Looking for advice on getting advice

[BJKS]

I realise that there is quite a few posts on this forum discussing financial advisers and their integrity (or lack thereof), hopefully people wont mind me adding another thread to the pile... This is something I want to get off my chest, and also seek some opinions since there seems to be a lot of great posters here.

I'm feeling somewhat disillusioned with the whole 'financial advisor' industry.

I signed up with my current financial advisor in mid 2006. Preparation of my statement of advice (SoA) was about $5000. To me, preparation of the SoA seemed like typing a few details into pre-prepared word document and pressed 'print'. Most of the soa seemed like a generic document that was included in every soa they prepared, and a lot of 'padding' pages - to make it look like a big important document I guess. Why does this cost $5000?

I also have a problem with financial services guides - trying to make sense of exactly how much money the advisor makes out of you with all the commissions and what-not is not exactly easy. Which begs another question - if an advisor takes commissions on the products they sell, how can you ever really trust that they are advising you with regard to your best interests (and not their own)?

Maybe I'm just angered by the state of the current market - having signed up for a margin loan I have lost tens of thousands of dollars, and it doesn't look like I'll be making that money back any time soon. I am actually planning to return to university next year which doesn't help, since it means I will be struggling to pay interest on my margin loan. Yet still I am paying $120 in financial advisor fees on top of the loan interest... To watch my money disappear... I honestly dont understand why it is necessary to pay an ongoing management fee? The advisor hasn't changed their advice, so why am I paying them this money? What do they actually do to earn it?

Does a financial advisor exist where they are payed by the hour to simply advise you what to do with your money, without directly handling it? I've scoured a few local advisor web sites and they all seem to have clauses about trailing commissions and kick-backs etc. Wouldn't it make more sense just to charge people on an hourly rate by consultation?

Better yet, does a financial advisor exist where they only make money if their advice works? i.e. I'll pay you 10% of the profits that I make on the advice that you give?

I am currently paying roughly $800 per month interest on my margin loan. Everyone tells me this is not a good time to be selling it down, so I'm prepared to keep up the interest payments in the hope that the market will recover. As mentioned earlier I'm also paying $120 in fees per month to my financial advisor. Can I simply 'cancel' my agreement with the f/a, and thereby stop the monthly fee? The investment account is managed by Asgard, what would happen if I did cancel the agreement? Would I simply take over all the paperwork myself? What would happen with all the trailing commissions?

What would you do in my situation? I realise most of you are investment gurus so you would probably take control of it yourselves but what would you advise a friend if they were in this situation? (a friend who currently knows little about the stock market / economy but is willing to learn...)

 

[tech/a]

Firstly.

I'd ask what he believes his Hrly fee is. Just mention it in passing.
At $200/hr thats 25 hrs or 3 days to work out your SOA.Something I would have thought would take at max a couple of hrs and say $300 for Office costs to write it up.
Of the 3 F/A's I know the dearest is $1000.

Frankly if an F/A can arrest loss in these times he's doing an excellent job.

You are right its best to take control (In my view) of your own finances and even now its not to late.
You can do as you wish its your money---you can cancel everything and just take hold of your debt.At least then you've arrested further loss.
You then need to gain control and find guidance in clawing it back to profit.

 

[awg]

I am fairly sure Asguard offer a "no financial planner" option in their plans.

ie no commissions, ring them direct and ask.

$5000 for a plan prep fee sounds outrageously high, sure that wasnt including initial commission as well?

about $1000 used to be the standard.

an accountant can give taxation and general advice for much less, but not financial advice unless qualified.

anyone who can prefers the commission model, as it pays much better.

it has come to my attention that most accountants are very sour about most FP, for this exact reason.

what service does yr FP offer...buy/sell advice or just asset allocation?

 

[brty]

Hi,

I'm prepared to bet that you spent more time researching your last second hand car purchase than you did on research of 'financial planners' or probably finance for that matter.

People often spout on about paying for professionals in this area just like paying for doctors, dentists, and accountants. I believe that to be totally wrong as investment is not an exact science like the others, it is more art and probabilities.

I do not know of anyone who has done above average from following the advice of 'financial planners' over the longer term. I'm sure some exist, but the FP they use probably are out of the ordinary. Anyone can buy a mix of some of the larger LICs on the market and get better results than the average from FPs. (because you dont have the trailing commissions or up front fees)

Educate yourself, and take charge of your own money.

brty

 

[Sir Osisofliver]

Hi,

I'll explain why almost every financial planner does the kickback thing.

