Question: Why is financial planning advice so expensive? Aware Super gives minimal free advice and quoted $4500 for comprehensive advice, which I don’t want to pay. This is because of a previous bad experience I had when it was known as First State Superannuation. 

I paid several thousand for advice that couldn’t be implemented because I lost my job shortly thereafter. I got a cookie-cutter statement of advice that a high school student with Excel skills could have prepared. FSS then asked for more money to start again.

I got paid $50 per hour in my last job, so why does financial planning advice cost 10 times this?

You have raised some topical issues that the regulator, advice industry and super funds are all currently grappling with.

In fact, ASIC is currently trying to address this very issue and has issued a consultation paper entitled ‘Promoting access to affordable advice for consumers’.

The financial advice industry has undergone significant change over the past few years to weed out the bad advisers and provide consumers with more protections and better outcomes.

This includes financial advisers having to act in the client’s best interest, passing a one-off exam, Code of Ethics obligations and increased educational requirements.

On the surface, these are positive steps.

But it has led to fewer advisers in the industry and more compliance and overhead costs for those that remain, which has resulted in an increase in advice costs to the end consumer. 

When factoring in how much an adviser charges per hour, these overhead costs must be considered.

It’s also my understanding Aware super members have the added issue of a change of advice model that resulted in an increase in fees payable.

Many super funds, especially industry super funds, offer simple, once-off advice at no additional cost to their super fund members, which is also called ‘intrafund’ advice.

However, more comprehensive advice does come at a cost because the cost of the advice/adviser cannot be spread across the membership base when giving advice on topics outside the interests of that super fund.

Super funds are trying to differentiate themselves by the services they offer, including the advice they provide, so it’s worth shopping around super funds to see who offers what.

The government’s Moneysmart website also has some good information on how to choose an appropriate financial adviser.

Question: I recently read an article on super contributions, and I was wondering whether I should consider the govt co-contribution?

Who is eligible and how can you receive it?

With any super contribution strategy, the co-contribution should always be considered for those that are eligible as it can effectively achieve a 50 per cent return on your money straight away, and there are not too many legitimate schemes that provide that type of return.

When it was first introduced, it was more generous. By making a $1000 after-tax contribution (officially called a ‘non-concessional’ contribution) the government would contribute $1500 into your super, which translates into a 150 per cent return.

Then, it moved to a matching contribution (i.e. a $1000 member contribution was matched by a $1000 co-contribution).

And since 2012-13, it is now a maximum of $500 for eligible members who make a $1000 after-tax contribution, which is still very generous and a great incentive to contribute towards your retirement.

Who is eligible?

You may be eligible to receive a co-contribution if all of the following criteria are met:

• You make a personal non-concessional (after-tax) contribution during the income year
• 10 per cent or more of your income is made up of employment and/or self-employed income (Sidenote: I have never understood why stay-at-home parents and carers are discriminated against here)
• You lodge an income tax return,
• You are less than 71 years old at the end of the income year
• Your total income for the income year is less than $54,837
• There is no breach of your non-concessional cap, and
• At June 30 of the previous year, your total super balance is less than $1.6 million for 2020–21.

The maximum co-contribution of $500 is potentially available to individuals whose total income in 2020-21 does not exceed $39,837 pa.

The co-contribution reduces by 3.333 cents for every dollar of total income over $39,837, cutting out once your income reaches $54,837.

The ATO has a calculator that can work out your maximum entitlement.

If you are a low to middle-income earner looking to save for retirement I suggest speaking with your super fund or financial adviser about contribution strategies that maximise your co-contribution each and every year you have the available funds.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services.

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

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