# Giving financial advice



## Largesse (29 May 2009)

Scenario is as follows:

I am reorganizing a member of my family's superannuation/pension/investment funds. (Getting rid of all the externally managed funds )
Going forward, I will be giving investment advice to this family member and managing their investments for them. 
I will be remunerated for my time/services. 
I will be channeling any payments received through an ABN. All payments will be 'above board'.

My question:
Do I need any licenses or certifications to act as a family members financial adviser if I am receiving payment for my services?
I have a B.Comm which i'm sure is useless in this situation.

TIA

L


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## clayton4115 (29 May 2009)

ofcourse you need to be licensed to give financial advice!

you need to be licensed through a dealergroup and have the relavant qualifications to give investment advice, DFP 1-4 is a start!

ive done my B Com in Financial Planning and my CFP 1 to 4, i am PS146 compliant and can give investment / super / insurance advice through my licensee, you must be licensed to give advice

the penalties are quite serious if you dont have a license and give advice, see www.asic.gov.au of the penaties imposed.

regards


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## Largesse (29 May 2009)

clayton4115 said:


> ofcourse you need to be licensed to give financial advice!
> 
> you need to be licensed through a dealergroup and have the relavant qualifications to give investment advice, DFP 1-4 is a start!
> 
> ...





hey clayton, thanks for the response.
yes, am aware that I (obviously) need certification to give fin.advice to the public. was just asking whether this was applicable if the advice is given to family members? 
Perhaps I can just say I am consulting for them and not specify it as financial advice?


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## clayton4115 (29 May 2009)

well i think its a fine line in which you are going through, i suppose its ok to give them factual information, i,e if you earn less than $27,000 and you contribute $1k into super the govt will match it with $1500"

however if you say

i recommend you should invest $5000 in XYZ managed fund within Macq Wrap platform or i recommend oyou buy $5000 worth of CTX shares then thats a big no no if you are not licensed

as you are now recommend product rather than talking fact.

regards


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## MS+Tradesim (29 May 2009)

And what if something goes wrong and this family member sues you? You will have no professional indemnity insurance. 

You're playing with fire if you are only considering a nice, rosy outcome.


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## Largesse (29 May 2009)

MS+Tradesim said:


> And what if something goes wrong and this family member sues you? You will have no professional indemnity insurance.
> 
> You're playing with fire if you are only considering a nice, rosy outcome.




thankfully my family isn't like that. 
also thankfully, i have no assets in my name.


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## Happy (29 May 2009)

Largesse said:


> thankfully my family isn't like that.
> ...





Just to make sure, make them loose some money and see what happens


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## Largesse (29 May 2009)

Happy said:


> Just to make sure, make them loose some money and see what happens




she's already down 250k off the Nov 07 peak 

paid her lovely fund manager a good 40k for the privilege as well.


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## Happy (29 May 2009)

Largesse said:


> she's already down 250k off the Nov 07 peak
> 
> paid her lovely fund manager a good 40k for the privilege as well.





So, you've got some benchmarks.

Try not to loose her 250 and charge less than 40 and she should be quite happy with that.


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## Largesse (29 May 2009)

Happy said:


> So, you've got some benchmarks.
> 
> Try not to loose her 250 and charge less than 40 and she should be quite happy with that.




hahahahah pretty much what i said to her!

"how about i lose you 250 and i'll only charge 25 grand!"


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## Duckman#72 (29 May 2009)

Largesse said:


> thankfully my family isn't like that.




If Lawyers had $1 for everytime people started off a "business" relationship with those words,............ hang on, they get much more than $1!!!

The critical issue is - what are you getting paid top do? Filing paperwork, getting tax papers ready, and sundry secretarial than that's fine. But if you are recieving money for financial services then you are caught full stop - doesn't matter if it is your mum, my mum, your sister or the Pope.

Same with tax returns - you cannot recieve moneys for the preparation and lodgement of tax returns unless you are a registered tax agent or employed under one.

