This document discusses issues with profitability in the financial planning industry and potential solutions. It notes the typical costs of running a financial planning business and that developing customized plans can take 6 hours regardless of a client's age. Most clients are unwilling to pay more than $500 for a plan or $300 annually for reviews. To address this, some planners accept commissions from fund managers of 1% of new investments plus $1,000 fees, and 0.6% annual trailing commissions plus $500 review fees. However, this approach is criticized as potentially prioritizing returns over clients' best interests. Alternative options discussed include finding a planner through referrals or the Financial Planning Association directory who charges fees rather than commissions and meets other

1. GENC3003Personal Financial PlanningAndrew Hingstonandrew.hingston@unsw.edu.auUnit 17: Seeking advice

2. 2The financial planner’s dilemmaYou have a financial planning business with these costs:$40,000 - Office rental, insurance, licensing costs$45,000 - Personal assistant $90,000 – Your salary$175,000 - TotalIt takes 6 hours to develop a financial plan for a clientwhether you are seeing a 21 year old or a 60 year old!Your customers always want “free advice”They are not willing to pay more than $500 for a planNot willing to pay more than $300 a year for annual reviewsHow do you make your business profitable?

3. 3Financial plannersSolution to the problemDon’t accept any clients below the age of 40 since they don’t have much money to invest!Accept commissions from fund managers1% on all new investments … Eg. $200,000 = $2,000Plus charge $1,000 fee for doing plan = $3,000 total upfront0.6% p.a. trailing commission … Eg. $200,000 = $1,200 per yearPlus charge $500 “review fee” = $1,700 per yearSometimes also a “performance fee”Extra 1% plus trailing commission if returns > 15%This is really dodgy since this will happen in 2 out of 5 years anyway even if the adviser gives ordinary investment advice!

4. 4Financial planners Finding alternativesFinancial Planning Association has online directory:www.fpa.asn.auYellow pagesReferrals from friends with financial plannersMost will give a free “first meeting” so try severalUsually better if close to work or home

5. 5Financial planners Criteria for choosing oneBachelor or Masters of Commerce (better is bachelor!)Major in accounting (for better tax advice) orMajor in finance (for better investment advice)Member of the Financial Planning Association (FPA)Attained industry Certified Financial Planner (CFP) from FPAMore than 5 years experience as financial plannerHave preferably been with current company for 3+ yearsReceive majority of income from fees rather than commissionsPreferably not more than 0.5% per annum ongoing commissionsDo not recommend any investments where the total ongoing fees (advisor, administration and MERs) total more than 2% per year

6. Stop and readNow read:Chapter 19RetirementChapter 22Choosing an adviser6