Where does one get "good" financial advice?

[robots]

hello,

thats right tom r, the shares in the development companies have dropped and margin loans have gone to zero lvr,

but that direct property (house/unit) wouldnt have dropped to zero would it? plenty of useless share certificates around in people's draws but you couldnt show one property that has gone to zero?

are you serious when you say direct property cannot be recommended?

all for diversification

thankyou
robots

 

[sails]

Well this may surprise you, but this is exactly how the practice I work for charges.

You can opt for an annual service package, where you pay a fixed dollar fee for a fixed level of service. In some cases, there may be a performance fee; in other cases, where it's only about advice and not about investment management, you just pay the package fee.

Or you can pay by the hour.

We're not the only ones who work like this and the fact that you are not aware of it doesn't mean it doesn't exist. You just need to ask around to find what you prefer.

You're still unlikely though to get the type of advice you obviously seek (see below)...

Hi Tom,

We have had absolutely no luck with financial planners so far except for one with Qsuper - this was a paid appointment. We wanted a retirement plan and included "what ifs" such as upgrading our unit, etc. We received a detailed report (by memory about 25-30 pages) - just what we wanted.

We have tried three other F/Ps and ALL wanted our funds under their management. No more than a cursory glance at any sort of retirement planning and that was the prime reason we went.

We saw one of these F/Ps not long before the market fell over. She not only wanted our funds, but was recommending that we heavily mortgage our unit to put into her managed funds. Said we should double our money in 7 years.

Rather dubious claims anyway, IMHO - especially when taking into consideration annual management fees of around 4% + increasing interest rates on the mortgage. Please correct me if I'm wrong.

Fortunately, we politely left - never to return. Her whole "retirement" planning was based around that mortgage and definately not the sort of advice we were looking for.

Do you have any suggestions on how people without access to Qsuper can find a real F/P that has the training/ability/software to actually help with real financial planning for the future rather than simply a sales person for managed funds with $ signs of trailing commissions gleaming in their eyes?

Cheers

 

[Tom Ronalds]

hello,

thats right tom r, the shares in the development companies have dropped and margin loans have gone to zero lvr,

but that direct property (house/unit) wouldnt have dropped to zero would it? plenty of useless share certificates around in people's draws but you couldnt show one property that has gone to zero?

That's correct, robots - your investment house/unit will not have dropped to zero value, but your personal wealth will, and rather quickly, if you have borrowed/paid too much and the prices have subsequently dropped.

You will then find yourself in a position that millions of Americans (and now even many Brits) are experiencing, where you'll owe the bank a fair bit more than what you can sell your property for. And you'll have to continue servicing that debt, unless you decide to sell and crystallise the loss.

Given the size of the current property bubble, if prices drop to their long term trend line, it will take you many years before your property recovers back to what you paid for it in the first place. Over all that time, you will be making repayments with real dollars, only to hopefully find yourself making it back to square one eventually; unless of course for some reason you cannot make the repayments and the bank will repossess and then bankrupt you.

This is what too much debt can do, hey. ;-)
Because property investments typically represent a very large commitment to your average investor, when they go bad the losses are large as well. At least with shares you can invest in smaller amounts...!

Think of it the same way as "position sizing".

Those repayments could have been put in the bank instead, earning over 8% in a simple term deposit. Over the years, they would add up to quite a bit of money - which you have effectively lost through your property investment.

This is called "opportunity cost".

Does it make sense now?

are you serious when you say direct property cannot be recommended?

But of course it can, where appropriate. Even now there are clients who come across an opportunity where the numbers do add up. Based on what else they have in their portfolio and the size of the overall commitment, a good planner would have no reason to say not to buy the property.

What we cannot do is advise on a specific property - like saying "I think you should buy No15 StKilda Road". This is prohibited by the licensing laws.

The problem is that too often the would-be property investors we see are people who:

- Still have a large mortgage themselves
- Have little savings or even saving history
- Have no other investments
- Don't understand what they are getting into & can't do the cashflows and other relevant figures
- Don't understand what "negative gearing" actually implies
- Believe they will be definitely be rewarded by large capital gains, without sometimes even doing much, if any, due diligence on the property.

I'm sure you get the idea.

Cheers.

