When Financial Advice Fees Go Too Far

Most financial advisers defend adviser fees. In this episode, Tim and Brodie do something different...... they challenge them.

From ongoing fees on “set and forget” portfolios, to percentage-based charges that grow far faster than the actual work involved, this episode explores when adviser fees genuinely deliver value… and when they may not.

Tim and Brodie unpack:

•  Why unclear fees are always a problem 
•  Whether passive investment portfolios justify ongoing advice fees 
•  The issue with commission clawbacks and conflicted incentives 
•  Why some clients end up paying far more without receiving far more service 
•  And how fees quietly compound against long-term wealth 

The episode also explores the origin story behind FNZ — a business now administering trillions globally — which reportedly began after its founder questioned the fairness of the fees his own parents were paying.

This isn’t an anti-adviser conversation.

It’s a transparency conversation.

Because at the end of the day, clients deserve to know:
 What they’re paying, why they’re paying it, and what value they’re actually receiving. 

If you have a question, suggestions, or a topic you would like us to cover, please send an email to: podcast@foxplan.nz

For More Dollars & Sense Content: Click Here

Listen to all The Dollars & Sense Podcasts: Click Here

The information shared on The Dollars & Sense Podcast is general in nature and does not consider your individual circumstances. Dollars & Sense exists purely for educational purposes and should not be relied upon to make an investment or financial decision. Tim Ellis (FSP778196) and Brodie Haggerty (FSP778174) are both Financial Advisers providing advice on behalf of FoxPlan Ltd. FoxPlan Ltd (FSP39630) is a licensed Financial Advice Provider. Important information can be found at www.foxplan.nz/disclosure 

Transcript

SPEAKER_02 0:00

Imagine you go to a landscape architect and explain, I just want to make sure my backyard is at all times looking absolutely immaculate. The architect agrees to the deal, but says, Well, for the next 20 years to guarantee you that outcome, I'm gonna need a $20,000 a year retainer, and I will make sure that your backyard at all times looks immaculate for the next 20 years. The deal sounds great, you sign up. Then what the architect does is goes and changes your entire garden to a stone garden, replaces all of your grass with concrete tiles, installs a little strip of astroturf. Now, the architect, all they really need to do is once a year turn up, spray a little bit of spray and walk away on the concrete areas. No need to pick any weeds, no need to trim any grass, but the deal was that the backyard looked always at all times immaculate. Was that $20,000 year retainer really necessary? Sure, there was a lot of work in the upfront, but did it really warrant an ongoing fee at the same price for the next 20 years? Welcome back to another episode of the Dollars and Cents podcast. This week, once again, we're so privileged. Uh, we've not only listening to myself, which is Tim Alice, but sitting right next to me. Welcome back to the mic, my co-host Brody Haggerty. Thank you, Tim. Privileged. Wow. I feel privileged.

SPEAKER_01 1:23

Yeah.

SPEAKER_02 1:23

Thank you. Do you? Or do you feel like you're giving to charity? No, I'm happy to be here. Well, since we've got you here, before we get underway with this week's episode, would you uh be so kind as to do the honors?

SPEAKER_00 1:35

Sure thing. Welcome to this week's episode. Just a friendly reminder that uh everything we talk about today is general of nature and not intended to be personalized financial advice. So consult the relevant professionals before making any big decisions.

SPEAKER_02 1:49

Okay, with that out of the way. What we're going to be talking through this week is a uh an age-old argument. Are advisors' fees really warranted? Now, usually, and from all accounts of every podcast I've listened to from financial advisors, the argument is, of course, yes. It's then followed by a lot of rational reasons as to why their fees are warranted. In that context, I couldn't agree more. Those advisors that I've listened to, I I would agree with their fee. In fact, I charge fees as well. However, I want to flip that argument on its head. I believe that quite often there are fees involved in this industry that are completely unwarranted and unfair. I trust that you feel the same way.

SPEAKER_00 2:32

Yeah, absolutely. I think there's there's times when fees aren't uh appropriate and therefore you either have to have that discussion with the prospective client. Um Yeah, I th I think it's it's important because if you think about how fees erode your long-term returns, you need to be getting value for that money, right? Because a fee is going to impact the level of money you have come retirement or children's education, whatever the the money's invested for, uh fees are going to erode that. So if you're not getting value for that money, um you should definitely look at why you're paying it.

SPEAKER_02 3:11

Absolutely. Uh and before we uh go into the different examples of when fees might be completely inappropriate or when you should push back or challenge, um, I think there is a pretty broad statement that you could make that all fees that aren't understood are inappropriate.

