Ask Paul: Why is financial planning so expensive?

Dear Paul,

Why is financial planning so expensive? It's certainly out of reach for ordinary people.

I think the government should look into this and also provide the service at a lower fee, if not free.  - Edwin

Good one, Edwin. I am so happy to have a crack at answering your question.

The cost of financial advice nearly causes me to tear my hair out. I'll start with a financial adviser's perspective. The firm I started with my partners way back in 1983 provided fee-for-service advice. As time went by, compliance built up. This is to protect consumers, but it also costs consumers.

Today, an adviser must provide you with a statement of advice (SOA) to show that the adviser understands your situation in detail.

The problem? Well, a professional adviser will meet with you for a long appointment, then prepare the SOA. A professional adviser is on a very good salary, so the cost to the firm, including receptionists, licensing, rent, overheads, insurance and so on, means you are likely to pay $3000 for this service. Then there are ongoing costs of running the business, hence the costs for ongoing advice.

Free or subsidised advice would be great, but a firm needs to pay its bills or it goes bankrupt. Unfortunately, expecting our government to fund this is unreasonable. As a country we are running big enough deficits already. As a nation we are struggling to fund the existing health, infrastructure, education, defence, pensions and other services we all need.

This is an area where we need to self-help where we can. A great starting point is being organised with an asset register and a good budget.

Where it gets harder to avoid fees is if our personal affairs are more complex. A couple of decades ago, I could do this myself. Today, I see myself as a money GP. I'm pretty good across most money issues, but I need specialist help with tax and super. It is just too complex.

The government could help us all by making it simpler, but I don't see this happening. So I pay for a super specialist, who does nothing but super, and a tax specialist. They are worth every cent. At least the government gives us a tax deduction on these costs!

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