Lets say you come to me with a million dollars because you hear from a friend that I am the ducks nuts and that I said to my clients to get out in November last year and am only now recommending that they take long-term positions in the market. I send you forms to find out everything about your financial circumstances that I can; which you fill out and then we meet in person after I have had a chance to understand your circumstances and goals.

I inform you during the meet that the preparation of a financial Statement of Advice from me will set you back (easy - $1,500 - medium - $3,000 - hard - up to $12,000). But that you are not charged any ongoing management fees of any kind because you invest in direct equity rather than some kind of shopping list of products.

You then visit someone else - and they say "Oh that's ridiculous amount of money for a plan - you're getting ripped off I'll do your plan for free. (and in small print they take a management commission of 1.5%)

So lets say you have a million dollars to invest and a fairly simple needs. I charge you between $1,500 to $3,000 and the other financial planner gets $15,000 out of you in trailing commission.

In many many circumstances it's been my experience that the planner who offers you a free plan and uses sales techniques on you gets the business.

BTW if you have a near $100K margin lending facility at present I hope you have $at least $250K in equity behind it at present.

Good Luck

Sir O

 

[noirua]

Before you take a persons advice see what their advice has done for them.

 

[mich85]

Ive worked in the industry for the past 2 years (as a paraplanner). $5,000 is a bit rich. Usually a $500 SOA fee is charged, however if you decide to accept the full or partial recommendations, the $500 fee is not charged. This is basically designed to prevent clients from wasting office resources. These plans do take quite a lot of work depending on the software used to create them.. if doing them manually with only a template a complex plan may take 1-2 days. However a simple plan may only take a few hours.

The problem is with the trailing commissions is that these are built into the products which are implemented and are designed to provide for the cost of ongoing advice. I know advisors which charge no SOA fee, no upfront fees, however get 0.60% ongoing from the products which are implemented.

Personally, i would be taking charge of my own investment decisions.. i only see value for financial planners in areas such as retirement, superannuation, and taxation areas such as family trusts etc.

 

[Sir Osisofliver]

Mich,

I hope you don't mind these question/comments. As someone who was in your position a loooong time ago I hope I can offer something to you.

"$5,000 for a plan is a bit rich" - How long is a piece of string? I absolutely agree that $5,000 for a shopping list of managed fund products, with maybe a bit of structure and asset allocation thrown in - is highway robbery - especially when you take into account trailing commissions. I see you did the exact same thing that many of my client's do....go for the "cheapest" option. Well you get what you pay for (or at least you should get what you pay for - at least some value for money). Ask youself what should be inside a $5,000 plan and you come up with things like...

Risk assessment and financial goals established
Cash flow analysis and taxation calculations
Superannuation forward projections and TTR or SMSF strategies
Structural recommendations and tax minimisation strategies
Asset optimisation and gearing strategies
Asset allocation and weightings to various asset classes with forward projections
Estate Planning/Insurance issues
Loan management advice
Education needs of dependants
Cash flow pre and post comparatives
Taxation pre and post comparitives

I find that most planners are sales people first and planners second. Would a plan with the above included be worth $5,000 - especially if no other fees were charged? (A plan of that size takes roughly 40-50 hours of work amongst the various staff)

I'm aware that most "products" have the trail built in, but these products are designed to attract the money (and pay you a trail) for one reason and one reason only. So the providers of the product can make money. Who are we meant to making money and providing a stable financial future for? Our clients or our product providers?

Sir O

 

[mich85]

As you said, most of your clients go for the cheapest option, which is why the trailing commissions exists. Its alot easier to sell it to a client if the SOA is free and there are no entry fees rather than saying this will cost you $5,000 upfront.

The focus which iam involved in is more so in superannuation and retirement, rather than investment options... we have no involvement in direct equities. Generally advice includes tax minimisation, Superannuation, TTR, Alloc Pension, estate planning, re-contribution, anti detriment, centrelink, family trusts, business planning, insurance, SBRE etc.

As alot of this advice is not paid for (no SOA fee) it requires a higher trailing commission to provide for the advice.

However i agree with your charging structure that in the long run, it would be more beneficial to your clients.

 

[BJKS]

$5000 for a plan prep fee sounds outrageously high, sure that wasnt including initial commission as well?

what service does yr FP offer...buy/sell advice or just asset allocation?

