Ultima News September 2010
financial planning fees in perspective
From time to time, you, our clients, may feel uncertain about the fees you pay us. We would like to present the following framework to interpret our fees.
The three main areas we charge fees for are:
1 initial financial planning fees
As with most professionals, experience, qualifications and skills determine the fee charged for initial financial planning. In practice, this fee is fixed or based on an hourly rate.
The initial financial planning process focuses on advice in three areas. The financial planner:
· assists clients in identifying and clarifying their financial goals
· determines the most appropriate strategies to achieve the financial goals
· determines the actions that need to be taken, both by the client and the financial planner
The actions may be, for example, investment advice, retirement planning, optimising tax structures, estate planning and identifying the correct products and product companies to give effect to the plan.
2 implementation fees
As we charge ongoing investment fees we generally do not charge a separate initial investment implementation fee like most other financial planners do.
We charge commission on long-term insurance products at the rate of commission allowed by legislation for services, benefit, liability, infrastructure, compliance and reviews as described below.
3 ongoing financial planning fees
benefit - The successful implementation of investment strategies ensures that clients receive the growth they require from their capital in order to achieve their financial goals. In principle, the reward for successful implementation should be aligned with the benefit this creates for the client.
liability - The potential liability for a financial planner advising on a large investment is much greater than advising on a small one. A percentage-based fee for the assets under management ensures that the planner is compensated for taking on such risks.
infrastructure and compliance - Financial planners are required by law to provide and maintain a basic level of client service and infrastructure. These include:
· provision and maintenance of the offices and staff necessary to provide effective implementation and monitoring of the service for the duration of the relationship
· record-keeping for current and former clients in compliance with legal requirements
· ongoing learning to maintain a level of expertise to ensure that advice and recommendations remain relevant and appropriate
reviews - Ongoing financial planning to ensure that the goals, strategies and actions identified in the initial plan remain appropriate and relevant throughout the life stages of the client.
Life assurance – Good news!
Extracts from The eDiscoverer from Discovery dated 16 September 2010:
· South African life assurance policyholders pay 30% to 40% less for life cover today compared to what they paid ten years ago.
· They also enjoy more comprehensive cover and can benefit from products and services designed to meet their and their family’s changing needs today.
· The industry has doubled its claims pay-outs during the last ten years.
· Complaints to the ombudsman for long-term insurance around disability claims have reduced by 67%.
· Because of this decade of innovation and consumerism, South Africa has emerged as a global leader in risk cover.
Premiums in 2000 for R1 million life cover: male, non-smoker, best rates:
Industry
Age Company A Company B Company C Company D Company E average
35 R208 R215 R197 R266 R189 R222
45 R299 R315 R301 R471 R295 R347
55 R688 R720 R699 R980 R618 R772
Premiums in 2010 for R1 million life cover: male, non-smoker, best rates:
35 R164 R137 R156 R188 R91 R147
45 R243 R250 R280 R277 R156 R241
55 R464 R502 R579 R488 R311 R469
Change 2000 to 2010:
35 -21% -36% -21% -29% -52% -34%
45 -19% -21% - 7% -41% -47% -30%
55 -33% -30% -17% -50% -50% -39%
The industry average assumes a uniform distribution between the companies considered.
It might just be worth your while to have your life assurance policies reviewed. However, the best option is still to have a full financial plan drawn up or to have your existing financial plan reviewed before buying a product.
Please call us for an appointment at (012) 348 1386.
Tags: Insurance, investment