Join our investing community

looking for advice on seeking advice

Discussion in 'Financial Planning' started by BJKS, 17th Dec, 2008.

  1. BJKS

    BJKS New Member

    Joined:
    17th Dec, 2008
    Posts:
    3
    Location:
    Brisbane, QLD
    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...)
     
  2. Andrew Newman

    Andrew Newman Well-Known Member

    Joined:
    5th Nov, 2008
    Posts:
    175
    Location:
    Melbourne
    Hi BJKS

    Lots of questions!

    Not all financial advisers are the same, just like in any other profession!

    I personally use SoA templates but I spend considerable time tailoring the SoA to the client and I do not fluff up the SoA with lots of generic material that you can find elsewhere at little or no cost.

    If you are not sure what fees and commissions you are paying to your financial adviser, contact them and ask for a summary of all the fees and commissions they are receiving.

    Some financial advisers do charge fee for service at an hourly rate. Personally, I leave it to the client to decide how I charge my fees - with the key being do you receive value for the advice being charged for.

    With regard to the above quote, what about advice that has no dollar value - such as peace of mind - 10% of what? Please understand that investing is just one component of financial planning.

    You can request your financial adviser to cease charging ongoing fees and refund commissions. In this scenario, you would look after the investments, the financial adviser would have no involvement and you would look after any paperwork.

    Educate yourself by buying some books on financial planning that cover investing, super, insurance, tax, debt and so on.

    Good luck with your financial planning.
     
  3. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    Sorry to hear this BJKS...

    As Andrew said, every financial planner charges differently. This amount was agreed on by you and your f/a.

    The Financial Services Guide (FSG) gives you more important information like who the licensee is, what services they offer, any existing relationships, how the licensee and adviser may get paid, what to do if you have a complaint and privacy information. If you want to "try to make sense of exactly how much money the advisor makes out of you with all the commissions" you should be able to find this in the Statement of Advice (SoA).

    Maybe you are, the risk of losing funds being magnified should have been explained by the f/a and in the SoA. You are paying ongoing advisor fees for ongoing service. You can walk back in and say, hey, my situation has changed, what are we going to do about it?

    They do exist, though can cost alot on an hourly basis (like lawyers). This would probably drive the cost up considerably of financial advice with clients being billed in 6 minute increments. Also the probably here is alot of client's wouldn't get the ongoing service which they need.

    I haven't heard of any advisers which charge on the profits made by clients, this would be great in the up years, but not so great in the down years. Not a business model which would last long in down years.

    It's a great time to buy, not such a great time to sell. What was your original timeframe? Most timeframes to borrow to invest are 5 to 10 years at least. The fees are being collected by the product (Asgard), you would have to change things through them. Asgard has to have an adviser attached, as it's an adviser driven product. The ongoing fee sounds a bit high, you can go into your local St George Bank/Bank SA and discuss with the financial planner to negotiate a better ongoing fee. You can log online Investor Online Redirection to look at your account in more detail.

    Again as Andrew said, read alot of books to get a better understanding.

    Cheers,

    Dan

    PS Speak to an FPA registered Financial Planner before making an investment decision.
     
  4. Chris C

    Chris C Well-Known Member

    Joined:
    2nd Apr, 2008
    Posts:
    1,327
    Location:
    Brisbane, QLD
    I personally can't get my head around the idea that Financial Planners in essence are glorified salesmen that push clients towards products where they earn commision, ie insurance and managed funds. I'm not saying that either are bad products I just can't help but feel this conflict of interest would see most financial planners being not much more than glorified salesment rather than profit maximising advisors.

    If financial planners were worried about not making money in the down years why not charge on their ability to beat the market, or at least get close to the market?
     
    Last edited by a moderator: 18th Dec, 2008
  5. Andrew Newman

    Andrew Newman Well-Known Member

    Joined:
    5th Nov, 2008
    Posts:
    175
    Location:
    Melbourne
    Hi Chris

    It may be true that some financial advisers may be product pushers but to say that all financial advisers act in this way is an injustice to the ones who act in the best interests of their clients.

    Financial advisers advise on many different areas and investing is only one of those areas. For example, if I recommended a superannuation strategy that saved a client $2,000 tax per year, what has that got to do with beating the market? I think many people have a misconception about financial advisers thinking that they are investment advisers. In fact there are some financial advisers who do not deal with investments at all.

    As I mentioned earlier, the key is do you receive value for the advice being charged for - if not, discuss this issue with the financial adviser and perhaps re-negotiate the fees and commissions being paid.
     
