Australian Retirees Paying Too Much!

This is a diagram EVERY retiree that uses an adviser should know.

This is what is called the Value Chain in the advice and product industry.

It shows how much of the total ongoing fees you pay goes to a host of service providers standing behind the adviser or person in the bank.

The red portions are what can be easily taken back. They add up to a lot over a lifetime. In other words this is how much of all the money you have invested, and also what is created in growth, and income goes to others except you. On $500k invested that's over $10,000 a year.....so is it that a reasonable levy?

3.5%-4% p.a. is the average reasonable income that can be generated from an investment portfolio before charges and of course- tax.

The adviser fee portion alone equates to ONE THIRD of this income going to him/her. Yes you read right. On $500,000 this equates to at least $5000, leaving you just $15,000 each year. Its also levied against all income and growth your money might earn too and so its often even more that you pay to others. It seems the average retiree is also funding other peoples retirements as well.

What does the typical retiree get for this rather large ongoing payment from the typical adviser? A couple of meetings, the ability to ring them if something worries them, and a report with the advisers view if an investment(s) should be added/deleted or re-weighted. Perhaps free calculations done and adjustments made for legislative changes and vague references to seemingly complicated research too. Subtly, peace of mind is also sold to the retiree as the key benefit. Less than half this fee should be charged, and until investors get angry, sadly it won't.

Of course this doesn't add up to much effort or talent for the exorbitant fee charged and what technology and products can now provide makes much of what they do unnecessary. They will argue all sots of issues and compliance costs- but that's their burden to solve not yours to fund.

What about the other costs? Its relatively easy to strip these back too without endangering retirement security or for all that much effort. Another $2,500 or so can be put back into the retirees pocket on $500,000 invested, yet you can still benefit from professional management and the use of products if done prudently. No its not just advisers offering poor value.

Yes, that's around $7,500 every year that can be easily put back into the pocket of its rightful owner.- The retiree! Halve this for $250,000 and double it if you have $1 million invested. Over time this ads up to a lot.

Stay or Go? Its a question of value for money and the ability of mind of the retiree. There are now alternatives that can replace or discard some of the things advisers charge for and the others involved in the chain too that frankly, most simply don't need.

If a retiree is frail of mind or ill health or has a low ability to grasp basic financial concepts and basic mathematics, then despite the high price, its probably still worth it. Its too dangerous for most to 'go it alone'. Even so the value provided for the price charged is POOR.

As an industry veteran that has held positions in sales, compliance, product, advice, license management, platform and investment, (and for 30 years) I am in a good position of experience and understanding to make the following claims. For advisers reading this, grab the Zantac, control the rage as this may infuriate.

If you find the below an ok proposition then look at removing them from your payroll and focus on only what you need to pay out and keep the rest for you. after all its YOUR retirement.

* In Australia laws are complex and its good to see an expert adviser to get you initially set up things in this next phase of life with structural and taxation matters (but not investments). Ongoing its a different matter.

* Latest platform costs plunge: (things that hold and report on your money) have seen new version decimate the costs by up to 90% of what typical advisers (independent or in banks charge)

* You can obtain research cheaply-today's thanks to the internet its a commodity.

* If laws change- see your accountant and pay an hourly rate for the calculation (perhaps $450 once off)

* Halve product costs by clever allocations of your investments direct and via things called LICs, ETFs and Index funds can halve the average money management and product costs overall.

* If you don't own direct property in your pension fund then you probably DON'T NEED the hassle of an SMSF. Platforms can now do things they never could at prices competitive to an SMSF.

* Employ 2 hours a month to keep an eye on things and take a passing interest in building up your financial knowledge. There are easy and clever ways to filter out much of the noise, confusion and angst when investing money. None are expensive or hard.

* Sign up to a course that can provide you the tools and know-how to DIY. Don't be intimated by choice and complexity- the entire financial industry counts on this to confuse you then justify its high pricing.

* Simplicity in life is an increasingly rare but wonderful thing. Apply the KISS principal to structuring your investments and money affairs. Again with a little bit of one-off education its easy to do.

* There is very little difference to the value and service offerings between a Bank adviser or an independent adviser. Trust me on this I have known, helped and served hundreds of them in my career.

* Do not subscribe to Ongoing Service offers from advisers or accountants.

Most Retirees with some basic know-how (and fitness of mind) can do most things required each year themselves after some initial training and guidance. This produces a big boost to the average income in retirement so its worth investigating.

As average returns fall for the decades ahead, shaving such percentages off costs add up to a great deal and may well mean the difference between a happy retirement and one of forced frugality.

The advice industry backed by the Banks and Life Companies have no intention of helping you do this. This gravy train amounts to hundreds of millions of dollars every year to executives and shareholders.

Discover the alternative. If you know someone retired or retiring pass on this article! It may well be the most valuable gift you will give them.

Happy investing!