Planners pay a high price for low-cost SOAs

The practice of offering low cost Statements of Advice (SOAs) and initial advice to potential clients and recouping the costs later is distorting the true cost of financial advice and creating a perception among consumers that they are not getting true value for the advice, according to the managing director of Snowball Group, Tony McDonald.

Offering cheap initial advice to capture clients and then channelling the clients in to certain parts of the business distorts whether the consumer is getting true value for different areas of advice, he said.

“The risk is that the subsidisation ... [creates a situation in which] the consumer ends up getting something where they don’t understand the true value of it — it’s distorting the pricing."

However, McDonald admitted that if consumers were to see the true cost of financial advice, it would discourage them from receiving it.

It’s legitimate to offer the initial advice cheaply to the consumer and recoup it later on, but only if the arrangement is communicated upfront and is understood by the consumer. It becomes a problem when the arrangement is disguised and abused through other means, he said.

Client case studies included in Commonwealth Financial Planning’s pricing policy provided to Money Management showed SOA fees were as low as $1,650, followed by a one-off advice fee of up to $15,000 to implement the recommendations in the SOA.

Prosperity Advisers director of financial services Gavin Fernando said the Australian Taxation Office (ATO) should investigate making the initial up-front costs for financial advice tax deductible. If a client comes in for a simple financial plan, they will never get the benefit of the up-front fees because the client may not have any underlying assets for them to sell, he said.

“For the client, there is potentially no capital gain from the advice that we give, but it’s … not about selling a product like a house, it’s about selling advice, and the ATO doesn’t allow that,” he said.

Luke Rathborne, a financial planner with Capel and Associates, said they generally tried to recoup the costs of the SOA at the time they issue it. He also hadn’t seen any evidence that the cost of producing an initial advice statement was putting consumers off receiving financial advice.

A more complex financial plan could cost up to $4,000, he added.