  6. Chris C

    Chris C Well-Known Member

    Joined:
    2nd Apr, 2008
    Posts:
    1,327
    Location:
    Brisbane, QLD
    I completely concede that not all financial advisers would be out there to push products in which they have a vested interest, and I am also willing to concede that financial planning is not just about investment strategies.

    My point simply was that a significant part of the industry earns its money off giving sub optimal advice. I'm not saying the advice would produce results worse than what the client could have produced, on the contrary, in vast majority of cases the advice financial planners give will result in a significantly better outcome for the client than they could have achieved themselves, but I can't get my head around the idea that most financial planners must still know that it is sub optimal...
     
  7. Andrew Newman

    Andrew Newman Well-Known Member

    Joined:
    5th Nov, 2008
    Posts:
    175
    Location:
    Melbourne
    Chris, if a client is not happy with their financial adviser with regard to receiving commissions from products, then the client can always do it themselves or find a new financial adviser.
     
  8. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    Hi Chris,

    I think your getting financial planners mixed up with fund managers.

    Financial planners tailor financial strategies to clients needs.
    Fund managers chose investments to "beat" the market.

    There is no investment for financial planners which are always going to out perform the market year after year, this is because investments have cycles (If you do find one let me know :) ).

    Not quite sure what you mean by sub-optimal, my most recent client is save over $25,000 pa in tax! With his funds invested in 100% government guaranteed cash.

    Cheers,

    Dan
     
  9. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    It should say "saving" not "save".
    Invested doesn't like me changing it :(
     
  10. C3PO

    C3PO Well-Known Member

    Joined:
    28th Feb, 2008
    Posts:
    102
    Location:
    Adelaide, SA
    BJKS:

    1. Find yourself a good accountant. Rely on your accountant for tax planning advice. Much cheaper than going to a financial adviser & in my opinion you will get better quality advice.

    2. Ask any financial planner that you deal with in the future to tell you what they are invested in themselves. Check the performance of their investments. Nobody should take advice from a financial planner who is not managing their own money well.

    It is important to understand that things in the economy happen in cycles. It appears to me on the face of it that you have been advised by your financial planner to make a leveraged investment (hence your margin loan) in the sharemarket towards the top of the cycle, without a lot of thought to your future plans (going back to Uni). I understand your frustration.

    If you can successfully demonstrate that your planner has not taken your personal circumstances into account then there will be a complaints procedure that you can follow (all financial planners are legally required to have a procedure in place). This might be worth a shot, at minimum it might get you a reduction in the ongoing fee or a waiver for a while.
     
  11. Waimate01

    Waimate01 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    157
    Location:
    Sydney
    In my view most of the financial services industry is bordering on a scam.

    Here's some financial advice money can't buy (or at least won't buy):

    1) Invest in australian equity index funds (eg Vanguard) or buy shares in an ETF (ASX ticker code "STW").

    2) Invest additional amounts on a regular basis, especially when economic times are bad

    3) Don't "lane hop" - don't try to buy/sell and switch between things based on the notion that you've got better insight than most other people in the world. Just sit tight and make regular additional investments.

    4) Don't borrow money to invest

    5) If you've got a mortgage, pay that off first before you do *any* other investing because it's the best guaranteed after-tax return you'll ever get.

    6) Do get an accountant. Not a "tax agent" like H&R Block, and neither a big accounting firm. Get a local suburban accountant.

    7) Make sure your super is in an industry fund (eg SunSuper), and make additional contributions so that 15% of your income is going into super (ie, add your own 6% on top of your employers 9%). Do not exceed $50k per year.

    8) Work hard, live modestly, keep your expenses way below your income, invest the rest.



    There you go - no financial planner required, no ongoing fees, no scam. You'll do about as well as everybody else, and probably better than the majority of them. And you've just saved yourself thousands up-front and ongoing.

    -- Ian
     
  12. C3PO

    C3PO Well-Known Member

    Joined:
    28th Feb, 2008
    Posts:
    102
    Location:
    Adelaide, SA
    Ian

    I agree with most of your post, except for:

    1) Listed investment companies are OK too (there are several on the ASX, think Argo, Milton etc)

    2) I think it's OK to borrow money to invest provided it is kept within sensible limits. Our tax system is geared to reward people for doing so.

    Otherwise I think you are spot on :)
     
  13. Waimate01

    Waimate01 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    157
    Location:
    Sydney
    Thanks for your agreeance, C3PO. I kinda expected to be howled down !

    The only reason I suggest no debt to the newbie investor is that the way debt is discussed in the general press tends to disguise the fact debt is an amplifier -- it amplifies gains and it equally amplifies losses. It's irksome enough to lose your money, but to lose money you don't even have -- well, that's where people can tend to *really* come unstuck and deal a fatal blow to their financial wellbeing.

