Paying for advice: talk to your financial planner now

How much will you pay for advice once RDR comes into effect?

paying for adviceIt’s not too soon to engage your financial planner in a conversation about how much you will be charged for financial advice and for product-specific advice, says Jacques Coetzer, general manager of Broker Distribution at Sanlam Personal Finance.

Coetzer says the introduction of the Financial Services Board’s Retail Distribution Review (RDR) in 2018 or 2019 will open the way for consumers to pay for advice, just as they would pay for any other professional service.

“When you visit a dentist or lawyer, you generally pay them a fee for their services. This is not currently the case when it comes to financial advice, given that an adviser or broker generally receives commission for financial planning and product advice. However, this will all change when RDR come into effect,as you will start to pay a fee specifically for advice services as well as a fee for advice related to the products you eventually purchase.”

In the run-up to the implementation of the RDR, it’s a good idea to discuss the conversion to a fee-based payment structure with your financial planner, says Coetzer.

“Up until now,people who were unhappy with the commission payable could only walk away. In the new RDR dispensation, one will be able to negotiate a fee structure for both the advice they receive from their financial planner, as well as for the purchasing portions of the services on offer,” says Coetzer.

He says consumers will have several options, including:

  • Paying financial planners a retainer fee either monthly or quarterly which will give them the right to certain services and reviews throughout the year. The insurance or investment company will not be involved at all – it will purely be an agreement between the individual and the financial planner for the advice and/or purchasing portions of services.
  • Only paying a fee for the advice portion. If an individual then decides to act on the advice given and buy a policy or make an investment, the fee can potentially be offset against whatever fee is charged to facilitate the purchase.
  • A negotiated fee can be paid  either as a transaction solely between the consumer and the financial planner, or it can be deducted from the policy or investment.

“Essentially, you can negotiate any variation of fee arrangement that suits both you and your financial planner,” says Coetzer. “RDR will mean that you and your financial planner will be able to discussthe options, whereas to date there has been no real conversation, given that commission rates were legislated.”

The danger of ‘going it alone’

Coetzer says, given self-service options, consumers may decide to forsake the services of a financial planner and go it alone. However, he notes it is crucial to realise the potential for mistakes that can cost one dearly in the long run – given the myriad of product choices and options out there.

“Qualified, professional financial planners can help people to make the right life insurance and investment choices. They can offer unbiased comparative advice and can suggest a range of appropriate solutions across a spectrum of products. This requires experience and knowledge that cannot be obtained from a website or call centre,” he says.

Coetzer quotes a study in the UK by Standard Life and unbiased.co.uk which found that clients who received appropriate financial advice typically saved nearly double the amount for their retirement than those who didn’t seek advice. “Qualified and accredited brokers offer a significant service to empower South Africans to take charge of their financial destiny.”

What should ‘the talk’ with your broker or adviser include?

“The conversation needs to cover what they can offer you, as well as which companies they represent. Also ask why they recommend or prefer certain products. On the risk cover side, a combination of appropriate cover and certainty of claims payment should be the deciding factors. Investment products are slightly more complex – here one should consider aspects such as asset allocation and one’s risk appetite.”

“The bottom line is that consumers now have many more options in terms of the value they receive from their brokers, and the fees they should pay for this value. It is in the interests of both brokers and consumers to have the conversation,” he concludes.

This press release was issued by Sanlam Personal Finance.