Is $11,000 a year for financial advice too much?

I am 61 and semi-retired. I will fully retire in 12 months. I have $980,000 in super which is in pension mode. My wife is 52 and has $380,000 in super. We have no debt and spend about $7,000 per month. Our financial advisor has been helpful in fixing up some tax issues, consolidating underperforming investments, and setting up my super for retirement. The annual fees from the adviser are $11,000. Do you think this is reasonable?

Annual advice fees of $11,000 is towards the top-end given the value of your holdings. However, its reasonableness depends on the amount of service and support you need. How frequently are you engaging with your planner? For that level of fee I would imagine you’d be doing one detailed annual review meeting, plus contact via email or phone five or six times per year.

The value of a financial advisor can sometimes be intangible, but for $11,000 you’d want to be getting significant support.Credit: Simon Letch

A lot of your adviser’s value derives from the intangibles. Talking you out of doing dumb things in moments of stress, giving you the peace of mind that everything is in order so you can enjoy life without the worry that you’re going to run out of money, and someone to bounce ideas off when you hear something out on the golf course or at the weekend BBQ. They can also make you aware of opportunities you would have otherwise missed.

Just as some people DIY the servicing of their car, or the plumbing in their house, not everyone needs a financial planner, and perhaps you’re quite capable of managing things yourself.

However, for most people, having a trusted expert in their corner who has known them for many years and is there to support them in times of need, is something well worth paying for.

If I put $5000 into my super and the fund balance then drops by that amount, haven’t I “lost” that money even if my fund rises later on? Given the fluctuations in the stock market, is this worth it?

Superannuation is a tax structure in which to hold retirement savings. How the money is invested is at your discretion. You contribute to super so that you can ultimately have a tax-free income stream in retirement.

When you deposit money into superannuation it need not go into the stockmarket. Indeed, you could deposit money into superannuation and then invest that into a term deposit if you wish. Not all super funds offer this, but those with the best functionality do.

You therefore need to decide on the investment strategy for your super fund, with reference to your comfort level around volatility. Risk in this context is the volatility of a given investment. Your fund will provide you with various investment options, from low to high risk.

Appreciate that low-risk investments will provide a commensurately low rate of return over the long term. And whilst these low risk, low volatility options may help you sleep better at night, the trade-off is that your savings will not last as long in retirement. This is known as longevity risk and is easily overlooked.

Assuming within your super fund you choose to invest in assets like shares, it is the case that you will see volatility from one day to the next. However, we have over 100 years of data which shows that over the medium to long term such investments will have far more up days than down, such that an investor will be well compensated for tolerating the short-term volatility.

Paul Benson is a Certified Financial Planner, and host of the Financial Autonomy podcast. Send your questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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