Financial Planners

money tree said:

Unfortunately, these Planners have given the whole industry a bad name. Then, people like Realist come along and offer their 2c when they dont have a clue what they are talking about. Its pure arrogance to believe you know as much as a qualified advisor. Unfortunately, these people have no idea how much they dont know. There will be some people here who really need advice but are put off seeking it because of the opinion of uneducated know-it-alls.

As many of you know, I am a qualified advisor. Im quite certain I have made more money in the last year than 99% of people here. Im also quite certain that nobody else can match my percentage return. So just keep bagging out those "used car salesmen" and pretending you know as much as them.

They say success is the best revenge.....how sweet it is

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Wasn't it about making money for other people rather than for yourself?

rub92me said:

Wasn't it about making money for other people rather than for yourself?

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And there you have it,unfortunately by the time we realise that financial advisers are in it for themselves often its too late,

Firstly I am a financial planner so read my opinions in that light please. My biggest concern with many of the statements on this topic is the lack of knowledge as to how financial planners can add value to a person's situation and how to find a good one. The old planners of yesteryear must shoulder a lot of the blame but to imply that basically all financial planners only serve their self-interest is way off mark.

I used to work for AMP (which has just been handed an enforceable undertaking by ASIC for poor super switching advice) and was on a retainer with commission. I made bugger all during my time there because I would not place my interests ahead of a clients. This decision was reinforced with the type of clients that I saw - many middle income families that could not afford to be stiffed. This attitude is increasing with the newer breed of advisors making their way through the ranks. The problem is that everyone wants to paint planners with the same brush based on a negative experience or anecdotal evidence and hearsay.

As has been suggested fee for service is the best model to look for in a planners remuneration but this in itself does not ensure objective and relevant advice delivered with your best interests at heart. It is easy to become a fee for service planner.

Commissions do serve their purpose too. In recent years ASIC has gone so overboard with compliance issues that comliance costs have increased manyfold. They have almost effectively priced financial planning out of the reach of the people that need it the most (middle income Australia). Offering those sorts of clients a commission option (while not optimal in terms of having all of your money working for you or 20-25% more expensive premiums) can be the only way to service lower income clients. But any trailing commission should offset the review fee each year, bi-annually or whatever.

I digress. The best financial planner is one that actually listens to you and asks so many questions that you think they are just a nosey parker. Financial planning is not about wealth creation per se although that generally is a goal. It is about finding out what your client wants the most out of life and providing the means to achieve that. It is not about "I want $40k per year in retirement so get it for me". It is about helping clients articulate what it is that makes them happy, determining the funding level necessary and designing a blueprint to maximise the probabilities of achieving as much of it as possible. Creating wealth is often seen as the number one aim because people always seem to link wealth and happiness without giving due consideration to how the wealth will make them happy. They may in fact be able to fund a lifestyle that makes them extremely happy with less dollars. But if they never ponder the lifestyle then they may have extremely unrealistic expectations and be setting themselves up for failure from the start. Most of what makes us happy does require financing anyway but a good financial planner will help you articulate to what degree. Obviously I am speaking about comprehensive planning and not one-off incidental advice such as rolling over super, what to do with my mortgage, help me with some insurance and so on.

Here is another tip when seeking advice. It is always best to have a planner do a strategy paper that outlines what course of action will be chosen and what alternatives were eliminated and the reason for this. It is not a full plan but an outline and should only cost a fraction of a plan. that way you can determine for minimal cost and angst if they have your interests at heart and whether they have assessed your needs correctly. The planner is also able to recoup some of the cost of their time and have a wonderful chance to impress upon the client how they can improve their situation.

The industry is changing but it will do so slowly. From next year to become a CFP you will need to have an undergrad degree. The standards will rise but just as in any profession there will always be bad apples. The younger generation will strive to become more professional and raise planning from an industry to a profession. There are many older planners that are trying to do so now - you just have to sort the wheat from the chaff at this point in time unfortunately.