T. R.

 

[Temjin]

hello,

thats right tom r, the shares in the development companies have dropped and margin loans have gone to zero lvr,

but that direct property (house/unit) wouldnt have dropped to zero would it? plenty of useless share certificates around in people's draws but you couldnt show one property that has gone to zero?

are you serious when you say direct property cannot be recommended?

all for diversification

thankyou
robots

No, they could recommend unlisted property funds, which are basically in the category of DIRECT PROPERTY but not in the sense of outright ownership like most of you are aware of. (i.e. They can't recommend in their SOA to their client to go and buy this house on this street, etc) The main differences are that they mainly invest in commercial/industrial buildings, managed by professional managers and diversified amoung several properties. And not to mention a bit less gearing level and enjoy a lower cost of borrowing. Unlike residental property "speculators" who can play with gearing level of even up to 80-110%.

This is still an excellent thread. But let's not go too deep into the merits of direct property investment because all of us got locked out in that previous "house prices always go up" thread. Let's focus on what financial planners can do and cannot do.

Tech/A. Let me ask you a question. If one of your friend (average mum and dad), come and ask you for financial advise, would you recommend them to go all out on property investment or learn how to trade the market? That is, regardless of their education level and psychological makeup? I totally understand where you are coming from, but can you seriously try to view this from a "big picture" perspective? I know that with proper education and sufficient experiences, one could build wealth a lot FASTER and BIGGER than ANY financial planners would be capable of advising. But it does not mean everybody has the motivation to do so, and can't gain from a more "general" financial advise just to maintain their status quote.

Perhaps creating wealth is a low priority for a lot of people out there?

 

[robots]

hello,

thats ordinary tom r,

so someone putting 300k into bell resources would be better off than someone putting 300k into a house at the same time (direct ownership)? funded or not funded

why do you only reccommend a "product" or "fund" etc for property?

it seems that you only associate debt with property, maybe someone puts down enough to positive/or neutral gear the investment does this tick the box for direct prop or is commiss the underlying issue here?

goodluck bro, i can understand it must be difficult accepting opportunity cost as many put it

thankyou
robots

 

[tech/a]

Tech/A. Let me ask you a question. If one of your friend (average mum and dad), come and ask you for financial advise, would you recommend them to go all out on property investment or learn how to trade the market? That is, regardless of their education level and psychological makeup? I totally understand where you are coming from, but can you seriously try to view this from a "big picture" perspective? I know that with proper education and sufficient experiences, one could build wealth a lot FASTER and BIGGER than ANY financial planners would be capable of advising. But it does not mean everybody has the motivation to do so, and can't gain from a more "general" financial advise just to maintain their status quote.

OK
Both Tom and I have made our own points each valid in their own context.
There is much Tom has said which I agree with but I am taking the stance for/those in my position or similar.

What I really want people to get a grasp of is that SERIOUS wealth only comes about from Entrepenurial Innovation. It doesnt and wont ever come from that which everyone else does. F/A's wont ever show you that path.
(A) Because even if they could they cant.(Regs).
And or
(B) They're searching for their OWN Entrepenurial Innovation themselves!

To your question.--and from time to time I'm asked.
Answer is always the same. (Go see a Financial Planner!!!---No No only kidding!).
Firstly that which Ive written above.
But secondly,learn to recognise opportunity and its out there in many many forms.
Learn all you can about risk,how to mitigate it and how to apply its calculation in every Entrepenurial Innovation Opportunity you come across.
Lastly---then DO IT.

Not what they expect--but what they need to know.

Perhaps creating wealth is a low priority for a lot of people out there?

Hell not perhaps but most definately.
This is the greatest of all tragedies,here we are in a country which offers so much filled with apathy. The average dole cheque would keep a village in Africa from death!
This discussion isnt for those you refer to---.
Life is so so good here--you and I are extremely lucky--grab it with both arms out wide and ENJOY.Lifes what you make it---in this country---not what your given!

I reckon you get one shot!
Dont stuff it up.

 

[Tom Ronalds]

Hi Tom,

We have had absolutely no luck with financial planners so far except for one with Qsuper - this was a paid appointment.

I'm sorry to hear that.

We wanted a retirement plan and included "what ifs" such as upgrading our unit, etc. We received a detailed report (by memory about 25-30 pages) - just what we wanted.

This is precisely what we do here. Much of my work involves this kind of "what if" modelling of several different strategy approaches. This is delivered as a comprehensive written Statement of Advice, with a visual presentation using the detailed spreadsheets, charts etc on a computer.

The clients pay a fee for the Statement of Advice which is based on an adviser's hourly rate and is generally agreed before hand. In many instances, no product recommendations are made; where products are to be recommended, this is generally done once the relevant strategy has been agreed on, the clients have appointed us to assist with implementation of that strategy and a dollar-based implementation fee was worked out & signed off on.

