Questions you NEED to ask your Broker/Advisor etc

There are many here Im sure who would have set answers they think should be answered by their financial advisors.Even some financial advisors who could add to the discussion.

Really you should know what to ask and when to ask it whenever making any financial decision where your handing over your hard earned to a third party to manage for you.

Ive been prompted to start this thread from the Loss of $900K in 3 mths thread.

I had my financial advisor try and push me into a fund exposed to international shares a few a few years ago. Lucky for me I had left for overseas before deciding and left the money in a savings account earning 4.5%. I came back two years ago and found out that the fund had made losses for the two years I was away to the tune of double digit figures. Even when I got back he was still pushing it.

First thing I would ask is what the fund's track record over the last five years were, especially in the last two years if it was an Australian fund (two year bull run). If there were any red ink in there then I would ask my advisor why he was pushing me towards these funds that had lost money. ie See how knowledgable he was on the markets, economy etc and why would he be recommending this fund if it didn't stack up in being profitable. I would then ask him to find a better performing fund or funds so that I would have a choice.



Oh, then ask him about the risks involved and how much you could potentially lose. Ideas are so much easier to sell when it appeals to your greed rather than to your fear.

When I was 20 (to long ago to) remember I recieved this advice and I have to say that of all the advice Ive had given to me over many years THIS is top of the list.

"Ask questions in writing and insist on answers in writing"

This simple HABIT has saved me $1000's.
Clarified many business aliences and made dealings with clients/employees/family/advisors and accountants so much simpler.

You can file it,refer to it,discuss it,amend it,research it,show it and most importantly PROVE it when its in writing.

Enough of the highlights but develope this as a habit and youll find life much simpler and less stressful.
Ive found people appreaciate the care to detail and the clarification of both their and your position on the matter/s.
Clear understanding--- steels for smoother and more fruitful relationships.

This is one HABIT youll be glad you have----and so will those around you!!

A very good point tech/a.

Most people (myself included) do not go to the trouble and rely on each others memory and goodwill.

But when the sh**t hits the fan both of those two factors miraculously change to suit.

I'll take your tip on board from now on!

One of the questions I would ask is why they are not trading F/T instead of brokering/advising (or is there so much money in brokering).

A few others.

"Dont Sign Anything" of importance UNTIL

"You get a second opinion"

I'll give you a recient example.

The government has kindly offered me the freehold on a shack I have been leasing for 26 yrs.I stopped using it 12 yrs ago and just paid the lease and the rates.
The letter came 2 days before I went on holidays.
I had enough time to get a few agents and a valuer to take a look and report back when I returned.
While away an agent rang and after some negotiation I was offered a contract for twice I will pay for it.

In due course I ran the deed documents from the government past my solicitor.I asked about capital gains and he advised as I held the lease for 26 yrs it would not be applicable.

When i returned to the office I rang my accountant and asked him.
He advised I would have to pay full tax as I was selling the freehold NOT the lease.

Time for questions in writing.-----Sent to my sloicitor he then changed his opinion.

Had I signed the contract I would have lost 50% in capital gains tax.
As it is the contract is still open and I may just buy and hold for a year.

If I can work something out with the buyers I will.

Great topic tech.

One question I got from Kiyosaki is "what are your own favourite investments?" followed immediately by "Why?". I like to push at "Why?", because that's how I work out if the advisor and I are really on the same wavelength.

However there is a catch. Don't know how recently you've consulted with a financial planner; our last meeting was about 4 months ago for an annual review, focussed on superannuation. I feel that it's getting more difficult to ask questions yourself because the law keeps requiring them to put you through a questionnaire and to make a series of disclosures... at EVERY meeting. It all takes time, and I found it harder to keep focussed on potential changes to our own situation.

Another case where legislation might be tipping over into enforcing form at the expense of substance. Which is not to say that form without substance isn't better than neither form nor substance. I suppose the message is that you have to take as much time as you need to understand what you're doing.

Or something.

Ghoti

I have 3 friends who are financial planners.(1 I consider competent)
4 who are brokers (1 I would and do ask for advise and I dont trade through him).
2 who are CPA's (Both are experts in their field)
4 solicitors who are each excellent in thier fields.
1 barrister who I would want on my side.