But don't avoid advice because of a prior bad experience whether it is your own or anothers. Just look harder because there is extreme value out there.

Adam

Financial planer has 2 choices look after him/her-self or look after client and that all to it.

Of course you can fluff it up and dress-up, but it is really that simple, and in my opinion most of financial planners look after themselves, suppose tough luck for clients.

Happy I could`t agree more,most financial advisors sound like Adam.But behave as per your description of them.

To be fair to financial planners - how much is a fair fee?

Professionals such as architects, engineers, accountants, lawyers, generally bill out on a time basis. However the difference is that you can see what these professionals "do" for their money (prepartion of financial statement, design of a home, day in court etc). It's not always easy to "see" what a financial planner does for you.

I'm not defending them but.......it is very hard to get your head around what they do for their fees.

This what they do for their fees,they coral you into funds or products that gives them the best commissions.Thats all.

How so amusing and a good interesting post too.

I've also worked in the financial planning industry and would like to comment.

Firstly on the matter of what they do for you and the articulation that they are a bunch of sales people and that's about it, well you're partly right and partly wrong. Because its an industry going through transition, you cannot compulsorily retire the ones in their 40's,50's and 60's just because you expect higher standards,it is after all Australia and we don't want to eliminate somebody's livelihood just cause the industry is moving on.

The industry is doing all the right thing, constantly envolving and there are young people pushing through the industry, give it 5 to 10 years and most of the old salesmen type would have retired hopefully.

Anyway, back to my point, most of the sales people that you see parading as financial advisors do have what they call paraplanners (which is what i had done for 5 years), now paraplanners are the true professionals who hide in a corner of those big buildings, learning and learning technical stuff,just like your H&R block ads. They are the ones preparing the financial plans and so there is a high level of protection for consumers. The knuffhead selling to you may be a knuffhead, but the plan he holds is written by an extremely well trained professional - they are 99% of the time under 30 or basically young.

I think this angle of the debate is losted.

Another angle that is losted in the debate or not covered is that financial planning as eluded to earlier by some financial planners/advisors is that the industry is principled on several fronts.

1. financial planning, eg.ivnestment plan, ssavings plan, portfolio construction
2. insurance
3. estate planning
4. a litle bit of tax
5. superanuation consulting
6. retirement planning.

Now the bit that is missed by people is that wealth creation espoused by planners is not premised on most people's objectives on this forum which is quick buck,speculating and trading and a very little on investing.

Be reasonalbe,do your research and learn about investing.

I'm traditionally from a finance background,master level, start to read some research on day traders that is studied by PHD students, do a survey,how many people can beat a truly diversified portfolio over a 10 to 20 year period of time.

In essence, there will be many who have made specular gains, but for the majority of people ..and you will find for yourself if you fit the majority of people definition..because you can successfully and consistently manage to out perform a diversified portfolio for 5 years or more...than you need advice and would be better served with a diversified portfolio.

The other point, financial planning is not just about performance returns, that's a fund manager's role remember, and they do perform as well, if many of you wanted to find out more, try to look towards their returns, they do do 40% some years, i remember during the 90's some fund managers like Bt and First state providing for some 30% plus compounding returns for 10 year period.

Now remember as mentioned financial planning isn't just investment return, its about being strategic.

As well, one area that a lot of you won't ever understand is the complexity of the supernnuation rules, they are so complex you need to be trained, this is an enormous area and opportunity for value add, eg. self managed super fund has enormous amout of strategies,are you tell ing me all you traders are going to be able to uncover these,when planners must rely on qualified and highly experienced legal people to train them up on it, thereis enormous value add..you would be foolish to dismiss the industry

Again another area is retirement planning, are you saying you're going to ignore the tax planning based strategies that retirement planning is based around, the enormous complexity of Social Security Act, the Super Act, the Tax Act all intertwined to provide value added solutions..

Only a fool would dismiss financial planners...