Duckman


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## So_Cynical (29 May 2009)

Ive no idea of the legality's involved here....however i remember that selling 
an investment scheme (10 years ago) was very legal as long as it was marketed 
to less than a certain number of people...IE: not the general public.

I think it was something like less than 20 people...perhaps this apply's to 
advice as well, or something similar.


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## Julia (29 May 2009)

Largesse said:


> thankfully my family isn't like that.



Oh my goodness, what famous last words these are!



> also thankfully, i have no assets in my name.



So, with this statement, you are mentally concluding that even if you stuff it up, you have nothing to lose.

Imo it's a fundamental mistake to act in any professional capacity (which it appears you're not qualified to do anyway) for any family member.
Even doctors, if they have any sense, don't treat their own family.

Sure, it might seem like a good idea to both you and the family member but how are you both going to feel if you lose more money for her?
And re the amount lost already, how would you have acted on her behalf to prevent that had you had the responsibility at the time?


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## Krusty the Klown (30 May 2009)

So_Cynical said:


> Ive no idea of the legality's involved here....however i remember that selling
> an investment scheme (10 years ago) was very legal as long as it was marketed
> to less than a certain number of people...IE: not the general public.
> 
> ...




This was effectively outlawed when the Financial Services Reform Act of 2001 became law. Every person giving (or selling) advice must be licensed, also the investment "scheme" must also be licensed.


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## Gerkin (30 May 2009)

Largesse,
Interesting topic. As already stated you could ppssibly get into trouble for giveing the advice.
However could you please elaborate on the fees she was charged ? 40k in 18 months? What sort of product were they and was there a large ongoing commission to a financial adviser??
Also what would you do with her money? Buy shares, etfs, index funds?


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## Largesse (31 May 2009)

just your standard fund of funds type deal.

you give Investment Advisor your wad of cash, they pick a mixture of different funds that they think suit the investor profile (eg. BlackRock Growth, Goldman Geared, UBS Income Fund etc etc), and skim a fee.

Fee's included: entry fee approx 1%, management fee (this is broken down further but i cant remember all of the little components) approx 2% , exit fee 1%.

The IA's performance pretty much just achieved market returns..... before fees.

I haven't fully decided what im going to do for her (ahem, what she is going to do with her own money *cough*)
Luckily for her, she is well into pension drawing age, and this money doesn't represent her entire wealth, so the pressure to preserve capital at all costs isn't as strong, although it will be a major influence in my decision making. She does however need to draw some income from the fund.

However, If I had to do it all tomorrow, i'm thinking cash products are rubbish at the moment due to low rates, so will probably look towards some of the stronger dividend paying equities. 
Maybe a 70:30 split Dividend/Growth.
WBC and ANZ (ANZ now that they have done their cap raising) look attractive on both a growth potential and dividend yield basis. 
She already holds a decent chunk of BHP and WPL seperate to her pension fund, I may look to increase on these as I'm quite bullish on commods in the next 2 years.

Outside of that, MQG on a pull back or a run up, has to move either way, not comfortable where it is as the moment, CSL as a market leader Biotech and then maybe some mid-cap miners (producing) for a bit of bang for buck. Maybe a cheeky explorer or two for 1-2% of the folio. 

Leave 10% of folio in cash as a opportunities slush,  in case something jumps out that can't be ignored and needs to be acted upon immediately.

Naturally, i'll be running some standard portfolio modelling to ensure the quant side of me is as happy as the qualitative side is.

And there you have my thinking, feel free to shoot me down/constructively critisize all this. (except my spelling/grammar). Would love to hear some peoples thoughts. No Advice given/taken of course.

Nothing will be done until I am licensed (RG 146) or before July 1 so plenty of time to think more about it.


Edit: Seeing as i'm sitting here alone at the office at 10 to 9 on Sunday morning....
Re: ETF's, Index Funds: Not a fan. I think with buying a 'wrap up/all in" package you end up picking up the tab for the stocks that underperform with in the index. Obviously you can't go through the Index fund and go 'well, XYZ is doing rubbish, give them the flick'. You can match the market yourself pretty easily, assuming you have a bit of time to do the research. Even easier given the weightings of the biggest 10 XAO/XJO components. 