Lack of knowledge BOTH in theory and most definately in PRACTICE is the downfall in the first 2 groups of friends.

You know when selecting a professional make YOUR OWN appointment to interview THEM.Your going to be investing a lot of time and money in these people and you deserve and MUST HAVE the best.Tell them thats what your going to do---see if they are what your looking for. I prefer face to face simply because I like to gauge comfort levels with each question.The guy who gets flustered and annoyed or walks out--isnt your man!!!

To some of my favorite questions.

(1) Why always Superfunds whats wrong with Property or trading my own portfolio alongside a super fund?

(2) Who is your Super with?

(3) How are you securing your financial future?

(4) Do you have any property other than your own home,why,why not?
(4a) Where is it/them and what sort of rent do you get?(This stumps them if they dont have any IP's which most dont!)

(5) Do you have your own share portfolio,why,why not?
(5a) Whos your broker (Ive had some say they cant remember!!).

(6) Can you put me in contact with a few clients who are happy with your advice?

(7) Are you a licienced advisor or holder of an authority? (Most advisors only hold an authority which means they are basically a salesman/woman for the holder of the authority).

(8) What does diversification mean to you?

(9) Whats the greatest success story you have with a client(Dont be modest) can I have a chat with them?(Simply give your phone number and ask them to contact,people who have had a great success wont mind sharing it)

To see if they know their stuff.

(1) Can you explain to me the benifits of negative gearing in property?

(2) How would you control your risk in a share portfolio.

As mentioned WHY is the greatest question.
NO is a response ALL must learn----its not used nearly as much as it should be----- the best time to use it is when in your head your thinking----Hmmm I just dont know!

Another hint is ALWAYS take away their proposal for YOUR consideration.
Tell them you have a third party in these matter who you wish run it past.

THEN GET A SECOND OPINION if its an important investment decision or any legal matter.

I think there is a lot of confusion over the difference between a FINANCIAL ADVISOR and a FINANCIAL PLANNER.

A Financial Planner, as the name suggests, helps to PLAN your financial future.

A Financial Advisor, as the name suggests, helps to ADVISE you only the best action in the CURRENT situation.

Now some planners call themselves advisors when all they do is sell their companies products. Thats planning, not advising. Advising is when you select the BEST product for the client, NOT the best fit your company can provide or the one that provides the best commission.

So perhaps a good question to ask your Finance person is "are you a planner or an advisor, and can you tell me the difference?"

To illustrate the difference, lets compare qualifications.

A Financial Planner, requires completion of FOUR modules. (DFP)

A Financial Advisor, requires completion of EIGHT modules. (DFA)

as you can see its easy to spot the difference by the acronym. An advisor has done DOUBLE the study a planner has (and probably a wider range of experience). Check their business card. If you have someone calling themselves an 'Advisor' while boasting a 'DFP' slap them upside the head.

Planners only know how to highlight financial goals and set paths to achieve them. Their work is done by a spreadsheet not their brain. Their task is repetitive, therefore they gain little experience. The only products they know of are the ones they are told to sell.

When I studied the module 'financial planning and wealth creation' I was shocked at how little there was to planning. Knowing 5-6 tax rules and a little common sense was all you needed.

tech/a said:

(1) Can you explain to me the benifits of negative gearing in property?

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well lets hope you dont think negative gearing is a good idea. Yes there are benefits to negative gearing, as there are to all BAD things. Its just that the negatives outweigh the benefits.......

DTM said:

I had my financial advisor try and push me into a fund exposed to international shares a few a few years ago. Lucky for me I had left for overseas before deciding and left the money in a savings account earning 4.5%. I came back two years ago and found out that the fund had made losses for the two years I was away to the tune of double digit figures. Even when I got back he was still pushing it.

First thing I would ask is what the fund's track record over the last five years.....

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historical results mean nothing. There is nothing wrong with what your 'planner' suggested.....if fund managers cant pick the market why should planners get blamed?