Tech, your words of wisdom is all but a fool's talk, there are bad apples everywhere, there are more in financial planning as its a new industry evovling.. its not new as such as its based on the old insurance industry, but financial planning is a new industry because of the multi faceted role it plays.

Additionally, you don't need a degree to run a company successfully, you don't need a degree to be successfuly, only cautious people or lambs like the majority of the population who have no idea honestly seek the secure path and grab a degree..

Bill Gates never got a degree, and many others also...

But financial planning is specifici and is very technical, don't be confused by the salesman.

Also successful people that another person posted about who's worth $60m will still not know much about financial planning and the technical ness.. they can teach you broad skills, but if you survey rich people its a lot of risk taking and luck.. being in the right place at the right time,with the right people,at the right moment for the industry...

Don't confuse their success with their intelligence...

And don't confuse intelligent people who are not rich as being not intelligent..

rub92me said:

Wasn't it about making money for other people rather than for yourself?

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I dont have clients, ie I didnt make stacks of money by being a dodgy advisor. I did it by applying my knowledge to my own investments to outperform.....

visual said:

And there you have it,unfortunately by the time we realise that financial advisers are in it for themselves often its too late,

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My point was that advisors are not (all) just clueless idiot rip-off merchants. Some of us actually know how to make money without ripping off mums & dads. My other point was that ignorant fools think they know everything about finance, when they dont have the first clue. When you dont know how much you dont know, its easy to think you are as smart as someone who does.

The majority of people here would BENEFIT financially from seeing an advisor. It amuses me that people wont spend $250 to save themselves $2000....once again they dont know how much they could benefit, and dont think its a wise investment.
Would you represent yourself in court or hire a lawyer?
Would you fix your own wiring or call an electrician?
Look at the most successful people in business. Do they try and do everything themselves or do they hire specialists?

grumpee boi said:

Firstly I am a financial planner so read my opinions in that light please. My biggest concern with many of the statements on this topic is the lack of knowledge as to how financial planners can add value to a person's situation and how to find a good one. The old planners of yesteryear must shoulder a lot of the blame but to imply that basically all financial planners only serve their self-interest is way off mark.

I used to work for AMP (which has just been handed an enforceable undertaking by ASIC for poor super switching advice) and was on a retainer with commission. I made bugger all during my time there because I would not place my interests ahead of a clients. This decision was reinforced with the type of clients that I saw - many middle income families that could not afford to be stiffed. This attitude is increasing with the newer breed of advisors making their way through the ranks. The problem is that everyone wants to paint planners with the same brush based on a negative experience or anecdotal evidence and hearsay.

As has been suggested fee for service is the best model to look for in a planners remuneration but this in itself does not ensure objective and relevant advice delivered with your best interests at heart. It is easy to become a fee for service planner.

Commissions do serve their purpose too. In recent years ASIC has gone so overboard with compliance issues that comliance costs have increased manyfold. They have almost effectively priced financial planning out of the reach of the people that need it the most (middle income Australia). Offering those sorts of clients a commission option (while not optimal in terms of having all of your money working for you or 20-25% more expensive premiums) can be the only way to service lower income clients. But any trailing commission should offset the review fee each year, bi-annually or whatever.

I digress. The best financial planner is one that actually listens to you and asks so many questions that you think they are just a nosey parker. Financial planning is not about wealth creation per se although that generally is a goal. It is about finding out what your client wants the most out of life and providing the means to achieve that. It is not about "I want $40k per year in retirement so get it for me". It is about helping clients articulate what it is that makes them happy, determining the funding level necessary and designing a blueprint to maximise the probabilities of achieving as much of it as possible. Creating wealth is often seen as the number one aim because people always seem to link wealth and happiness without giving due consideration to how the wealth will make them happy. They may in fact be able to fund a lifestyle that makes them extremely happy with less dollars. But if they never ponder the lifestyle then they may have extremely unrealistic expectations and be setting themselves up for failure from the start. Most of what makes us happy does require financing anyway but a good financial planner will help you articulate to what degree. Obviously I am speaking about comprehensive planning and not one-off incidental advice such as rolling over super, what to do with my mortgage, help me with some insurance and so on.