Anyway enough from me


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## Gerkin (31 May 2009)

nice response. My only concern is that would be you are putting her into a high growth portfolio. 90percent aussie stocks, with no diversification across sectors ie international equities? Would this suit her needs?


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## Largesse (31 May 2009)

ahh yes, was waiting for you to point that out! 

I gave international equities some thought, and will again. My only issue is that I could never call my self an expert in aussie stocks, let alone internationals. I worry that knowledge doesn't stretch far enough to extract good enough performance out of international stock.
This would force my into Index funds which I previously indicated my preference against. Further, I look across the globe and I don't see many economies/share markets that are anymore healthy than Australia's. 
If I was going to diversify into any other equity markets, it would most likely be Asian

Currency risk is of some concern, but not a huge one. Wouldn't bother hedging against the greenback as it's up the creek. Perhaps a couple of long dated Yen calls. Still deciding whether the size of this folio warrants it. 
May look at a smallish allocation towards Gold, but i would be more comfortable taking a position in a producing gold miner, rather than physical or CFD.

More things to ponder.

Keep them coming

Edit: Regarding her needs, it's actually proving hard to quantify what her needs are. She is quite 'funny' about telling us what she spends her money on and how much she needs to get buy. She does have a good folio of commercial and residential rental properties with safe long-term tenants which provide her with a steady and solid income. This also provides her with a capital back stop should the equity market tank (although property values will most likely follow this down). We'll be working on her over the next month to get her to spill the beans on what her income needs are.


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## robots (31 May 2009)

hello,

what about some real estate (not trusts) Large?

maybe a 70-80's flat, 30-40% deposit to get a neutral or + gear situation

an appealing property, garden outlook, garage, location

thankyou
associate professor robots


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## Largesse (31 May 2009)

robots said:


> hello,
> 
> what about some real estate (not trusts) Large?
> 
> ...




hi robots,

fortunately she has those bases covered already.
zero gearing (her choice), providing her with constant income. 
in your words "living the life"


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## robots (31 May 2009)

hello,

no worries,

nothing wrong with some more though, what % of portfolio in RE

if you look at the turmoil, with her down 250k and 40k for the privalege   i wouldnt put a line through sensible residential real estate

and her own home maybe a place to start

as Beej describes it " a resilient beast"

thankyou
associate professor robots


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## Largesse (31 May 2009)

Of total wealth, property would be about 80%. 1 Commercial and 1 residential (not including PPOR).
 She refuses to borrow now though, says she has 'passed that stage'.
Should have seen her reaction when I suggested we open an margin account!


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## robots (31 May 2009)

hello,

could buy another with cash, upgrade PPOR, down size and get another with tip in from cash

plenty of options there

thankyou
associate professor robots


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## ROE (31 May 2009)

Largesse said:


> thankfully my family isn't like that.
> also thankfully, i have no assets in my name.




One thing I know is when it comes to money you better not share, advice or
go into business together

**** will happen down the track and when money involve, it will tear up the family.

I seen it happen countless time and I learn the lesson from other people mistake and stay away.


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## Trembling Hand (31 May 2009)

Largesse said:


> Should have seen her reaction when I suggested we open an margin account!




Largesse are you mad??

What kind of record do you have for doing this over a long term? like 5 years and many many round trips?


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## Julia (31 May 2009)

Largesse said:


> Of total wealth, property would be about 80%. 1 Commercial and 1 residential (not including PPOR).
> She refuses to borrow now though, says she has 'passed that stage'.
> Should have seen her reaction when I suggested we open an margin account!



Good Lord, Largesse, sounds as though she's well off and if she's into the pension phase, not exactly young any more.

Why on earth would you be wanting to expose her to the risk of margin loan when she has more than enough to live on now???