We then prepare a Record of Further Advice document as part of the implementation process, which lists the recommended portfolio.

For most of the clients I deal with, the product recommendations will generally consist of direct ASX listed products, without the use of a wrap/platform. Doing so saves the clients ongoing management fees that apply to unlisted managed funds and/or administration platforms.

Having said this, I personally generally only deal with HNWI (high net worth individuals); for smaller sized portfolios managed products/wrap services tend to be more appropriate for diversification/investment access purposes.

The clients are then presented several levels of ongoing service packages, with different levels of service. These are based on flat annual dollar figures, not on percentage of FUM (funds under management). Or they can walk away and only call us when they need us, at which stage they will pay an hourly fee.

No commissions are taken and where we cannot dial those down, they are rebated.

This is not a common charging/operating model, unfortunately, but there are practices who do work that way.

We have tried three other F/Ps and ALL wanted our funds under their management. No more than a cursory glance at any sort of retirement planning and that was the prime reason we went.

Yes, unfortunately to most planners the FUM determines the resale value of their practice. Also the majority of main stream licensees compel their Reps to put all clients' money into their preferred wrap platform, from which they tend to get all sorts of kickbacks. Always read the Financial Services Guide which the planner is obliged to give you and look for product-related conflicts of interest!

We saw one of these F/Ps not long before the market fell over. She not only wanted our funds, but was recommending that we heavily mortgage our unit to put into her managed funds. Said we should double our money in 7 years.

Yes, I'm sad to say that we have had several planners like this in this area - even advising to withdraw any unpreserved component from super and using it towards a margin loan!

It did work reasonably well when the market was going up and up; it has now reversed with a vengeance.

Rather dubious claims anyway, IMHO - especially when taking into consideration annual management fees of around 4% + increasing interest rates on the mortgage. Please correct me if I'm wrong.

No, you are exactly right. Furthermore, using managed funds for margin lending tends to be a lot less tax effective than many of these advisers make out - because the actively traded managed funds (which pay the highest commissions and cost the most in MER charges) realise and distribute most of their capital gain in any given year, thus depriving the investor of any tax planning opportunities based around time-targeted asset disposal.

Fortunately, we politely left - never to return. Her whole "retirement" planning was based around that mortgage and definately not the sort of advice we were looking for.

Yes, those clients who have listened to this type of advice are probably now discovering that the "retirement plan" really involved retiring a lot later, due to lack of funds, than what they had originally planned!

Do you have any suggestions on how people without access to Qsuper can find a real F/P that has the training/ability/software to actually help with real financial planning for the future rather than simply a sales person for managed funds with $ signs of trailing commissions gleaming in their eyes?

You can try here for starters:

http://www.independent-advice.com.au/index.asp

Depending on your location, try to google for "Independent Financial Planners".

Having said that, there are some financial planning practices who do not qualify as "independent" (the use of that word is extremely restrictive in Australia, so most can't use it), and yet they provide ethical, high quality service along the lines you seek. Have a read through your local Yellow Pages and apply the following filters:

- Eliminate all banks & those who are clearly big product providers-affiliated practices (AMP, Hillross, MLC, CBA, AXA etc).
- Look for the phrase "fee for service"
- Then call those who qualify or look up their website and request & download their FSG (Financial Services Guide).
- Re-apply previous filters once more.
- Call these guys and ask them straight out how they work & what tools they use.

Yes, I know it shouldn't be this hard...but at least things are changing slowly!

Cheers,

(Note: I am not associated with the above website in any way, nor are my comments here at this forum intended to be in any way an advertisement for the practice I work for).

 

[sails]

Thanks for the informative reply, Tom.

I will print out your filters and keep them on file next time we are looking for advice or even to get a second opinion.

Cheers

 

[Tom Ronalds]

hello,

thats ordinary tom r,

Life often is. Get used to it. ;-)

so someone putting 300k into bell resources would be better off than someone putting 300k into a house at the same time (direct ownership)? funded or not funded

No, someone who only has $300K and puts all of it into one stock is stupid and deserves everything s/he gets.

However, even if you only have $300K, you'll be able to easily put together a portfolio of 15 stocks, spread across a broad spectrum of industry, resources, property etc. So if one of those goes bad, you'll still be relatively OK.

Furthermore, if the sharemarket starts going wobbly, you can be all out within minutes, at a total transaction cost for in/out of around $1,500.