Here are some more questions to ask your 'advisor' or 'planner', but dont be surprised if they raise one eyebrow :

how can I get the tax benefits of negative gearing without suffering cashflow drain, by investing in self funding instalment warrants?

why is it a good idea to participate in share buybacks?

why is forex a better investment than shares or property?

how can I hedge my mortgage interest rates?

how can I get the same performance as a managed fund without the management fees or entry/exit fees?

Money Tree, those are excellent questions.

Would you be kind enough to share those answers?

The Australian Securities and Investments Commission has banned Mr David Edward Rosewell, of Lilyfield in New South Wales, from acting as a financial
planner and dealers' representative for two years.

Mr Rosewell was an authorised representative of Financial Wisdom Limited (Financial Wisdom) from July 13, 1992 until July 2, 2004 when his authority was revoked. Mr Rosewell then became a representative of Synergy Advisory Services Pty Ltd from July 13, 2004 until November 26, 2004.

He operated from offices in Sydney and Dubbo in New South Wales.

ASIC banned Mr Rosewell after finding he had not complied with financial services laws, and that there is reason to believe that he will not comply with a financial services law in the future.

ASIC found that, in his capacity as an authorised representative of Financial Wisdom, Mr Rosewell received investment moneys in the sum of $350,000 from a client based in Dubbo.

Contrary to the terms of his authority from Financial Wisdom and the understanding of his client, Mr Rosewell treated the money as a loan to a company of which he was a director and shareholder.

The money was used for the benefit of Mr Rosewell's business, including the repayment of loans from other clients.

"Advisers must not advise or encourage clients to make investments outside the limits or terms of the authority given to them by the licenceholder.

"That is especially the case when the nature of the investment is one in which the adviser also has a personal interest', ASIC's deputy executive director of Enforcement," Mr Mark Steward said.

"ASIC will take whatever steps are needed to ensure consumers are adequately protected from this kind of conduct," Mr Steward declared.

Mr Rosewell has the right to lodge an application with the Administrative Appeals Tribunal for a review of ASIC's decision.

News from ASIC.

Sorry Money Tree that is completely wrong and everyone here is now less informed as a result of your post

money tree said:

I think there is a lot of confusion over the difference between a FINANCIAL ADVISOR and a FINANCIAL PLANNER.

A Financial Planner, as the name suggests, helps to PLAN your financial future.

A Financial Advisor, as the name suggests, helps to ADVISE you only the best action in the CURRENT situation.

Click to expand...

If anything a planner is 10 times more qualified then an adviser. But there is no real difference between the names as everyone in the industry uses them interchangeably.

A good Planner/Adviser is qualified and experienced enough to give you advice now, tomorrow and for 20 years down the track. If you can only offer advice/ a plan in one of those time frames then you shouldn't be in the industry. It's completely irrelevant what their job title is.

But that said, every single product pusher and cowboy in the industry call themselves "Advisers" and not "Planners".

money tree said:

Now some planners call themselves advisors when all they do is sell their companies products. Thats planning, not advising. Advising is when you select the BEST product for the client, NOT the best fit your company can provide or the one that provides the best commission.

Click to expand...

Hey everyone, did you notice how Money Tree said the role of an adviser is to sell products? He is sounds like a product pusher, and everyone in the industry hates people like him. The role of the adviser is not to recommend a product but to sell advice. Now that advice may or may not result in the suggestion of a product (it sounds like money tree will always offer the solution as a product).

I write financial strategies for a living. I advise what client's should do now and in the future. Products are the last thing that come into the equation. Usually the best thing a client can do is utilize surplus cash towards the repayment of their non-deductible debt (which we don't get any commission for), but im sure cowboys like MoneyTree will see surplus cash and automatically direct it towards a product that he gets a commission for.

If you are going to ask an Adviser/Planner/Consultant (or whatever their job title may be) any question, it should be "do you charge a fee for advice or commission. If the answer is commission (i.e. Money Tree) then run for the hills.

money tree said:

To illustrate the difference, lets compare qualifications.