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## Largesse (31 May 2009)

Julia said:


> Good Lord, Largesse, sounds as though she's well off and if she's into the pension phase, not exactly young any more.
> 
> Why on earth would you be wanting to expose her to the risk of margin loan when she has more than enough to live on now???




Having the facility there does not necessisarily mean it will be used. I see it as just another investment tool, which I felt we should have access to it should a situation arise where it would be could be used responsibly.


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## Temjin (31 May 2009)

I feel compelled to reply to this thread because it sounds almost like a disaster waiting to happen. 

First of all, I totally understand your good intention to better improve your family's standard of living, but just intention alone does not necessary mean you may produce the result you want to see. 

As you have said, you have "NO ASSETS" to show for. That's a sign of a total lack of experience in the investment world. So how do you expect yourself to provide the "advise" that your family really needs?

In fact, talking about needs, have you found out what they really want?

Are they satisfied with what they have now? What are their risk profile? What is their investment timeframe? These are all basic Financial Planning questions that you should ask prior to prepare any sort of investment plans for clients. 



Largesse said:


> I haven't fully decided what im going to do for her (ahem, what she is going to do with her own money *cough*)
> Luckily for her, she is well into pension drawing age, and this money doesn't represent her entire wealth, so the pressure to preserve capital at all costs isn't as strong, although it will be a major influence in my decision making. She does however need to draw some income from the fund.




No, that's only your assumption. Anyone who is well into their pension age would, by standard anyway, be looking to preserve their retirement account capital as much as possible. Making huge amount of capital growth is not on top of their priority. 



			
				Largesse said:
			
		

> Naturally, i'll be running some standard portfolio modelling to ensure the quant side of me is as happy as the qualitative side is.




And what sort of portfolio modelling are you looking to do? 

Monte Carlo simulation of all "assets" that you are looking to invest and then let it determine what kind of allocation produce the best sharpe ratio (or whatever reward/risk ratio)??? This a very dangerous exercise if you do not know the underlying fundamentals of the modelling. Past performance is no indicator of future performance. 



			
				Largesse said:
			
		

> Nothing will be done until I am licensed (RG 146) or before July 1 so plenty of time to think more about it.




Having RG146 will no where near enough for you to start giving out financial advises, especially investment planning. You should invest with your own money for a few years first. 



			
				Largesse said:
			
		

> Re: ETF's, Index Funds: Not a fan. I think with buying a 'wrap up/all in" package you end up picking up the tab for the stocks that underperform with in the index. Obviously you can't go through the Index fund and go 'well, XYZ is doing rubbish, give them the flick'. You can match the market yourself pretty easily, assuming you have a bit of time to do the research. Even easier given the weightings of the biggest 10 XAO/XJO components.
> 
> Anyway enough from me




It sounds like you believe you can beat the market by trading your family's portfolio through fundamental analysis. To do so, you need to develop an edge with your trading strategy. What is your plan? Risk management in place? Have you actually traded it the strategy before? Back tested it? ETc, etc, etc. You are assuming you can do a better job than alot of the "money managers" out there. (which in my opinion, most do a crap job at trying to beat the market) 

As for your ETFs, you should not simply dismiss them just like that. They are, in my opinon, one of the greatest financial innovation in recent times that seperates it from other "evil" ones that was partially responsible for causing this GFC. (i.e. securitisation) 

Spend more time on the sort of opportunities you can do with ETFs first. You can practically invest in anything with those if you know where you are looking for. I prefer them over standard managed funds with the exception of managed futures / funds of hedge funds. 

I'm sorry if I sound harsh here, but you are placing too much confidence in your ability to "help" your family. It's not as easy as you might think.

I would STRONGLY RECOMMEND YOU to avoid giving any kind of advise to your family at this time. Spend at least a few more years to invest with your own money. Experiences are far more important than theories and good intention. 

