you to sign a waiver excluding me from responsibility in those areas. I don't mind providing limited advice, so long as nobody accuses me of failing to advise them properly on some issue you never asked for advice on. The default is that I will prepare a full plan and will give full advice, you must tell me not to provide full advice and sign a paper to tell me this directly.

How do my fees compare with commission based alternatives?

Obviously since I don't charge a trail commission, ongoing fees can be substantially less than they would be if you went via a commission based adviser, but what about up front commissions?

It all depends on how much money you have to invest. My average client has over $250,000 in their portfolio, my average fee for the comprehensive plan is around $2,000. In terms of an entry fee this means on average I charge my clients about 0.8% of the portfolio for the up-front costs. This is, by financial planning's standards, an extraordinarily low fee.

I scale my fee to the size of the portfolio only to a very limited extent. It takes about the same length of time for me to prepare the documents for a $50,000 investment as it takes to prepare the documents for a $5,000,000 investment, and generally therefore I will charge roughly the same amount. Fees may increase slightly because for larger account balances there will probably be a greater number of shares or managed funds recommended, increasing my paperwork and research burden.

I can't speak for all advisers, but I do know that the majority of commission based advisers charge a lot more in entry fees than I do. The average is about 3%, from what I've seen, even for very basic advice.

I have seen advisers bill clients many thousands of dollars for very simple service like superannuation rollovers (which, apart from the time spent in preparing the basic advice documentation report, take only about 20 minutes for the receptionist to fill in the forms). No wonder so many firms clamour for "high net worth" clients, since they get to charge these clients twice as much for doing basically the same amount of work. If a client wants very basic advice that goes along the lines of "consolidate my 10 super funds for me please" I'd charge $660 or so if the client required advice on portfolio construction, or $330 if the client just wanted me to set up the fund in the first place. There are many advisers that would charge about 2.5% for that, meaning many clients would end up paying thousands.

Commission based advisers get to charge this much because percentages sound small. Advisers can say without blinking that their fee is only 2% or something like that, but it isn't until you run the numbers that you realise in dollar terms just how much this advice costs. You do not feel the pain (initially) when advisers take a commission, because you only write out one cheque and that cheque goes to the fund manager. The fact that the fund manager is immediately going to give several percent of it back to the adviser is less obvious and clients seem less aware of this compared to my model, where the client usually writes two cheques - one for the fund manager, and one for me.

I had this come up recently. I quoted a client $2,000 for a comprehensive plan, minus commission rebates. The client was stunned, this seemed like a huge amount of money to pay for something intangible like a financial plan. It wasn't until I pointed out that the commission rebate (which was larger than normal because the plan included insurance, mortgage re-financing, superannuation, a geared investment portfolio and a tax deductible agribusiness investment) would exceed the fee charged that the client felt happy about it.

A commission based adviser would have received in excess of $7,000 in commissions, which is rather a lot more than the $2,000 I was charging. This client had their mortgage re-financed at a lower rate, saved a packet on their life insurance, got a very large tax refund, had their investments placed into significantly lower cost products than the ones they already had and saved $5,000 on the up front costs. Once the client was aware of just how big a commission some products pay, and when the client knew that the commission would be rebated to them they realised that the advice they were getting was not expensive - it was an extraordinary bargain.