Here is another tip when seeking advice. It is always best to have a planner do a strategy paper that outlines what course of action will be chosen and what alternatives were eliminated and the reason for this. It is not a full plan but an outline and should only cost a fraction of a plan. that way you can determine for minimal cost and angst if they have your interests at heart and whether they have assessed your needs correctly. The planner is also able to recoup some of the cost of their time and have a wonderful chance to impress upon the client how they can improve their situation.

The industry is changing but it will do so slowly. From next year to become a CFP you will need to have an undergrad degree. The standards will rise but just as in any profession there will always be bad apples. The younger generation will strive to become more professional and raise planning from an industry to a profession. There are many older planners that are trying to do so now - you just have to sort the wheat from the chaff at this point in time unfortunately.

But don't avoid advice because of a prior bad experience whether it is your own or anothers. Just look harder because there is extreme value out there.

Adam

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Adam:

An articulate post.

Could you address the question of licensing. I think this is where many potential clients become confused. ASIC advise that any business proposing to offer advice regarding financial planning, share selection, etc etc. should have an Australian Financial Services Licence. When asked what criteria are applied towards the issuing of such a licence, they appear to be very vague and suggest it could be as little as a brief course at one's local TAFE!
(Well, if that's the case, no wonder so many people get into trouble accepting advice from "planners" and "advisers".)

Then we have the advertised term "Licensed Financial Planner" and "Member of the Financial Planning Association". What is required before being able to use these credentials, what sort of study, examinations etc?

I think the general vagueness which surrounds the industry is the source of much of the distrust.

Look forward to your comments, and thanks.

Julia

money tree said:

I dont have clients, ie I didnt make stacks of money by being a dodgy advisor. I did it by applying my knowledge to my own investments to outperform.....

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Hi Moneytree

Don't you sell your courses or are you fully reliant on your own independant investments these days?

Duckman

Julia,

thanks for the kind comment.

Firstly, you have to have a license or be an authorised representative of a licensee. Licensees are generally the bigger organisations like AMP, AXA, ING and the other insurance companies. Then you have the banks like CBA, Macquarie and so on that also grant authorised representative status. So you have the situation where most of Australia's planners (must be more than 17,000) are authorised by an insurance company or a bank. For example did you know that Hillross is owned by AMP, ThreeSixty by MLC and on it goes - they are not all easily recognised but there are links to the insurance co.s and banks.

Secondly, you may be an individual AR or a corporate AR. So I set my company up as a CAR under a boutique dealer group (dealer group basically equates to licensee). Boutique basically means it is not owned by a bank or insurance company but by the directors. So my company and myself are authorised reps and basically piggyback the conditions of the licensee. Becoming a licensee is an expensive and drawn out process. You have to prove relevant and adequate experience, document your training and compliance plans to ensure that all the reps you appoint will act correctly and in line with legislation (this is where AMP recently got caught out), prove financial ability and backing and so on. The licensing fees are quite expensive and then there is PI insurance to cover the dealer group and reps. So I choose to pay my dealer group a cut of my fees to have them worry about all of this stuff. When and if my fees become so large that the cut I pay outweighs the cost and time burden of doing it myself then I might get my own license but I doubt it - it really appears a hassle and many big, successful businesses still operate under someone elses license.

The other thing to note with licenses is that there are different conditions that can be attached and then as licensee you are able to restrict your reps again. For instance under my dealer groups license they are able to do everything but offer derivatives advice. They chose not to take this on because of the huge increase in PI insurance as a consequence of doing so. They have granted me the same advice conditions as on their license. They could have restricted me to just offering risk insurance advice or risk plus retail investments and so on - the combinations are numerous. This gives the AFSL holder the ability to maintain a degree of control.

so those TAFE graduates that you talk about might fall under this category. It is easy to become a FP - you can do 4 courses externally through Tribeca in less than 6 months and bingo - financial planner as long as you can get authorised. You may obtain a restricted rep status or you may get full rep status like I did at AMP (I held a business degree and an honours degree before I became a FP anyway and was amazed at how easy it was - open book exams too!!)