On the other hand, if you only have $300K, you will only be able to buy one property; maybe not even that. If the market starts getting wobbly, you may not get out for months. Even if you do, your total in/out cost will be at least $15,000.

How do the figures stack up now?

Ever heard of all your eggs in the one basket?

why do you only reccommend a "product" or "fund" etc for property?

"Product" is a generic term (as in "investment product") that is widely used by financial services professionals.

it seems that you only associate debt with property, maybe someone puts down enough to positive/or neutral gear the investment does this tick the box for direct prop or is commiss the underlying issue here?

No, commission is not the underlying issue here. If it were, we'd all be working as real estate agents! ;-)

Even if you are positively geared, if you buy for too much, your investment will underperform; especially so in comparison to its risk-adjusted peers. Meaning that if you had instead invested that cash elsewhere, you would have done better, so in that case your property investment would not have been a very good one.

In other words, you may not go broke, but you won't make any money for a long time.

Cheers.

T. R.

 

[Tom Ronalds]

What I really want people to get a grasp of is that SERIOUS wealth only comes about from Entrepenurial Innovation.

That's true, but the vast majority of people are not entrepreneurs.

If they were, then everyone would work for themselves. Yet they don't.

It doesnt and wont ever come from that which everyone else does.

But most people are not after what you would call "serious" wealth.

Many can't even manage basic financial security. The majority could not survive for more than a month without a job.

Many others just want to be "comfortable". Amazing as it may sound, in most cases this means as little as:

- Owning their home, car etc with no debt;
- Retiring on $40,000 or so p.a. in after tax income, without having to worry about how long their money will last;
- Not having to worry about all that complex financial stuff. ;-)

Rest assured that the financial planner who built his/her practice with the aim to solely provide the type of advice *you* would consider as worthwhile, would go out of business very quickly for lack of takers...!

Cheers.

T. R.

 

[tech/a]

Rest assured that the financial planner who built his/her practice with the aim to solely provide the type of advice *you* would consider as worthwhile, would go out of business very quickly for lack of takers...!

Yes see your point.

 

[TheRage]

This thread seems somewhat like Dejevu.

Tom your decription of the industry we work in and the problems associated with it is quite good.

Tech the whales that you refer to do sometimes infact need financial planning. A lot of wealth in this country is held in land and farmer's retiring are not exceptionally savvy with their reitrement planning. Moreover the underinsurance for business owners in this country is appaling. Personally you should trust the fee for service adviser's recommendation over the insurance agent who tells you that he will get paid from the insurer. He sure will get paid probably over 100% of the first years premium and on the renewal date he will find you a better deal and will get the same little kick year in year out.

Not many financial planning companies can actually claim to be truly independant. It would almost be impossible for a company to achieve complete independence as we all rely on someone. For instance you can have your own AFSL but use a broking house for research. If the broking house has several ASX listed companies paying a premium to be listed, is this independance? I believe though that Tom has hit the nail on the head with Fee structure and Funds under management.

 

[theasxgorilla]

Tech/A. Let me ask you a question. If one of your friend (average mum and dad), come and ask you for financial advise, would you recommend them to go all out on property investment or learn how to trade the market? That is, regardless of their education level and psychological makeup? I totally understand where you are coming from, but can you seriously try to view this from a "big picture" perspective? I know that with proper education and sufficient experiences, one could build wealth a lot FASTER and BIGGER than ANY financial planners would be capable of advising. But it does not mean everybody has the motivation to do so, and can't gain from a more "general" financial advise just to maintain their status quote.

Perhaps creating wealth is a low priority for a lot of people out there?

Good questions Temjim.

I think Robert Kiyosaki told a really interesting story in one of his books about his 'rich dad' giving him the assignment to go out and get a financial plan for each financial level (poor, middle-class, rich...his terminology, not mine). He said each group has their own financial planners. And if I interpreted his message correctly he insists that you should still have the poor and middle plans in place, before embarking on the plan to become rich.

 

[Tom Ronalds]

Good questions Temjim.

I think Robert Kiyosaki told a really interesting story in one of his books about his 'rich dad' giving him the assignment to go out and get a financial plan for each financial level (secure, comfortable, rich...his terminology, not mine). He said each level/group has their own financial planners. And if I interpreted his message correctly he insists that you should still have the secure and comfortable plans in place, before embarking on the plan to become rich.

I'd be careful about Robert Kiyosaki. There's plenty of evidence the guy's a fraud whose "rich dad" never existed.

