What does good financial advice cost?
Financial advice used to be ‘free of charge’ for consumers in the Netherlands. Professional consultants were paid commission for their work by the banks, insurance companies and mortgage companies. Commission is the remuneration that a financial advisor receives when he or she sells a certain financial product to a client. The banks and insurance companies included these commissions in the price of their products and services. Some financial advisors sometimes advised the product giving the highest commission, rather than the product that was best for the customer. In 2013, the Dutch government introduced a commission ban to make the costs of financial advice more transparent.
The commission ban did and does not include all financial products and services.
- Mortgages and life insurance: Commissions are forbidden. Financial advisors are paid directly by the clients.
- Private disability insurance: Commissions are forbidden. Financial advisors are paid directly by the clients.
- Personal loans, consumer credit: Commissions are mandatory. Financial advisors do not bill their clients.
- General insurance:Commissions (of about 20%) are paid by the insurance companies. Financial advisors do not bill their clients.
- Health insurance: Commissions are paid by the insurance companies.. Financial advisors sometimes bill their clients.
- Mutual funds, investment funds: Commissions are forbidden. Financial advisors are paid directly by the clients.
All financial advisors are, by law, obliged to provide their clients with a document stating their costs and the content of the services delivered for some financial products, like for instance a mortgage. This document is called a dienstverleningsdocument (DVD) and must be downloadable form the website of the financial advisor. The DVD provides information about the services, independence and the costs of the consultant. All financial service providers work with the same standard document. You can therefore make a good comparison between different advisors. With the service document you know what you can expect in terms of costs. It is about the average costs. In individual cases, the bill may be higher or lower. Ask your advisor about this. The service document is an important tool in choosing a financial service provider. Your financial advisor is obliged to give it to you before, during or after the first exploratory interview, but in any case before he gives you advice. He is also obliged to offer the service document (DVD) on his website.
The costs for mortgage advice vary from € 80 to € 150 per hour, including VAT. A mortgage advisor needs an average of 20 hours for a complete mortgage advice, which adds up to a total amount between € 1600 and € 3000. Banks must split the costs into advisory and distribution costs, but independent advisors may charge an all-in rate. Banks tend to be slightly cheaper than the independent professionals. But be aware, the Dutch banks will only sell you their own mortgages. An independent advisor will compare all the more than 60 mortgage lenders. So, they may cost a little more at the start, but it is definitely worth the money as they can get you a much better deal than the so called ‘advisors’ at the big banks.