Naivety drives under-insurance: part 2

From last week’s blog I am now going to turn to a different survey result I saw in the press the other day. Then I’m going to combine the two.

This survey result is also a cracker and I’m going to give you an insider’s tip and show you how to save some money on a financial plan (that’s if you’ve never had one before).

A survey commissioned by another company, superannuation provider and WA based GESB on the cost and value of financial advice showed that nearly half (44%) of Australian consumers believed that under $500 was a fair price to pay for a financial plan.

When contrasted with the Financial Planning Association’s more realistic average price of $3,600 for a complex plan, under $500 seems just a little off the ballpark.

The real cents

I can assure you that there is a significant amount of time in research, legwork, typing, consulting, working and re-working to implement, setup and follow a complex plan through to completion. 20 -30 hours doing this is not unheard of and at $180 an hour (a cheap accountant will charge you this by the hour) your $3,600 often barely scratches the surface.

In the value of advice as a minimum you should expect to realise 10 to 20 times this in assets from this upfront cost over the longer term (some people’s longer term will vary), a good adviser should and will do much more than this.

This increase will make a huge difference in retirement and to the date of your retirement. But as many a small business owner knows the true goal is to create excess wealth outside of super as well.

What do I get?

What do we get for our hard earned $3,600? Governments everywhere, all around the world are concerned with the future strain the age pension will have on the public purse. According to the Association of Superannuation Funds of Australia the average person living on $60,000 today can expect to retire on funds much less than half of that – $25,600.

All things remaining the same as they currently stand (this may change slightly if the 12% compulsory super change the government advocates gets through) the majority, yes, MAJORITY of the population will be on at least $10,000 a year short of maintaining a comfortable living standard.

Couple that with people today having a much higher life expectancy due to medical advances.

Put simply, paying $3,600 will address this $10,000 yearly shortfall and insure a comfortable standard of living for you and provide for those you leave behind if you leave the world a little earlier than expected.

Personally, I will often do much more over and above what I charge because I believe so much in the value of what I do and I want my clients to see this more than I do.

The money shot!

Okay, I hear you say, what about the cash you said you’d save me. Well, refer to my article last week; if you take the approximately $100 they pay in premium to the life company for the $1,000,000 in life and TPD cover, if the adviser who is servicing you arranges to accept a payment for service by the life company agreed to by the client, then this could cover a significant part of the cost.

An adviser would typically receive 100% of the upfront premium as payment for services rendered less a few expenses, so the $1,200 will look something more like $960 incl. GST to the adviser. Add this to the likelihood that other insurances such as trauma and income protection will be recommended and depending on the level of work involved in some cases this can be treated as a substitution to cover the bill of providing more complex advice and act like a fixed price for services. Of course, this will depend on the level of work involved.

If you do not have the $3,600 and pay fee-for-service ask your adviser if they recommend life covers of any kind whether the life company can pay them (the adviser) to substitute your bill. Your monthly premium paid will reflect this but the premium can be deducted monthly like a payment plan and in most cases life cover and TPD cover will be tax deductible if held by a super trustee. A company account must pay the premium if you operate under a corporate structure for the company to claim the deduction.

In any case, ask your adviser how you can save money.

Nick Christian is a Financial Adviser and planner and authorised representative of Millennium3 Financial Services.

 The views and opinions expressed within this letter are those of the author and do not necessarily reflect those of Millennium3 Financial Services Pty Ltd.

The above is general in nature and should not be acted upon without seeking the advice of a professional licensed financial planner.