Smart Financial Decisions

#3 Financial advice – who can you trust?

Thu, 05 Nov 2009 00:14:00 GMT

Three rules to live by.

Did you know that 80% of financial advisers are aligned to an insurance company like AMP or one of the big banks?

In the last decade, the big banks have been collecting fund managers and financial planning groups. For example the Commonwealth Bank owns Colonial First State, ANZ and ING are in bed together, so are Westpac and BT whilst NAB has it’s fingers in a number of pies including MLC, Godfrey Pembroke, Apogee, Garvan and as of last week, JBWere.

If you walk into a Holden dealership, what are the chances that they’re going to try to sell you a Holden? You’d expect 100%. In fact you’d probably be speechless if they assessed your needs and concluded “you need a Subaru, and lucky for you, they’re right next door!”

So what are the chances of a financial adviser doing the same? According to a report in the Sydney Morning Herald last week, planners from the big groups have been allocating over 70 per cent of their sales to their own products.

Some people say they can’t afford to pay for advice, but in the wake of advice given by financial planners involved with Storm Financial , Westpoint, Opus Prime and Basis Yield, you simply can’t afford not to.

We provide independent financial advice, so we have a conflict of interest in saying that you should demand nothing less than conflict free advice; but for goodness sake, please make sure you are aware of these three important rules when seeking any financial advice:

Rule # 1 - No ownership links with any product manufacturer

If advice is being delivered by someone who is employed by a product manufacturer (or is related to them in any way) then their advice can be conflicted. Many firms refer to themselves as “independently-owned”, but can’t call themselves independent because they break one of the other rules below.

Rule # 2 – No payments to the adviser from any third parties (no commissions)

Are there any payments being made to the planner by a product manufacturer? In fact, more broadly, does the planner receive any payment that doesn’t come direct from his client, including referral income? If so, then the advice can be conflicted. The more you invest, the more commission. The more you insure yourself for, the more commission.

Rule # 3 – No skimming the cream off your cake (no asset based fees)

Most financial planners charge asset based fees of 1%. Where on earth did this arbitrary 1% come from? If you give a planner $200,000 to invest, they’re earning twice the fee than if you were to give them just $100,000. But are you receiving twice the value for their services? Are they doing twice the work? Or have they simply found a cheeky way to double their fee?

What if the best advice for you is to actually pay off your mortgage with that $200,000 or invest it in direct property? The only conflict-free way for a financial adviser to charge for their services, is an agreed fixed dollar fee based on the complexity of the work involved.

Simply commissions by another name, this asset based fee method was an innovation that went something like this:

“We have to drop commissions because they’re a dirty word now. Okay, let’s ‘waive’ the commission and invent a new fee which is calculated precisely the same way.”

Only when the interests of your adviser are 100% aligned with yours are you going to be getting the best result and eliminating the risk of being a victim of bad advice. If your adviser’s interests are at all in conflict with yours then you’re getting a product pitch masquerading as advice.

There are over 18,000 financial advisers in Australia and less than 20 are on record as satisfying ASIC's definition of 'independence'. They can be found at www.independent-advice.com.au

#2 The Power of Goal Setting

Wed, 04 Nov 2009 09:19:00 GMT

When I’m introduced as a financial adviser, I’m often asked “what investments are you recommending right now?”

If I flogged products that paid a commission, I’d have an immediate answer. But we give advice and before we can give any, we need to understand why you are investing, what you’re trying to achieve with your money.

If we don’t know where you want to get to, you could end up anywhere, which is why goal setting is so important.

High on the agenda in the first appointment we hold with clients is goal setting. In this session we aim to set 2 or 3 goals that require money and planning to achieve. For example:

1.   To have the home loan repaid in 8 years.
2.   To provide private secondary school education for the kids
3.   To make work optional by age 52.

To do a thorough job we need to get a bit more specific, so for each goal we must go through five steps.

Step 1- Define the goal: To pay off the home loan within 10 years.
Step 2 – Establish the cost of the goal: The loan balance today is $350,000.
Step 3 – Commit to a date to achieve the goal: Within 10 years, so Monday the 4th of November, 2019.
Step 4 – Give the goal a name: Freedom!
Step 5 – How will you feel once you've achieved this goal?

Imagine it’s Monday, 4th of November 2019, you’re walking into the bank and you politely ask them to hand over the deed to the house because you now own it. In two or three words how would this make you feel? Amazing, relieved, secure?

So let’s say you had $10,000 and asked me where to invest it; If you had no other goals, it’s pretty simple what my advice is going to be (use it to reduce the home loan). You’re not going to pay for that advice, but when you have three or four goals all vying for priority, our advice is of much more value.

This goal setting process we use is very powerful. Giving each goal a name makes the goal yours and reflecting on the emotions you will feel upon achievement will trigger something called your reticular activator.

Your reticular activator is the part of your brain that stays on alert, arouses motivation and keeps you focused if life. If you’ve triggered it in the past, you know how powerful it is – it seems that once triggered, the world is conspiring to help you out, but it’s really just that you’re more alert to opportunities.

We receive fantastic feedback about our goal setting session. For one hour, we shut off the world and in a quiet environment focus on you and what you want to achieve in life – all at no cost.

We do not charge a fee for the first appointment, because it’s a chance for us to explore if we can add any value to your situation. Click here to schedule an appointment.

#1 Merge your superannuation into one account

Mon, 02 Nov 2009 04:55:00 GMT

How many superannuation accounts do you have?

Did you know that over 500,000 Australians change jobs or leave their industry all together? This means that over 500,000 new superannuation accounts are opened up each year, which is a major reason why over $13 billion of money in superannuation accounts around Australia which is categorized as “Lost Super” [i].

So how many superannuation accounts do you have? Until recently , the most accounts one of my clients had was 8, but last week it was topped with 13. Both of these clients are men, and both are under 35 years of age! Can you beat this?

Merging your super into one account is a smart financial decision for a number of reasons:

Your lost super gets gobbled up in fees by greedy banks and fund managers. Even if it only amounts to another $200 at retirement, wouldn’t you rather spend that on a new golf driver or some wool for you to knit instead of handing over to these leeches?
You duplicate insurance cover. Huh? I have insurance cover through super? Probably, and if you’ve got 4 different income protection policies, you can only claim on one. The other 3 are a waste of money. The savings here are more like an entire set of golf clubs.
Your money is not sitting around in cash for decades. Get it invested properly and the difference could mean you can enjoy a new Mercedes instead of a new Holden at retirement.
Less paperwork in your life. Instead of sticking 13 statements in the second bottom draw, you only need to deal with one each year.

Is any of the $13 billion of lost super yours? Do a quick search on the ATO website which is free and private by clicking here.

We can help you to merge your superannuation into a low cost, high return account, click here to call or email.

[i] Lost = no activity on the account for two years or mail is return to sender