Welcome To A Transparent And Intellectually Honest Relationship With Your Financial Adviser
In many parts of the world, including Singapore, the financial advice industry has traditionally been remunerated by commission derived from the sale of investments and financial products. In itself this isn’t necessary a bad thing, because public surveys continue to show that most people prefer not to pay directly for financial advice (a survey conducted by the MAS showed precisely this). A downside to this model is that the nature of financial advice can become skewed towards the sale of products or funds, rather than the provision of a quality service. For example, a financial adviser might be tempted to recommend one investment over another, based on a difference in upfront commissions. Of course, financial advice is not free, and must always be paid for in one form or another. Transparency on charges is key.
When I work with clients, I am remunerated in one of the following ways (or a combination):
(i) Fixed fee basis - I provide a fixed-fee arrangement for defined financial planning exercises such as a ‘Financial Health Check’, which might include an analysis and recommendations on retirement planning, or for other milestones such as education fee planning. After a consultation and planning session (generally up to two hours) with the client, the ‘deliverable’ of a Financial Health Check is a written report to summarize your situation and objectives, outline options available to you, and provide details of any specific recommendations. A known amount (hours) of work allows a fixed-fee basis for advice. I may waive my fees for this planning process, if the client’s intention is to implement recommendations and start a long term working relationship.
(ii) Annual management charge - when I am managing or advising on investments for a client, I want to avoid any ethical dilemma or bias related to upfront commissions on the sale of individual investments. Generally, I don’t take such upfront commissions, and state so explicitly in writing in my terms of business. This means my only objective is to seek the very best performance of your portfolio (based on your criteria); my remuneration is for providing a service - not for selling you funds. My annual management charge is typically 0.75% to 1.5% of funds under advice, depending on the size of investment.
(iii) Product commissions and ongoing trail fees - particularly in the expatriate pension and savings market, certain offshore and tax-efficient wrappers have charges built in to the product, so that it is the provider that remunerates the advisory firm and no direct charges are paid by the client. This is also the general case for insurance products. In such cases the basis of charges is always highlighted and fully explained.