Why Is Financial Advice So Expensive in Australia? Understanding Financial Planning Fees in 2024

Many Australians are surprised by the cost of financial planning services and often wonder why financial advice seems so expensive. However, with the changes in the financial planning landscape in recent years, these fees reflect the complexity, regulatory requirements, and the value that good advice can bring. In this article, we’ll break down what you can expect from financial planning fees in Australia and explore why these costs are rising.

The Initial Meeting: What You Can Expect

For many financial planners, the first meeting is free of charge.

This session typically involves getting to know you, you getting to know your financial planner and understand if they are the right partner for you, understanding your financial situation, and assessing whether they can provide the right services for you. At Newcastle Advisors, we ensure we can add significant value to your situation, otherwise there is no value in doing business together. This is also when fees will be discussed, giving you a clear idea of how much you’ll need to invest in professional advice. Alternatively, a proposal can be provided, where the scope of advice, timeframe and fee are outlined for your perusal.

How Much Does Financial Advice Cost in Australia?

The cost of setting up a financial plan in Australia can range from $4,000 to $12,000, depending on the complexity of your needs.

This may seem steep, but it's important to remember that financial planners are providing a tailored service designed to help you meet your financial goals. There is no “off the shelf” solution, given your unique situation.

Ongoing advice can cost around $4,000 per year, a 58% increase over the past five years due to a combination of regulatory changes and industry factors.

Why Do Financial Planners Charge So Much?

Financial planning fees have risen in recent years for several reasons:

Regulation and Red Tape:

The fallout from the Banking Royal Commission has introduced stringent regulations designed to protect Australians.

While necessary, this red tape has driven up costs as financial planners must invest more time and resources to meet compliance requirements.

Complex, often unnecessary documentation has become the norm, and clients are footing the bill.

Industry Shrinkage:

Since 2018, the number of financial planners has dropped dramatically, from 28,000 to just 15,600. However, many argue that the number of “practicing” financial planners is far less. Fewer planners mean higher demand, which contributes to increased fees.

This decrease is largely due to the rising costs of maintaining licenses and paying compensation levies, including those resulting from the collapse of Dixon Advisory. A financial planning firm with 10 advisors now faces a $40,000 annual bill just to cover these levies.

Higher Operating Costs:

Financial planning businesses must also pay annual fees to the Australian Securities and Investments Commission (ASIC), which further adds to the cost structure. As a result, financial planners are charging more to cover these operating expenses while still offering quality advice to clients.

What Is a Reasonable Fee for a Financial Plan?

The cost of financial planning can vary widely depending on the type of advice you need. Here’s a rough breakdown of typical fees in 2024:

Initial Consultation: Free or a nominal fee ($300-1,000).
Comprehensive Financial Plan: $4,000 to $12,000 for setup.
Ongoing Advice: Approximately $4,000 per year, though this can fluctuate based on your portfolio's size, complexity, and time.
Hourly Rates: Some advisors charge an hourly rate for one-off advice, which can range from $300 to $700 per hour.

Financial Planning Fees and Tax Deductibility

While financial planning fees can seem daunting, it's worth noting that in some cases, they may be tax-deductible. If the advice is related to managing or increasing your assessable income (such as investments), you may be able to claim a deduction. However, fees associated with the initial creation of a financial plan are generally not tax-deductible. We recommend you seek professional tax advice.

Is Financial Advice Worth the Cost?

Many people wonder if paying thousands of dollars for a financial plan is worth it.

The answer often depends on your financial situation and goals. Financial advisors help you navigate complex areas like superannuation, investment, tax planning, retirement and succession planning, which can result in significant long-term benefits.

Studies show that Australians with a financial advisor are generally better prepared for retirement and tend to accumulate more wealth over time.

For example, a good financial planner can ensure you make the most of tax deductions, avoid costly investment mistakes, and plan effectively for retirement. The cost of not having professional advice can far outweigh the upfront fees, particularly if you’re dealing with large amounts of money, planning for retirement, or have complex family needs.

Rising Demand and Skyrocketing Costs

As Australia’s population ages, the demand for financial advice is expected to rise sharply. Yet, fewer planners and increasing costs mean that fewer Australians, particularly those with modest means, are accessing this vital service.

Adviser Ratings found that while the average consumer expects to pay around $911 for financial advice, the actual median fee is more than four times that amount. This disconnect has led to growing frustration among consumers.

What Does the Future Hold for Financial Planning Costs?

There is hope that upcoming government reforms will reduce the regulatory burden on financial planners, which could help bring down costs. Proposed changes include simplifying Statements of Advice (the financial plan) and introducing a new category of limited advice for simpler financial needs. These changes could make financial planning more accessible for Australians of all income levels.

Final Thoughts: Is It Worth Paying for Financial Advice?

While financial planning fees in Australia have risen significantly, the value of professional advice remains high. A financial planner can help you navigate the increasingly complex finance world, ensuring that you’re on track to meet your financial goals. As the industry evolves, it’s likely we’ll see new, more affordable models of advice emerge, but for now, financial advice remains an important investment in your future.

If you’re ready to take control of your financial future, Newcastle Advisors can help. Contact us today to schedule a free initial consultation and learn more about how we can help you achieve your goals.