SPEAKER_00 3:28

Yeah, I'd agree with that.

SPEAKER_02 3:29

Wh whether the fee turns out to be justified, uh if if the client doesn't understand what the fee is, how much the fee is, or what the fee is for, it's an inappropriate fee because a a a really necessary conversation has not been had if that's the case.

SPEAKER_00 3:43

Yeah, absolutely. I think that should be part of your value proposition to a client is how you get paid. 100%. Couldn't agree more.

SPEAKER_02 3:51

So uh look, I I've got I don't know how you offer tax this parody, but I've got five different examples of where quite often fees are too high or inappropriate. Have you taken a similar approach to this week's episode?

SPEAKER_00 4:03

Yeah, I've got I've got a few examples. Um, but I'm sure we'll have similar examples.

SPEAKER_02 4:09

I have no doubt. We'll have some double-ups for sure. But just before I'm getting into my first example, what I reflected on when we decided on this week's topic was an amazing story. Great. I love story time. Good. All right, we'll get cozy. I recall, in fact, you were at the exact same conference. We attended a conference in Christchurch hosted by Concilium. There was a speaker uh of the day uh by the name of uh Adrian Durham. Yes. He's the founder of FNZ. For listeners not familiar with FNZ, FNZ is a custodian uh company that manages, well, at the moment they have $2.4 trillion in US dollars in assets on their platform. Yep. So uh a lot of investment providers use the FNZ platform, but how that company actually came to be. So Adrian was uh he was in the the industry. Don't quote me on this, but I believe he was with Jardin uh prior to founding FNZ, and his parents had been given an investment proposal for a retirement plan. Knowing that their son was in the industry, they asked Adrian to just look over the investment proposal and give a bit of feedback. And what he found was absolutely uh outraged by the amount of fees that was involved with the proposal. And so what he did is he tried to find how could these fees be actually viable? How is this even possible? Something must be wrong. He challenged every single fee that was involved in the investment. And what he ended up finding was no, every single fee was actually justified. It's just the way they were doing the investing was completely outdated and inappropriate. Unfortunately, there weren't too many other options at the time. Hence he started FNZ. But what's now built to a company that has $2.4 trillion of assets on their platform all came from questioning fees and making sure everything was fair and just.

SPEAKER_00 8:01

Yeah, for sure. And that I think that conversation can come in later when you do eventually get advice. But from my experience, these clients it it doesn't really end well for either party. The the for me personally, I've had about four or five clients come on and they've had huge debt, um, their income wasn't great, they were struggling. They were struggling to pay their bills week to week, and then I'm lumping on a fee for my work on top of that. The the relationship's already strained from the get-go because they're already always questioning that fee um because they're drowning in debt, right? So for me, I just try and get clients to figure that bit out before committing to a financial plan.

SPEAKER_02 8:48

Okay.

SPEAKER_00 8:48

Fair enough.

SPEAKER_02 8:50

You might you might you might be different, but um Well, I was trying to be sensitive about how I'd uh position this, but uh I I I don't have a lot of um clients or prospective clients in the in the same position. So perhaps different experiences.

SPEAKER_00 9:03

Yeah, and probably and is there any reason why that is?

SPEAKER_02 9:06

Do you just not take them on or Oh no, I think quite often uh you know most people come to me from a referral um from people they know and uh you know people that are in quite fortunate positions usually have circles of of friends that are in in similar positions. And and a lot of the work that I've done uh is uh with regards to managing existing portfolios. So pretty hard to be you know drowning in debt and have a sizeable portfolio at the same time. Yeah, for sure. Do you want to go one for one on the examples of inappropriate fees, or do you want to do your three to not um you know to steal a couple of mine?

SPEAKER_00 9:44

Um I'll do another one now and then you can go. Sure. So the advice that you know put this in this fund and then leave it alone. So a common example of that would be your KiwiSaver fund, right? Yes. So you do have a double up. I was gonna have tackle this one, but take the honest. I mean I mean it's pr it's pr it's pretty obvious. Um so let's just say a client's just purchased their first house, they're 32 years old, they've got you know 33 years to retirement. Um you put depending on their situation, you're putting them into a high growth fund, right? And you said and forget. Sure. We did our disclosure at the start. You're fine, you get away with that. Perfect. Um so they're going into a growth fund and you know that they're not going to need to change that for at least 30 years. So why would you pay an ongoing advice fee for something like that? Yeah. Now, I think it's important to note here that I do have KiwiSaver clients that have come to me and said, what do I do? I've brought a house. You know, and I've and I've given that advice to put it into growth fund and just leave it. Now, I think the difference comes to what value you offer that client going forward because you're not going to need to review their KiwiSaver ongoing, right? However, there may be ups and downs about every six months or not.

