Seven tips on revealing fee traps in your super

I have dealt with a number of financial advisors. While they claim to have my interests at heart and have provided useful advice on occasion, I have learnt a few lessons that now modify my approach. Had I known what I now know, my dealings with financial advisors would have been different.

Here are seven tips on dealing with financial advisors, particularly if you are assessing your superannuation. They could save you money. I am not suggesting that you don’t use a financial advisor. Given the healthy record of scandalous behaviour in the financial services sector, it is wise to be forearmed so as to ensure you gain value for money.

  1. Rather than use a financial advisor, see if your super fund has staff who will answer your questions for free. This can take some perseverance, but if a business wants to retain your money, then they should be willing to answer your questions. Plus there are organisations that offer members financial information [e.g. National Seniors Australia].
  2. Be prepared to debate the nuances of information versus advice. Advisors are covered by various laws and regulations and to protect themselves may argue you are asking for advice. Often, all you want is some information.
  3. One of the key details to understand about superannuation is what fees you will pay. If the fees outweigh the income gains, this is not a smart investment. Search for information about what fees are charged on your super, particularly if you are not using a financial advisor. Finding this information and working out what it means and how it applies to your money can take hours of searching and asking questions. Fees can be buried in brochures and may appear in several places. It’s always worth asking once you think you have all the fees: Are these all the fees that apply to my money and are there any others? Another detail to clarify is what the percentages apply to. Fees are given as percentages but the question is: percentage of what? Does it apply to the balance on your account, to earnings, or something else? This will make a difference to working out what the total amount of fees you are paying.
  4. Find out when the fees are deducted. They may be deducted from earnings and you’ll never see them or know they were there.
  5. What financial advisors do in their Statement of Advice is separate the fees from other information and provide percentages rather than dollar amounts. While the dollar amount will vary depending on the amount of money in your account and what the earnings are, it is still possible to estimate what the actual dollar amount of the fees is likely to be. If you don’t receive this information, ask for it. Or calculate it yourself and ask your financial advisor to confirm the accuracy of your calculations. The fees can add up to a surprising amount of money. Ask for a page that shows potential investment gains and deductions for fees, tax and other costs, so you can see whether in fact you will come out ahead.
  6. Financial advisors generally want to give a full advisory service and are legally required to assess your finances before offering advice. There are times though, when you know all about your financial situation and only want some information. It is possible for financial advisors to provide this more limited service. You have to waive some rights so they are protected. However, if they insist on doing the full assessment when you only want some information, walk away.
  7. In addition to getting full disclosure on fees, some other details on financial advice to consider are:
    – If you are advised to invest in a fund that is trending down, and you need to be given charts to know this, ask why you are being advised to lose money.
    – If you are asked to complete a financial risk assessment, ask what it is based on and what validity it has. Don’t be surprised if you don’t receive a useful answer.
    – Know that the financial assessment document, which can run to 40 or 50 pages, is mostly a template, and a junior staff member is likely to have completed most of the work. Most of it is not witten specifically for you.

John Collett’s article ‘15 things to do by 30’ provides a useful checklist for getting your finances on track. While thinking long-term may not be top of mind, an uncertain world with increasing casualization of work, unaffordable housing and rising prices, means some money literacy and sound thinking will reduce stress and make life easier.

Dr Ann Villiers, career coach, writer and author, is Australia’s only Mental Nutritionist specialising in mind and language practices that help people build flexible thinking, confident speaking and quality connections with people.