Bank planner charges questioned

In an environment where financial planners are under increasing pressure to justify to clients their fees and commissions, the pricing model employed by Commonwealth Financial Planning has been called into question.

Client case studies included in Commonwealth Financial Planning’s pricing policy, and provided to Money Management, reveal one-off fees being paid for the implementation of advice already paid for under a Statement of Advice (SOA) fee.

Hewison & Associates chief executive John Hewison said “overcharging” of clients is one of the issues leading to the reputational damage of financial planners.

“We as an industry need to be able to be charging reasonable fees for the service we provide to clients,” Hewison said.

Paul Cullen, head of Commonwealth Financial Planning Advice, defended the group’s pricing structure. He said he believes the group’s fees were lower than the industry average and represented value for clients.

One case study in the Commonwealth Financial Planning pricing guide (September 2008) depicts a man with $1.5 million to invest. The planner recommends $800,000 be placed in an annuity, with the remaining $700,000 invested in a FirstChoice Wholesale fund, a managed fund offered by Commonwealth Bank-owned Colonial First State.

The case study states that ‘due to the complexity’ of the advice given, the SOA fee would be $1,650. The adviser also charges a One-Off Adviser Service Fee of $15,000. The one-off fee is an amount charged by Commonwealth financial planners to implement the recommendations made in a client’s SOA to a maximum of $15,000.

The client in the case study also signs onto an Ongoing Service Package, which results in an Ongoing Adviser Service Fee of $7,500 and a charge of 0.33 per cent of the amount invested in the FirstChoice Wholesale fund — the Compulsory Ongoing Licensee Fee.

The result for the client is a fee of $26,460 in the first year of the investment and $9,810 every year after that. This is a cost of more than $800 per month.

Hewison said while he believes the $1,650 charged for the SOA is “quite justified”, he finds the $15,000 One Off Adviser Service Fee “just ludicrous”.

“The notion that you should pay an upfront fee simply for filling in some forms and placing some investments just doesn’t wash,” he said.

Hewison also questioned the value of a client paying more than $9,000 for ongoing advice related to the management of an annuity and an investment in a wholesale fund.

“If the value is simply an annual review and reviewing some managed funds, it hardly justifies the fee,” Hewison said.

According to Commonwealth Bank promotional material, the Ongoing Adviser Service Fee provides clients with a range of services including an annual review with their planner, market updates, information on new or improved financial solutions and explanations of changes to legislation and taxation rules.