RA fees that subsidise advice

● If you’re paying a financial adviser a fee on your RA, and you don’t pay for financial advice on an hourly basis, this fee could be subsidising the cost of the advice.

An adviser with the “certified financial planner” (CFP) designation could charge you between R1 ,500 and R2,500 an hour for advice, says a CFP who asked not to be named.

Few advisers charge an hourly fee because they don’t want to stop you, the client, from engaging with them regularly, he says.

Professional practices typically provide you with a bespoke financial plan, including a will. The actual cost of the plan depends on the complexity of your affairs, but the most simple plan will cost at least R5,000, he says.

Instead of charging for this plan upfront, the cost is recouped in an advice fee on your investments, like your RA, and this fee also covers access to your qualified independent financial adviser.

Typically this means two meetings a year to review your financial plan and make adjustments in line with changes in your financial circumstances, such as ensuring you have adequate income protection at all times, checking your group life cover and top-up life cover when you have a child or change jobs, checking you are making use of all the tax incentives and to consider whether your investments are still meeting your goals. Meetings can last up to two hours, which doesn’t include the time to prepare, obtaining quotes and doing calculations for about two hours.

If the Allan Gray investor is paying his adviser 1.15% a year, he has to weigh up the benefit of saving R2,725 a year versus losing all those benefits.

Many advisers charge less than 1.15% a year, especially for investors who have large amounts invested.

“A financial planner’s role is to help you set realistic goals, co-create a plan for you, keep you accountable to sticking to the plan and ensure that you are invested appropriately in such a fashion that gives you the best possible chance of achieving your goals, the adviser says.

“Research shows that where a client engages with a planner compared to where no planner is involved, it leads to a substantially better outcome, after taking account of the planner’s fee.”

If your adviser is not providing a service you value, you can ask your RA provider to terminate the advice fee.

Brandon Zietsman, the CEO of Portfoliometrix, says that the behaviour gap — the difference between the returns you could potentially earn from investments and those you actually achieve through your own investing, often with ill-advised changes to portfolios and deviating from your strategy — is “eye-wateringly large”.

Advisers provide a real benefit in drawing up suitable strategies and keeping investors composed, he says.