SPEAKER_02 11:08

No, yeah.

SPEAKER_00 11:09

So let let's say that well, you can review it, but there's not going to be any changes. Unlikely. Unlikely. So the the value comes down to well, how do you create value on top of that? Um because you're not going to be telling them to change it. So you're keeping peace of mind with them when the markets bounce up and down and they're they're worried to keep them in their seat. That's a big one. Um and also what you offer at those annual review meetings. So if your financial advisor just wants to sit down and say, Yep, your QB saver is all good, let it be. That you're not really getting value for a 0.5% fee of your of your portfolio. So does the advisor offer advice in those review meetings about your budget structure? Do they offer advice about your insurances? Do they have offer advice about your tax, all that stuff? So are they looking at it holistically when you come in for a review of your KiwiSaver, not just saying your KiwiSaver's good, stay in your seat, leave it? Not much value there, right? But if they can have better conversations with you around some of your goals, your behaviour, all of that, then I think it is warranted.

SPEAKER_02 12:16

Yeah, so I won't typically um work with people that only want to isolate um the services to a KiwiSaver, only because I don't think that justifying a you know a conversation that can be done in five minutes once every 12 months or 24 months warrants a fee like that. Um I'm happy to give people advice and send them on their way. Um that's that that's no trouble. Just for another example, because you've used KiwiSaver, you know, an advisor that all they've done is recommended a KiwiSaver, set and forget, right? Um I I agree. Inappropriate often if that's the limit of the scope of the advice, but that's not limited to just KiwiSaver. Some advisors will do the exact same thing with simply putting somebody in a passively managed um index fund, say the VOO, the Vanguard SP 500 tracking fund, and no other services, considerations, or holistic approach is ever offered or ever given because that's not in the advisor's scope. All they were there to do was recommend an appropriate fund, and that's all they've done. Does that really warrant an ongoing percentage-based percent of the funds you have invested?

SPEAKER_00 13:29

Well, not really if you can't contact the advisor and get value from them on a yearly basis.

SPEAKER_02 13:35

Exactly. Uh what what are they doing ongoing for that fee that they didn't just do in the first five minutes when they told you to go and buy the SP tracking index fund set and forget?

SPEAKER_00 13:47

Yeah. I can't understand why you'd get paid for that ongoing.

SPEAKER_02 13:50

So if you were a client in that position and you went and asked that advisor, what am I getting for this fee? I I think they would probably struggle for a valid answer. We're monitoring your portfolio. Oh, it's a monitoring fee. I see. What are you monitoring? The SP 500? Is that what you're doing? I f I feel like that's pretty public information, if you ask me. Along a similar path, oh, do you want to go three for three or do you want to uh throw the ball over to me on the next one? You can go down it. So what about a um, you know, if an advisor is charging a percentage fee on assets under management, which is very common. I I do that as well, but it is one set fee. It's it's one percent across the the board. So if I did that with one client that had uh a million dollars invested, there's a ten thousand dollars a year. Yep. Now uh I have other clients that have six million dollars of of available investments. Do I charge them sixty thousand a year and give six times more service? They would probably see me needing to uh somehow warrant a meeting every month as opposed to once a year or every six months.

SPEAKER_00 15:10

Correct.

SPEAKER_02 15:11

Do they really need that much more hands-on? Depends. Okay, for the sake of the argument, am I going to charge one person sixty thousand dollars a year and another person ten thousand dollars a year and really actually deliver that much more service to one than I uh that I didn't to the other?

SPEAKER_00 15:33

Uh I think it depends on their personal situation. That's just my my belief on that. I think what if the six million dollar person invested has they're they're always jumpy because they've got so much invested, they're always coming to you about the markets, you're having to keep them in their seat, they want to meet quarterly.

SPEAKER_02 15:51

In in that case, perhaps. But let's say in this example, no, neither have any more higher needs than the other. Okay, so you're giving the same advice, same value, same service.

SPEAKER_01 16:00

Mm-hmm.

SPEAKER_02 16:01

Then absolutely that's one person's getting charged sixty thousand, the other person's getting charged ten thousand, purely based on the uh amount of available assets they had to invest. Then yeah, I think that could be inappropriate. Yeah, I I couldn't agree more. That's why it's hit my list as um, you know, uh I I feel that a fair approach can be a uh either a capped um fee, so a percentage up up to a maximum, or a tiered fee, where you might say, okay, well, for the first uh million uh the fee will be a thousand uh one percent. For everything over that, um the fee will be uh a reduced amount, a point five percent. Yep. Everything over five million, a point two percent. Uh all all I'm getting at here is a a a layered um Yeah, yeah.