Cheers


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## nunthewiser (31 May 2009)

yep ..........

just what the world needs 

yet another bright eyed uni student with NO actual live based financial experience showing people what to do with actual real money 

god help us all 


no offence intended but geez i been reading school edumaceted opinons for years that are great on paper but useless as tiits on a bull when it comes to the real world and the financial wizardry games that ACTUALLY happen

have a nice day


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## Krusty the Klown (31 May 2009)

Largesse said:


> Nothing will be done until I am licensed (RG 146) or before July 1 so plenty of time to think more about it.




Bear in mind with RG146, that if you pass the course you become "RG146 compliant",  it does not mean you have a financial services license.

You can receive remuneration for giving advice only if you are working as an Authorised Represenative of a licensee. Gaining a license is costly and very complicated, for example you must have public indemnity insurance in place to comply. And think about how much those premiums are now. It is rare for an adviser to have their own license.

RG146 really only teaches you about the laws and regulations involved in giving advice, most of the advice you can give is determined by the licensee, and if you give advice outside of what they say you can, it could be costly  for them and you.


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## Largesse (31 May 2009)

Krusty the Klown said:


> Bear in mind with RG146, that if you pass the course you become "RG146 compliant",  it does not mean you have a financial services license.
> 
> You can receive remuneration for giving advice only if you are working as an Authorised Represenative of a licensee. Gaining a license is costly and very complicated, for example you must have *public indemnity insurance* in place to comply. And think about how much those premiums are now. It is rare for an adviser to have their own license.
> 
> RG146 really only teaches you about the laws and regulations involved in giving advice, most of the advice you can give is determined by the licensee, and if you give advice outside of what they say you can, it could be costly  for them and you.




Surely this is only applicable to giving advice to the public though...
I'm giving advice to my grandmother for crying out loud...


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## Trembling Hand (31 May 2009)

Trembling Hand said:


> Largesse are you mad??
> 
> *What kind of record do you have for doing this over a long term?* like 5 years and many many round trips?




Bump??

Care to comment Largesse?


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## Largesse (31 May 2009)

Trembling Hand said:


> Bump??
> 
> Care to comment Largesse?




less than 5 years.
less experience than you.


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## Trembling Hand (31 May 2009)

Largesse said:


> less than 5 years.
> less experience than you.




Come on how much? How have you gone so far?


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## Krusty the Klown (31 May 2009)

Regardless of who receives the advice, if you get paid for advice, you have to be licensed.

Even if it is your grandmother, if you seek and receive payment for advice, and you are not working under a license, the law has been broken.

If you do help her out with advice don't accept a fee, maybe she could just give you a cash gift for your birthday?????


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## Largesse (31 May 2009)

Trembling Hand said:


> Come on how much? How have you gone so far?




2 years.

Up 40% since inception on personal folio of less than 30k.

Total trades made: less than 100.


I get the point you are trying to make.


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## investorpaul (31 May 2009)

To be honest this sounds like a recipe for disaster.

Although they have said "i wont be annoyed at you if i lose money" just wait until they really are down on their inital investment. Losing money has a strange way of affecting people, you dont know how they will act or what they will do until its too late.

If you still want to give advice, I would not handle the transactions for her, distance yourself as much as possible and get her to instruct her broker/real estate agent/account/etc.

In my opinion there is no problem giving general advice i.e. like you can diversify your investments by buying blue chip stocks such as .......

but let them make the final decision.

Edit: Another thing to consider is any family members who one day will get the inheritance, they may not like you playing round/having access to her accounts (family members can get jealous) and if money was lost they would view that as money you lost them not her.


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## beamstas (31 May 2009)

Going from backyard cricket to playing for the Aussie Cricket team

It ain't gonna happen


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## awg (31 May 2009)

investorpaul said:


> To be honest this sounds like a recipe for disaster.
> 
> 
> Edit: Another thing to consider is any family members who one day will get the inheritance, they may not like you playing round/having access to her accounts (family members can get jealous) and if money was lost they would view that as money you lost them not her.





Important point, seen it happen.