Here are just two examples:

http://johntreed.com/Kiyosaki.html
http://www.ripoffreport.com/reports/0/226/RipOff0226341.htm

Cheers.

 

[robots]

hello,

thats right tom you cant take people at face value anymore!

all the more reason to get your own share and property titles

thankyou
robots

 

[tech/a]

I have one word I'd like to bring up.

RESCOUCES

Now I'll bet thats not a word used by F/Ps in the context I have in mind.

 

[nizar]

I have one word I'd like to bring up.

RESCOUCES

Now I'll bet thats not a word used by F/Ps in the context I have in mind.

LOL actually i havent heard of that word at all in any context

 

[josjes]

Depending on your location, try to google for "Independent Financial Planners".

Having said that, there are some financial planning practices who do not qualify as "independent" (the use of that word is extremely restrictive in Australia, so most can't use it), and yet they provide ethical, high quality service along the lines you seek. Have a read through your local Yellow Pages and apply the following filters:

- Eliminate all banks & those who are clearly big product providers-affiliated practices (AMP, Hillross, MLC, CBA, AXA etc).
- Look for the phrase "fee for service"
- Then call those who qualify or look up their website and request & download their FSG (Financial Services Guide).
- Re-apply previous filters once more.
- Call these guys and ask them straight out how they work & what tools they use.

Yes, I know it shouldn't be this hard...but at least things are changing slowly!

Cheers,

(Note: I am not associated with the above website in any way, nor are my comments here at this forum intended to be in any way an advertisement for the practice I work for).

TR, Interesting threads.

I would like to add my personal experience of using 'Fee for Service' FP. This FP that I talked to, recommend a 'Diversified Financial Portfolio' using Dimensional Index Fund. I would say he is just one of the many fee for service investment advisors these days continue to promote a nice pie chart which is broken down into easily understandable slices. Typically, these slices include Aussie stocks, international stocks, bonds, listed/unlisted properties and cash. Along with the slices, the advisors provide us with percentages, usually indexed to the investors age and on the clients Risk Profiles. . Common advice might be something like: 40% Aussie shares, 20% international equities, 20% bonds, 10% properties and 10% cash. This is simply an example, but you get the idea.

Pretty standard, right ? Pick up any financial publications, Money magazine, investment publications from Vanguard, or articles by the lead economists at AMP, BT etc. you will still see a common theme: advice from money managers to have a well diversified portfolio. Well I am telling you that this is good advice for them, but terrible advice for you.

Why ? Double Digit Inflation. (Forget about the official 4% inflation figure bandied about by the Government).

"Tim Bond, head of global asset allocation at Barclays Capital" sum this up very well. And what more it is freely available from the web.

• To invest successfully in inflationary conditions, portfolios need to be narrowly focussed on the handful of assets that cause – or benefit from – inflation.
• Portfolio diversification is deadly, destructive and will diminish wealth.
• Bonds of all types – aside from index-linked – have no place in portfolios at current yields.
• Even index-linked bonds’ ability to protect wealth from inflation is currently hobbled by very low real yields.
• Equity exposure should be narrowed to energy, basic resources, industrial goods & services and – once the write-offs are complete – financials. During inflationary periods, these are the only sectors that deliver positive real returns.
• Maintain an overweight position in physical commodities.
• Accept that much higher-than-normal portfolio volatility is the price to pay for positive real returns when inflation is high.

PS: Sorry, I did not hire him as my FP in the end.

 

[tech/a]

Haha Nizar

Its obviously swahili for Resources

I spell checked that page too obviously it didnt recognise it!

 

[theasxgorilla]

I'd be careful about Robert Kiyosaki. There's plenty of evidence the guy's a fraud whose "rich dad" never existed.

Here are just two examples:

http://johntreed.com/Kiyosaki.html
http://www.ripoffreport.com/reports/0/226/RipOff0226341.htm

Cheers.

Yeah, yeah, seen it Tom. Rest assured I'll be among the first in any group to promote thinking for yourself.

It doesn't really matter. The question is, is that a good idea? IMO; yeah, it's a great idea 'cos I know from countless nearby examples that there are soooooo many "never-wases" piled up in the fallout of the 'dot-com' boom because they were swinging for the fences. Can you say, "I'm a multi-millionaire on paper" and "worthless out-of-the-money options"?

I know a number of people who neglect their superannuation because they presume that they will be making countless gazillions from some venture...but I don't understand that...why not do both? What if the venture fails? Better to have a slow-and-steady wins the race backup plan in place to secure your future, eh?