SPEAKER_00 16:49

And I mean the the other way you could tackle that is have categories of the service you provide your clients and be very upfront about that with them. So if they've got twenty thousand to invest, you say, well, I'm getting two hundred dollars a year, this is the service I can deliver you on that. Whereas if someone's investing a million dollars a year, you're getting $10,000, well, that puts you in this category, I can deliver you this service and this value. So have having those conversations up front, I think, is very important on what value you're actually going to deliver.

SPEAKER_02 17:17

Yeah, service level agreement. And if a $20,000 portfolio and only making $200 a year does not warrant the service the client needs, then an out-of-pocket fee needs to be charged. Well, discussed and agreed. It doesn't have to be a fee coming from the portfolio. Sometimes having an out-of-pocket expense really makes you uh makes clients push to get as much as they can out of their advisors, and rightly so.

SPEAKER_00 17:42

Yeah, or or for the $60,000 a year client, you can send them two cakes at Christmas instead of one.

SPEAKER_02 17:47

Two cakes. Yeah. Well then make up for the difference, wouldn't it? They're not going to need as much retirement money because they're gonna keel over faster.

SPEAKER_00 17:56

Yep, I take your point though.

SPEAKER_02 17:58

Okay. What about fees that are tied purely to or structured purely by recouping commissions that have been paid? I'll give an example because that sounded a bit bit too cryptic. Had a client that um had a UK pension, and I had to go and find out all about how the UK pension this particular UK pension worked. It turns out that uh upon signing up to this UK pension, if you go to withdraw or pull out of it or move it, you get an 8% penalty. 8% of all funds under management fee for moving the funds. After a year, that goes down to seven percent. After another year, six percent, and so on and so on until it gets to about one point five percent, and that's where it stays. Do you know why it started at 8% and then 7%, then 6?

SPEAKER_00 18:49

Uh, because there would be a right back on the commission.

SPEAKER_02 18:53

Yeah, well, they've paid commission to the agent that sold that UK pension, and if they don't get that amount of commission they paid to that um agent back, they're out of pocket. Now, how could you justify a fee for something as long as you stay with me? What service, what more service are you giving me for staying with me?

SPEAKER_00 19:17

UK pensions don't historically have very good service either, do they? No, no. Shockingly so.

SPEAKER_02 19:26

Yeah, but that fee is tied to that company's problem, not not the service they're giving you. By the way, this particular one, that uh eight percent resets if they shift the fund at any point. So you might find around year five or six or so it gets shifted. Wow.

unknown 19:46

Hmm.

SPEAKER_02 19:46

Well, this whole episode is about inappropriate fees.

SPEAKER_00 19:50

Yeah, and there are some. Oh, I've got two more. You've only got one more. Um I've got a I've got a couple. Um a big one for me is whether or not they actually take the advice. Uh explain that? So why would you pay for a fee if you're not going to follow the advice given or execute on your goals? Hmm. Um so you mean th there's there's no value to the client, really? Well, you you if the advisor's delivering value but you're not actually going to take action on it, then your financial plan and your fee or the financial plan becomes an expensive doorstop if you're not going to use it, right? Yeah, sure. And then the fee becomes like a gym membership you don't use.

SPEAKER_01 20:31

Mm-hmm.

SPEAKER_00 20:32

So, you know, some clients they they they get into the state where they want to feel productive, like they're going somewhere, so they engage a financial advisor, they get a financial plan, and they think, wow, we've got our stuff together, now we're we're heading in the right direction. And then they don't actually take action on it. Um But th that that's the worst sort of client for me because You're captaining a sinking sinking ship, yeah. Yes, yes, and then they're looking at you, why aren't my goals been achieved? Well, you're not taking the advice and you're not taking action. So I think an advisor's role is not only to design a roadmap and a strategy to achieve outcomes, but it's actually right, we need to get you to take action on some of these goals. And some of these goals that you need to take action on is spending money. Um you know, some clients get to retirement and they've saved all their life and then they can't spend the money that we've agreed that they're going to spend in retirement, and it's it's quite frustrating.

SPEAKER_02 21:27

Yeah, no, I uh I I completely agree. And an advisor that's gonna be completely honest and and transparent with their clients would need to say, Look, I I'm putting in all the effort I possibly can. There's nothing more I can do for you, but considering this is the outcome of it, I think you will be better suited with a different advisor that is going to be able to inspire you to make changes. Yeah, for sure. Therefore, your fees should go to that person and not me, because I'm not getting the outcomes.

