If you need financial advice, how much should you expect to pay for it? Of course, the cost is what you pay, but value is what you receive. The value needs to exceed the cost for it to be worthwhile. So, how do you assess the value of financial advice?
Whilst the answers to these questions can vary significantly, we must take into account that value assessments can be subjective, and I wanted to share my insights to help people with this analysis.
Financial advice fees create tension
On one hand, the lower the financial advisory fee you pay, the more money you save to invest and that has to translate to a higher likelihood of achieving your financial goals.
On the other hand, in many respects, you get what you pay for. The cheapest financial advice is not always the best.
Your willingness to pay more for financial advice may create some valuable consequences:
§ It is likely that you will attract an advisor with more experience. An advisor with 20 years of experience isn’t going to work for $20 per hour – a graduate with zero experience might;
§ It will allow that person to spend more time thinking about (analysing) the advice they give you. However, if profit margins are very thin, it inevitably creates pressure to cut corners – and certainly no scope to provide proactive advice; and
§ The more human and economic resources a firm has, the more it can invest in their people and systems to continually improve the value they provide you. Better research, more analysis and more thinking time creates value in the long run.
The truth is, because of the tension advisory fees create, a balance must be found. The fees you pay must be as low as possible. But not too low that it risks the value of the advice you receive.
How much does it cost to give financial advice?
The cost of giving financial advice can typically be categorised into four components.
(1) Staffing
The cost of employing the right people can be significant. The quality of the people determines the quality of advice and service that you can expect to receive.
Of course, the knowledge and experience of the advisor is paramount. Someone with very vast knowledge and many decades of experience will usually command a higher salary.
For example, I’ve spent years honing my craft, learning, investing in myse
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IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.