I have been in the position several times, family members, or friends, wanted financial advice, but I decline, other than to answer any question they ask me, ( and I always tell them they need to seek independant advice),  it is not legal to charge money, i would not charge my granny even if it was. 

I say to you finally, that some remarks you made on another thread, indicate to me that you should not do what you are considering, sorry, no offense intended.


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## Gerkin (31 May 2009)

best thing you could do would be to accompany her to an independent, hourly fee based planner. This way she wont get ripped off, and two you are getting your face into an industry your interested in.


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## clayton4115 (31 May 2009)

speaking from inside the industry itself, be careful as 90% are crooks and the other 10% are genuine!


:


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## Julia (31 May 2009)

investorpaul said:


> To be honest this sounds like a recipe for disaster.
> 
> Although they have said "i wont be annoyed at you if i lose money" just wait until they really are down on their inital investment. Losing money has a strange way of affecting people, you dont know how they will act or what they will do until its too late.
> 
> ...



Really good point.   





Gerkin said:


> best thing you could do would be to accompany her to an independent, hourly fee based planner. This way she wont get ripped off, and two you are getting your face into an industry your interested in.



Sounds like a good compromise.

All up, what would you say is your reason for wanting to do this?

You're feeling successful because you're happy with your own result in a mere two years of experience.  Fine.  
Probably you've told all your family about how well you've done.   Fine also.

And you've told them that the results your grandmother has been achieving are pathetic, that you can do so much better for her etc.   Not so fine.

So if the market picks up and she makes a bit more money you will be regarded as a hero.  But hey, what about if you lose even more of her money than the present arrangement?

Above all, what I'd ask you is what in the hell you mean by charging your own grandmother for advice????

She has probably wiped your bottom, read you stories, and generally cared for you just by being your grandmother.  If you do embark on such an ill advised course as advising her financially, wouldn't you in all decency just do it for nothing?


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## nomore4s (31 May 2009)

Largesse said:


> 2 years.
> 
> Up 40% since inception on personal folio of less than 30k.
> 
> ...




No offense Largesse but I think you should re-think your idea.

I think you will find it is a different ball game investing/trading $30k to investing/trading $300k+. It also seems to me your personal bias may get in the way of investing for the best interests of the client.

At the end of the day you have limited experience & limited qualifications to do what you are talking about - in fact it maynot even be legal. Would you give your money to someone with such qualifications and experience? I know I wouldn't even if I knew and trusted them.



investorpaul said:


> To be honest this sounds like a recipe for disaster.
> 
> Edit: Another thing to consider is any family members who one day will get the inheritance, they may not like you playing round/having access to her accounts (family members can get jealous) and if money was lost they would view that as money you lost them not her.




I agree, my father's family was ripped apart when my Grandparents died and there wasn't an even split of the inheritance, half the family still don't talk to the other half.
Money does strange things to people.



Gerkin said:


> best thing you could do would be to accompany her to an independent, hourly fee based planner. This way she wont get ripped off, and two you are getting your face into an industry your interested in.




Probably the best advice in this thread imo.



Julia said:


> Above all, what I'd ask you is what in the hell you mean by charging your own grandmother for advice????
> 
> She has probably wiped your bottom, read you stories, and generally cared for you just by being your grandmother.  If you do embark on such an ill advised course as advising her financially, wouldn't you in all decency just do it for nothing?




I also agree with this, there is no way I would charge my parents or my Grandparents for anything, let alone financial advice.
While I understand you are taking it on as a "business" agreement but I still don't agree with taking the money.


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## Gerkin (1 June 2009)

Largesse, 
SOme more advice for you to consider.
The 1% exit fee - Try to renegotiate this or dont pull out while it still exists. This for one can lead for you being sued on this point alone
Is it a SMSF? Be careful about frozen funds, going back to accumulation, What type of pension is it. If its term allocated be careful again.

You may be ok on the investment side, but the only structure you could do these in is within a SMSF. Again if shes in super, DO NOT pull her out.

What sort of pension aged person needs part of there investment into a long dated call on the yen?


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