SPEAKER_00 21:55

Yeah, because at the end of the day, if if you've got a relationship like that with a client, no one's taking Action, one of you is going to fire the other one, right?

SPEAKER_02 22:03

Oh yeah. And it just saps your energy 100%. Uh I I I remember a very, very good friend of mine, um personal trainer, for a very long time. And he had a client that would turn up every day for a chat. Just wanted a chat. But you know, despite how hard my friend tried to motivate him to make changes and um change habits and uh do corrective exercises and um would even take him uh out up cow cow on walks so that he could get his chat and still get some exercise in. Um, but after a while it just became too taxing for him because he wasn't able to share in the uh the joy of achieving goals and milestones that he was with other clients. Um that yeah, it was just advice it might be better off somewhere else.

SPEAKER_01 22:46

Yeah.

SPEAKER_00 22:47

Go to a therapist.

unknown 22:48

Hmm.

SPEAKER_02 22:49

Okay, so I've got another one. It's a little bit uh obscure, but uh it has popped up a number of times in my travels and it winds me up the wall whenever I see it. Shoot. You know it's gonna be related to mortgage brokers, don't you? Oh, poor mortgage brokers always taking some heat. They they they they cop it from me, I'll give you that. But uh look, I've I've had clients that have needed um, you know, something along the lines of bridging loans. Okay, they want to go and um buy a particular property, they need it pretty darn soon. They've got plenty of assets or uh or other properties and one's gonna sell, but they don't want to muck around, so they go and get a short-term loan for a million bucks to go and buy this property, and they've been very, very, very clear that the debt is going to be repaid in a year or two years' time. Once whatever is funding the asset purchase is is realized, they'll be clearing out the debt. But they needed some some lending in the short term to be able to throw a million dollars at a property. They've told the mortgage broker that they've gone and got the property, then they've gone and repaid the loan, then they get sent an email saying, Hey, you need to pay back all the commission that our broker received because we've got to pay it back to the bank. Yeah, that's completely inappropriate. Couldn't agree more. Uh why am I paying a fee when I told you what my plan was, what my goals were, what I wanted to achieve, and I've done exactly what I said I was going to do, and now I've got to pay back a commission that the broker um got paid and then had to pay back. A far more appropriate way to deal with that is a mortgage broker saying, Look, I'm not going to be able to have any commission for this deal because you're going to repay the debt, and uh that'll just result in a uh a commission clawback. What I need to do is actually charge you an out-of-pocket expense for my time to get you the lending. Here is my fee for doing that.

SPEAKER_00 24:39

Absolutely. That's a no-brainer, isn't it?

SPEAKER_02 24:41

Well, it's a no-brainer, but it's not done. Have you seen that happen before? I absolutely have. And I think maybe the hope is that the mortgage broker is hoping, well, let's hope that the sale of the other property doesn't go through and he never actually ends up paying back the uh the loan in the next year or two, because after three years, the client can pay off the loan and there'll be no commission clawback. So I think they're just hoping that it doesn't get clawed back for three years. Uh, some cowboys out there, isn't there, Tim? Look, this week's episode was about inappropriate fees. A lot of people whinge and moan about financial advisors being unfair with their fees. And in some instances, I completely agree. I am not here to defend all advisors at all times for all fees, because I don't think that's the reality. With all this said and done, and and look, I'm sure we could have found other examples that do back the argument that some advisor fees are unfair. But what what do you want listeners to take away from this? Brody, what what what can listeners actually do or uh or think about from this week's episode?

SPEAKER_00 25:43

Yeah, I think just coming back to my opening statement about the erosion of returns um by fees. So it comes down to value. Are you getting the value that you think you need? Um because a lot of clients don't actually care what the fees are if they are achieving their goals, which is huge value, I believe. If you're achieving all your goals, then what what does a fee really matter? Um that said, you need to question the fees if you don't think you're getting value.

SPEAKER_02 26:16

Yeah, if I could give a takeaway, it'd be along the same line. It is no matter what your fees are, I just want listeners to know what their fees are and why they're paying them and what they're for.

SPEAKER_00 26:29

Absolutely. And if your advisor, if you're confused about how your advisor gets paid, you're probably not worth a great advisor because or you should ask the question, and if they give a complicated answer, then you you could be getting sold. Sure.

SPEAKER_02 26:46

Totally agree. Okay, I think we've spoken about fees enough as for this week. That's it.