Actually I may have lied, thinking back I believe it was $490 for SoA prep then $4500 for 'implementation of the strategy'... not sure if this sounds any more reasonable...?

the FP doesn't offer any buy/sell advice, they simply told me I should put all my money into the wrap account and sit tight...

Hi,

I'm prepared to bet that you spent more time researching your last second hand car purchase than you did on research of 'financial planners' or probably finance for that matter.

brty

You're right I should have spent more time researching the FP before buying their advice. Actually the reason I was brought into this situation was that I inherited a fair sum of money from grandparents ($70K to be exact). My brother works for this particular financial planning company so upon hearing of my inheritance he pushed me to come in for a consultation... although hes not actually my principal adviser (I dont think he had quite finished his qualifications at that point). So I figured if I could trust anyone, I could trust him. Now I'm starting to think I'm being taken for a ride.

Actually up until the edge of the cliff last year, I was making a reasonable profit, though it wasn't spectacular. Doing the figures I think I would have performed better simply sticking it all on the XJO and not bothering with the margin loan.

As it stands if I were to sell out now, I would not be broke or in debt, but I would have *significantly* less money than I started... I haven't had a margin call (yet) thankfully. I am however a little fearful for my parents, who took out a margin loan against their house, and have had a margin call... Yet still I think my father believes my brother is doing the right thing...

I will call Asgard tomorrow and see what I can do to get out of this situation

 

[prawn_86]

I will call Asgard tomorrow and see what I can do to get out of this situation

SFA by the sounds of it. You could possibly de-leverage your margin loan, at a loss, so that way you have no debt on your books.

Really it comes down to a lot of personal choice. Remember planners are hamstrung by compliance, commissions etc etc

 

[Nick Radge]

My advice would be to develop, or pay someone to develop, a longer term trend following method, preferably with weekly data, and trade it yourself. Forget FP's and their crap fee's and crap advice. Take a 20-year+ view of following multi year trends for capital growth using a discount broker (such as Interactive) so yo get full exposure without drag. Any decent trend following model would've exited in January this year at worst and will get you on when the time is ripe. All you need to learn is how to sit tight between the two...

This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

 

[awg]

you are in a bit of a classic trap at the moment, regrettably.

it is ironic that over 12 months, the strategy of buy long with max leverage has gone from the most successful to the least successful method.

it is impossible to know what direction the sharemarket will go for sure.

No FP can do but guess.

No easy answer in asset allocation at the moment either.

so you can only go with facts and probability.

first you can see exactly how much you have left.

may calculate your leverage. ( you did not say what %)

can work out what is the maximum loss you can tolerate.

adjust accordingly.

some time ago, I did this calculation, de-leveraged, and asset reallocated, (repeadedly).

Unless you have enough financial know how and time, its not easy for most people to manage finance, let alone time the market with the right strategies.

ASF is a good place to learn possibilities, but you may find the diversity of opinion on probable economic outcomes disconcerting!


Extra difficult for you to sack your FP under the circs you outlined.

Only you can decide, whether you can and want to manage your investments.

This is not, and cannot be taken or given as advice, but as I mentioned before, I am 99% sure Asguard offer a "Planner free" option in their Wrap ( if they are the St George owned mob, they used to anyway).

you just ring them up and opt in, dont know if their is a switch fee, but you have to make all asset allocation decisions, they still do most of the admin, like group cert etc, pay no FP ongoing commision, costs about 50% of the full service jobby

 

[MRC & Co]

I am however a little fearful for my parents, who took out a margin loan against their house, and have had a margin call...

Ouch!

A mate of mine, a financial planner himself, did a similar thing. Just recieved his margin call.

Agree with Nick.

 

[tech/a]

My advice would be to develop, or pay someone to develop, a longer term trend following method, preferably with weekly data, and trade it yourself. Forget FP's and their crap fee's and crap advice. Take a 20-year+ view of following multi year trends for capital growth using a discount broker (such as Interactive) so yo get full exposure without drag. Any decent trend following model would've exited in January this year at worst and will get you on when the time is ripe. All you need to learn is how to sit tight between the two...

This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Great I'm 75!!

 

[tommymac]

Actually I may have lied, thinking back I believe it was $490 for SoA prep then $4500 for 'implementation of the strategy'... not sure if this sounds any more reasonable...?

Actually the reason I was brought into this situation was that I inherited a fair sum of money from grandparents ($70K to be exact).