I would just like add that there are still many businesses and individuals that fall under the banks and insurance companies that I am sure have integrity and honesty and offer genuine advice. The one good thing about the big groups is the access to support, administration and training that I would like more of. But I like the ability to find a new product, approach the compliance officer and put forward my case for using it and then being allowed if he feels it is a sound product. That is, basically no restrictions on what I can and cannot use. And because I charge fees, I use many products that do not pay commission like Dimensional fund advisor funds and Vanguard.

Member of the FPA doesn't mean jack in my opinion. They are a quasi-body, not even an industry group really. You just have to pay an annual fee each year to have the privilege of putting the logo on your business card. Many of those members were involved in the Westpoint saga and even this latest AMP saga. The problem with the FPA is that many of the principal members are the banks and insurance co.s. The conflict is that it is supposed to be a body that represents planners but the dealer groups sit in there trying to impact direction.

I think that when in doubt just ask - honest people with nothing to hide will be happy to expound on anything. You will see the shonksters squirming and answering like politicians - fluff.

Finally, people must remember that when you are paid for providing a service you are ultimately acting in your own interest - many professions do it. The key point is - do you also act in the interests of your client (the payer) or solely in your own?


I hope that this clears things up.
Cheers,
Adam

Thanks for the explanation, Adam. Not sure that it makes me feel any better though. It seems many in this industry have minimal experience and are much less qualified than you appear to be.

Julia

Money Tree,

What sort of returns have you been Generating?
and is that amount your return or clients?

Cheers.

https://www.aussiestockforums.com/forums/showthread.php?t=3395&page=3

as I already said

I DONT HAVE CLIENTS

Interesting comments from a financial planner in training.

http://www.smh.com.au/news/planning/confessions-of-a-student-planner/2006/10/02/1159641264881.html

Julia

Julia said:

Interesting comments from a financial planner in training.

http://www.smh.com.au/news/planning/confessions-of-a-student-planner/2006/10/02/1159641264881.html

Julia

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Excellent article Julia.

A fool and their money are soon parted..

A case for DIY
If you invest in an active shares fund, you regularly pay 1.9 per cent in fees and in the vicinity of 1 per cent more in tax due to the extra turnover of shares. Therefore you can lose about 3 per cent a year just in fees and taxes. This compares to no fees and extra taxes if you hold shares directly and do not sell them.

The 3 per cent can make a massive difference. For example, if you invested $20,000 and received an average real post-CPI return of 12.1 per cent, which is what the Australian sharemarket returned from 1985-2005 (11.1 per cent plus franking credits = 12.1 per cent), you would have $1.9 million in 40 years. If your return was 3 per cent less, you would forgo more than $1.2 million over the same period.

You gamble on the hope that the active fund more than makes up for the fees. A very small minority of active funds manage that over 10 years; even fewer active funds do so for longer periods.

Betting on a very small minority is gambling. Oh, and when you lose, you often lose big: many underperforming active funds underperform by a lot.

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Like I said before Julia - 12% is a good return... No taxes, no fees and you are laughing!!

You only need to make an average of 17 per cent a year on shares for 40 years and you are the second richest man in the world (Warren Buffett). Very, very few people really seem to understand the significance of these percentages.

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And the more you trade the more you lose.

No one ever listens though...

Regardless of how good all these gun bull market traders are at making money - many of them dodge a good planner and dont see the benefits of paying 15% (or less) on profits instead of 40%+ marginal rates.

The $1100 you pay to the spivvy planner may save $100,000s in tax over a few years by him offering a solid tax strategy

The dirt of the old planner is only matched by the arrogance/taxbills/capital losses of the cocky 'DIY/I know everything' trader w@nkers