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Financial and property affairs are complex. Really complex. Which is why people working in these industries are required by law to undergo such rigorous training, registration, and ongoing professional development processes.
Unless you have done all this yourself, you simply don’t know what you don’t know. Which is where expensive mistakes and big opportunities missed can – and do – flourish. With that in mind, here is what professional advice typically costs and some of the possible costs of doing things yourself.
Accountants
Business advisory firm Infinity 22 suggests accountants’ hourly fees average between $90 and $265, depending on their location and experience. Others may charge a fixed fee, such as $100–$400 for a simple personal tax return. Unless you are self-employed, this is likely to be a once-per-year expense. Compare this to the five common tax mistakes recently outlined by Yahoo Finance, each of which could add $1,000 to your annual tax bill. Mistakes that accountants know to avoid. That’s potentially a $400 cost for a $5,000 saving. Bring in investment properties and other more complex matters, and the potential savings quickly multiply.
Financial advisers
The Financial Advice Association of Australia (FAAA) states the average cost of a financial plan is $3,300, then $4,300 for ongoing advice. Much of the work advisers do is around strategy and investment, structures, protections that maximise returns, minimise taxes, and safeguard against foreseeable risks. That $4,300 outlay can save you multiple times over in taxes spared and additional earnings generated. Conversely, mistakes – particularly where the death of a partner or divorce is concerned – can be catastrophic, such as the one in seven Australians over 55 (particularly women) now experiencing homelessness.
Mortgage brokers
Most mortgage brokers don’t charge you for their services. Instead, they charge your lender. So, the only cost to you is an hour or two of your time. Their ability to source the best interest rate and receive bank priority to process your loan application can save tens of thousands in interest over the loan’s lifetime and hundreds – even millions – earned from a property you may otherwise have missed out on by doing it yourself.
Buyer’s agents
The average buyer’s agent fee, the Real Estate Buyers Agents Association of Australia (REBAA) suggests, is between 2 and 3 per cent of the purchase price. That equates to $20,050–$30,075 for the average $1,002,500 residential property. Compare this to going DIY and buying a property with structural or location problems you hadn’t realised at the time or simply paid too much for (either because you lacked confidence in your ability to negotiate or bought with your heart instead of your head).
Even if you resold that mistake for what you paid for it, you’re out of pocket for stamp duty, two sets of legal fees, selling agent’s commission, plus any mortgage costs. That could be $40,000–$60,000 (or more) down the drain on the average property. Or you can miss properties altogether, given buyer’s agents typically have access to off-market properties.
Estate planners
Estate planner costs vary depending on what you are doing and the complexity of your affairs. The most basic and universal, creating a will, can vary between around $600 and $3,000, according to Canstar. This can seem steep when a DIY will kit may cost as little as $30. However, there are two big (and all-too-common) problems with this
- Wills don’t cover everything. Just because you make a will, doesn’t mean you have everything sorted. Wills don’t cover all assets (you need to nominate beneficiaries in superannuation and trusts separately, for example). They don’t set up tax-effective structures for leaving the prescribed inheritances (like testamentary trusts). And they don’t cover matters like power of attorney.
- The scope for mistakes is huge. If you don’t complete it properly (such as leaving it unsigned, incomplete, or having it improperly witnessed), it may not be valid.
In these instances, your beneficiaries could be hit with thousands in taxes, wiping out any benefit you intended to leave them. Or you have no legal will, meaning nothing you own is protected.
Weighing the numbers
The examples used here are just that – examples. The true value is different in every circumstance. Ultimately, it’s a matter of perspective – a cost loses you money; an investment makes you money, even after allowing for the expenses involved. If the value delivered and mistakes avoided more than make up for the initial outlay, your money is being spent wisely.
Furthermore, professional advisory expenses over investments, super, tax, and ongoing financial advice are generally tax-deductible. Which means even more bang for your buck.
Helen Baker is a licensed Australian financial adviser and author of the new book, Money For Life: How to build financial security from firm foundations.