If all that was invested was $70k, it does seem expensive. Were there other investments or strategies that are to be implemented now (aside from your margin loan.)?

Did your planner know you intended to return to University? A margin loan is generally only suitable for someone with good sutainable cashflow and can pay the interest. If your intentions were made clear (and they should be in the SOA) you should query him on it and ask why he advised a margin loan.

I would be interested to know his answers.

As Sir O said, most financial planners are sales people. Never let them push you into anything and always make sure you fully understand what they are advising. After all it is your financial life.

 

[MRC & Co]

ask why he advised a margin loan.[/B]

I would be interested to know his answers.

That's easy isn't it? The market always goes up.

 

[Sir Osisofliver]

My advice would be to develop, or pay someone to develop, a longer term trend following method, preferably with weekly data, and trade it yourself. Forget FP's and their crap fee's and crap advice. Take a 20-year+ view of following multi year trends for capital growth using a discount broker (such as Interactive) so yo get full exposure without drag. Any decent trend following model would've exited in January this year at worst and will get you on when the time is ripe. All you need to learn is how to sit tight between the two...

This post may contain advice that has been prepared by Reef Capital Coaching ABN 24 092 309 978 (“RCC”) and is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.

Hi Nick,

I like what you've said here about following long term trends and timing the market, we advised our clients to exit in November 07 with such a model and are now putting between 25% and 35% of portfolios back into the market over the last several weeks (long-term non-margin accounts at present not trading accounts).

One thing though is you haven't made any mention of structure or strategies to minimise tax implications and I'm wondering why that is? Do all FP's have crap fees and crap advice? It's possible to save literally tens of thousands of dollars per year with the right structure in place, not to mention the compunding benefits of these savings over time. A dollar I save from the taxman is a dollar my client can put to good use. Knowing however which structure or strategy is appropriate takes a fair amount of experience - which the average investor doesn't know and takes years to learn.

Sir O

 

[Bushman]

To stick up for the FP, 'buy the dips' and holdhas been the advice for the last decade and nobody in the mainstream predicted Lehman Bros collapsing which supercharged the bear market as every man, woman and animal liquidated whatever assets they were holding into demand-deprived markets. That is not to say Lehmans wasn't predictable - it was and there were numerous threads on little ol' ASF that discussed the possibility well before the event.

Having said that, every planner should have two basic tools in their kit bag:
1. diversification; and
2. an understanding of risk.

Once more, a 100% allocation to equties is a recipe for disaster. If you were 50% growth assets, 50% defensive assets, your capital would still be well and truely alive.

The FP Industry will have to change and I can see a future where fees are performance based. Volume-based commissions, whilst meaning a steady flow of income, gives the planner the overwhelming incentive to write business rather than think about the risk. I can guarantee you that if fee structures are not realigned to customer profitability then when the next asset cycle downturn rolls in (and there will be another boom and another bust - that is the valuation cycle) we will be having the same collection of fraught discussions, broken dreams,and in some cases, real financial hardship.

As an aside, I recently went to the FPA conference on the Gold Coast (I am not a FP but have some involvment in the industry). I was struck by the give-aways and excess of the event. Make no mistake about it - like investment bankers the excesses have to stop. This will be lead by generational change in the industry.

My 2c on the equities market - they are bottoming. As the liquidity crunch eases over the next few quarters, the 'flight for safety' will be reversed and equities will be the first to benefit. I mean Uncle Ben is doing his utmost to steer people away from cash and into riskier assets and equities will also lead us out of the recession (which will be bottoming too over the first quarter as cheap debt and fiscal stimulus starts to filter through to the real economy).

Blue chip financials and miners will by the leaders of the pack and that is good news for the ASX-200 which is dominated by the Big $ banks plus RIO/BHP.
Long-run I worry about another bubble and the continuation of 'disaster capitalism' as the all out fight against deflation sows the seeds for the next asset boom. The bond bubble will aslo be popping soon so check what any fixed-income funds are holding.

geez there you go .... better get back to work

 

[MRC & Co]

One thing though is you haven't made any mention of structure or strategies to minimise tax implications and I'm wondering why that is?

Wouldn't one be better to speak to a tax professional, not a FP, in relation to this? These guys, afterall, have spent several years mastering their specific field. Just as you speak to a trader if you want to learn how to trade.

A generalist is not someone I would trust my hard earned money with in a period so stacked with information and possibility.