I had an interesting run-in with a financial advisor these past few weeks that I would like to relate to you. It all started when I decided on the spur of the moment that I needed superannuation (super is best arranged on the spur of the moment, I am sure).
Now, I know that the University has a fantastic scheme where they pay more than dollar-for-dollar. What this means is: for every dollar you pay into the scheme, the University will pay a little over a dollar in as well. That’s frigging fantastic, let me tell you right now.
So, with dreams of dollar-for-dollar schemes floating in my head, I contacted Human Resources. I knew my contract said something about super, I just couldn’t remember what. The first person I asked sent me onto someone else who told me that the company super scheme was “by invitation only”. I checked my contract and, sure enough: “…from time to time and at the company’s own discretion…” In the word of the soup Nazi: “No souper for you!”
I asked what provider Beca uses, so that I could get a compatible super scheme that I could merge in once Beca decided to become less discreet about supporting me in my retirement. They put me onto someone else, who forwarded me onto their third party provider (I won’t put his name or details of his company down here because that would just be unfair). Here is where the fun really begins.
If it quacks like a duck, it’s marketing
What stuck me as odd immediately was the fact that he (the chief financial advisor and the owner of the business) was so eager to see me personally. He came into the office, gave me some AXA paraphernalia and a few spreadsheets he had done up, which showed me making fantastic returns on my investment if I only invested like this and this.
I pointed out that the fantastic returns over the last year are probably mostly due to the incredible interest rates and recent depreciation in the dollar. I was also surprised that he quoted figures of “since inception” (being 5 years ago) as though that was supposed to make me feel confident that the next 40 years will be as rosy.
Then I asked a question that was probably a little cheeky: “what do you get out of it?” I am always a little wary of the middle man. If he’s insinuated himself into the value chain he’d better be adding value. If he’s not adding value then his cut should be as small as possible. “Oh our fees are included in my figures. All those returns are after fees.”
After fees sounded good. He gave me a week to think about it and said he would call back.
What is a contribution fee?
A week later, as promised he called back. In the interim I had done some reading and was mildly concerned about the 2.5% “contribution fee” that he was proposing charging me.
I did some research. A contribution fee is taken by the account manager (in this case AXA) and given to the financial advisor off every contribution you make to a fund. So, if I put $100 in, they take $2.5 out of that. Doesn’t sound like much does it? At $500 per fortnight that amounts to $325 per year you’re spening in contribution fees. Still don’t think it’s that much? Read on!
The financial advisor can choose to refund this fee to their client or not. The fee and the funding thereof is: “to be negotiated between you and your financial advisor”.
The contribution fees range from 0% to 5% in New Zealand it seems. So, I asked the obvious question: “what is this for, what do I get for my 2.5%?”
Well, the answer was it was to manage the account.
“But,” I said “that’s what this 1% account management fee from AXA is all about, isn’t it?”
It’s standard practice, came the reply, a lot less than the average (supposedly 5%).
“Okay,” I replied, “so what’s next?”
He said he’d come over the next day with a contract.
Immediately, alarm bells started ringing. I have had a bad run in with contracts sent to me from overenthusiastic people. I was once solicited through a phone call to get a new phone. My old Alcatel at the time was completely shot, so a new phone sounded like a good idea.
When the phone arrived, I opened it excitedly and read to my horror in the document attached “by opening this package, you agree to the following conditions…”
The conditions were a horribly inefficient Telecom plan. I suffered on that plan for many years and eventually threw off its shackles by seeing it through to its bitter end and taking Sarah’s second hand Alcatel.
From then on, I have a near-physical aversion to both Telecom and contracts. It was the sight of that butt-ugly phone that swam in my minds-eye just before I hung up. No, not another contract!
So I drew his attention to the super schemes offered by banks, which charge a much smaller (if any) contribution fee. “No, those aren’t real super schemes.”
But they are super schemes
So I did more research and discovered that, there are a number of super schemes on offer, most of which are far better than what this guy was offering:
Management Fee: 1.55%pa there are no other fees
Return: 11% last year after fees (growth)
Management Fee: 1.59%pa (gross)
Contribution fee: 2.5%
Return: 13.8% last year (growth)
Entry Fee (AMP): 0.25% entry fee
Entry Fee (Rabo Plus): 0.75% entry fee
Return: 13.9% after fees
I sent him all this information and his response was that he knew nothing about these schemes and that he was sure there would be hidden fees in there somewhere. He promised to find those fees but he never got back to me.
Look ma, no fees!
The final insult (which convinced me not to do business with this guy) happened when I got back in to work after a few days off sick.
There, in my inbox, was an email telling me that they had “arranged” to have the contribution fee waived for me since it was such an issue.
Hello? If that fee was so important and so standard, how is it that I, simply by saying I don’t like it, can make it go away? Simple: the fee is bogus, they’re just trying to see how much they can shaft you before you wince. Nasty business.
I think I will go with one of the nameless faceless banks. At least they don’t care enough to shaft you 🙂