A Financial Planner, requires completion of FOUR modules. (DFP)

A Financial Advisor, requires completion of EIGHT modules. (DFA)

as you can see its easy to spot the difference by the acronym. An advisor has done DOUBLE the study a planner has (and probably a wider range of experience). Check their business card. If you have someone calling themselves an 'Advisor' while boasting a 'DFP' slap them upside the head.

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This is wrong too! (surprise suprise )

Basically, if you want to give advice you need a qualification what is known as PS146 compliant. It's an industry recognition that is monitored by ASIC. To be able to offer advice you need to have completed a course that is PS146 compliant.

The minimum course is known as a Diploma of Financial Planning/Advising which is 4 subjects long. Those 4 modules give you the minimum ability offer advice.

If you want to offer advice in more then the minimum fields, then you go on to complete another 4 additional units to give you an Advanced Diploma in Financial Planning.

These are very easy courses, and you shouldn't give to much respect to them (sorry Money Tree).

If you are going to judge a Planner/Adviser/Consultant by anything, it should be whether they have a degree or not. If they have a business degree they are eligible to enroll in post graduate studies in financial planning at an institution like FINSIA. These post graduate studies are also 8 subjects long, but the content is much more thorough and difficult. When they complete the study they achieve a 'Graduate Diploma in Financial Planning' (GDFP).

Now some universities offer commerce degrees in financial planning. This is 24 units long and is the equivalent of the GDFP plus alot more. I have a degree in this and economics

If their business card has "DFP or DFA" then run for the hills as they didnt work very hard for their qualification (if you can call it that)

If their business card has a "Bcom" and "GDFP" then you are in safe hands

money tree said:

When I studied the module 'financial planning and wealth creation' I was shocked at how little there was to planning. Knowing 5-6 tax rules and a little common sense was all you needed.

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That is because you did a diploma in financial planning. It is a VERY easy course. Try going university and studying financial planning

MoneyTree, on a daily basis i give advice in Securities, Managed Investments, Insurance, tax planning, debt reduction, Superannuation, Estate Planning, UK pensions, trust structures and Derivatives...and what do you do...pick the 'right' product for your client?

hahahaha it sounds like you work in insurance to me Hardly a finance professional.

You also mention using 'excel' to model future plans???? Seriously, are you living in the 1980's? We use a database built on Monte Carlo analysis, over 100 years of stock market data (built into the modelling) and over 300 scenario's to determine (down to a percentage) the likelihood of achieving objectives or not.

Are you familiar with Monte Carlo Analysis, Money Tree???

Russ,

*Mr Money Tree cannot answer your challenge, so no point continuing your attack... unless someone else picks up the baton.

*A less combative style will win you more friends than enemies here. We all know how smart you are now, so you can relax a bit.

Cheers

Are you familiar with Monte Carlo Analysis, Money Tree???

Click to expand...

I am.

Can you expand on your application of it.

tech/a said:

I am.

Can you expand on your application of it.

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Well, most retirement projections are created based upon fixed assumptions regarding future expected rates of return. While these projections are useful for planning and decision making purposes, they are static models of future financial results. Our software is able to illustrate the unpredictability of the financial world and the effects of changing conditions on the client's long-term objectives.

Our software applies complex mathematical calculations (commonly referred to as Monte Carlo Simulation) well proven in the engineering field, to create random scenarios of investment returns that the client may encounter over the duration of their financial life.

The analysis applies historical performance data for each of the asset classes the client can invest in (cash, fixed interest, property and equities), through a random selection process in order to test the likelihood of you successfully achieving your objectives.

In addition, our software incorporates into the analysis the impact of the client's individual cash flows (i.e. the timing of when they invest or withdraw funds) and tax. Our software is able to consider the impact these have in combination with the different possible investment outcomes.

By testing the impact of volatility in investment returns, both positive and negative and combining this with the client's individual circumstances (i.e cash flows) we are able to obtain a more realistic evaluation of the sufficiency of the capital to achieve the client's objectives.

How investment returns are calculated

Market returns for the last 20 years were the main source of data when considering the returns for each market sector, but longer-term data has also been recognised where this was available and relevant. Professional statisticians in consultation with a major fund manager established the rates actually used for modelling. Returns are applied at asset sector level, taking into account the proportion of cash, fixed interest, property and equities (domestic and international) within your portfolio.

Monte Carlo simulation introduces random volatility into the annual rate of return assumptions within each retirement projection. The projections are then run over and over again using random combinations of possible returns from each of the asset classes. In all the projection calculations, the return for each year is changed, so the results are all different.

Targeting an end value

In addition to asset allocation, there a number of other factors in determining if a planned end target value can be achieved including:

- Current age;
- Planned end age;
- Planned investment target value;
- Annual income;
- Annual expenditure;
- Planned retirement age;
- Current investment assets;
- Tax for each entity.

All these factors are taken into account when projecting an end value. The projected end value produced by our software assumes a consistent annual earning rate for each asset sector every year until the nominated plan end age.

The annual earning rate displayed by our software is derived from the asset allocation structure.

In reality, the projected end value is very simplistic. In fact, it is extremely unlikely to be the actual end value achieved, as the annual return achieved by each investment asset will vary from the predicted return by a certain amount each and every year.

Summary

Our software's probability modelling is based on 300 variable scenarios taking into consideration negative periods and therefore producing a realistic representation of the client's current and future financial modelling.

What does the percentage (or Comfort Factor) mean?

The success percentage (shown in green) indicates the likelihood that the client will achieve their goals. If this figure is 95% or more it will allow the client greater flexibility with their future lifestyle decisions, such as spending more each year or leaving a larger estate than just the value of their home.

The failure percentage (shown in red) indicates the likelihood that the client will not achieve their goals. If this failure percentage is too high then we may need to review or re-prioritise some of the client's stated goals.

Results

The objective of the modelling is to achieve a success percentage of at least 70-80% that all of the client's goals and more will be achieved.

Wow I have a sore head

My question I always like to ask anyone that is giving financial advice (especially advisors/planners) is are you a millionaire? and if yes why are you working if no? then why are you giving advice on finance?

Too many people have doctors degree's on finance and know everything about everything in theory! but when they show you there portfolio your better off taking advice from a dole bludger (at least they make money without any work or risk involved).

Ageo said:

Wow I have a sore head

My question I always like to ask anyone that is giving financial advice (especially advisors/planners) is are you a millionaire? and if yes why are you working if no? then why are you giving advice on finance?

Too many people have doctors degree's on finance and know everything about everything in theory! but when they show you there portfolio your better off taking advice from a dole bludger (at least they make money without any work or risk involved).

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Thats like saying if a doctor has a health issue (even one they he couldn't avoid) any medical advice he gives should be avoided...that is a bit silly.

Financial advice isn't about getting you rich quick, and if someone offers you that, then run for the hills.

Ageo said:

My question I always like to ask anyone that is giving financial advice (especially advisors/planners) is are you a millionaire? and if yes why are you working if no? then why are you giving advice on finance?

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My answers to those as a FP or FA would be that I7m not YET a millionaire but am well on my way.
Just because one might become a millionaire, does that mean they have to stop working? What is the have a genuine interest in helping people become wealthy?
and for your final question...
if no? then why are you giving advice on finance?
I know plenty of accountants that go broke! I don't rate that last question at all.

hehe guys to answer my 1st question, if they wish to continue to work thats fine you just want to know the reason why they are helping you (no harm in asking).

And second of all how can one help another one become financially successful when they are not?

A doctor having a health issue that he cannot fix isnt his fault. How do you explain 2 people in the same country with same opportunity not being able to become successful financially?

All im saying is, take advice from people that have what you want. So if your advisor/planner isnt in the position you want to be then why would you listen to him? (change person).

Thats my view anyway

so being financially successful means being a millionaire?

so by that token, everyone that is not currently a millionaire (including the people who are well on their way to becoming a millionaire...one day) are all financially unsuccessful ??

That is a really immature view in my opinion

Financial Advisers earn different incomes, have different expenditures and are in different stages of their career. To suggest their knowledge and ability to help people is completely reflective of their "current" core wealth figure is just stupid.