    I guess I was just trying to codify a simple bunch of parameters which would steer someone in a safe and productive direction.

    Of course you're asbolutely right about sensible limits of debt. But it might be hard for a newbie to judge where the line lays. You hear of people who have a dozen investment properties all stacked up like, erm, a house of cards.

    Where to draw the line in a simple heuristic manner? How about this:- don't borrow money for shares, but ok to borrow for an investment property but never more than two in debt at a time?
     
  14. builder2818

    builder2818 Well-Known Member

    Joined:
    31st Dec, 2008
    Posts:
    89
    Location:
    Sydney
    I think seeking financial advice can be a good thing if you don't know much about investing, but there are alot of advisors out there who really try to push products onto to you as well as giving you advice.

    My adviser is like this (not for much longer). I keep getting told I need numerous different types of insurances and the ones I have I'm told are not the full cover I should have, when its written down in plain english what I am covered for. When I say I don't want to go through all the paperwork he says I will do it all for you if you sign. Also if I don't have the money for the premiums he suggests we stop making additions to my investment to pay for it.

    I think alot of my resentment toward advisors has to do with the financial crisis.......but I can't stop thinking and being angered by the fact that I have paid thousands in fees and lost thousands on bad decisions, only to pay more in fees when the next year comes around and my money is worth alot less.
     
  15. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    Hi Builder,

    I am wondering how your existing adviser is going to fill out the Personal Statement for the insurance app. They obviously don't know your medical history. These are the sorts of advisers that are product based rather than strategy based. Be aware of these advisers.

    It's always a good idea to ask your advisers background, experience and qualifications.

    Cheers,

    Dan
     
    Last edited by a moderator: 1st Jan, 2009
  16. Andrew Newman

    Andrew Newman Well-Known Member

    Joined:
    5th Nov, 2008
    Posts:
    175
    Location:
    Melbourne
    Simple answer: find a new financial adviser or do it yourself.

    If you require financial advice, find a financial adviser that meets your needs and that provides value for money.

    If you want to do it yourself, tell your financial adviser you are not happy with them and sack them!
     
  17. 1300 GET A PLAN

    1300 GET A PLAN Active Member

    Joined:
    2nd Aug, 2008
    Posts:
    37
    Location:
    Gosford, NSW
    Builder, have you got any friends or colleagues that have a financial planner they are happy enough to refer you to? Referrals are a good way to find another financial planner. It sounds like you are ready to move on.

    Ian. I'd make point number 1 Set your Goals..... What do you want to be worth by XXX date. And then go into a lot of details as to how this will feel when you achieve the goal. What will it feel like if you fail to achieve this goal. etc etc.

    Then move the rest of your points down.

    I retired after 10 years of hard work, heavy borrowing and smart investing in the first quarter of my working life. 80% of financial freedom is in the psychology of WHY in section 1 Goal Setting. In my opinion that is the most important part of achieving financial freedom. Otherwise people buy crap/get bad debt to give themselves short term pleasure.

    You could go into a lot more detail, but as you said, that's a good start. Once someone has mastered that they could educate themselves more and/or find a financial planner worth their weight in gold. Good work.

    Cheers.
     
  18. builder2818

    builder2818 Well-Known Member

    Joined:
    31st Dec, 2008
    Posts:
    89
    Location:
    Sydney
    I was referred to this guy from a friend.....he's feeling the same way as he was referred to him by someone else. You're right I am ready to move on. I am just waiting for my online trading account to be set up and then I am going it alone.

    I guess a positive thing to come out of this is I have become interested in wanting to learn more about investing and I would like to go about it on my own and see how I do. I would love to be able to be in the same fianancial situation as you in 10 yrs.....but if it takes longer, I don't mind - i'm confident I will get there eventually.
     
  19. Iaminsydney

    Iaminsydney Member

    Joined:
    22nd Jan, 2009
    Posts:
    7
    Location:
    Sydney
    Not all advice and advisors are the same (look)

    Alpha
    EVOLUTION
    Scaleable Differentiation
    with Innovative Investments

    Current markets – what we know
     Investors are experiencing losses in portfolios
     Volatility still high in equity markets
     Some investors looking for when to get back into the market
     Advisers looking for appropriate opportunities for investors
    who are ready to start to “rebuild”

    What are the options

     Sit on the sidelines and wait until it is all over

     But…

    “…the market will move higher, perhaps substantially so, well before either
    sentiment or the economy turns up. So if you wait for the robins, Spring
    will be over”, Warren Buffett, New York Times, 17 October 2008
     So perhaps…

    Use the current volatility in markets to create an opportunity

    EVOLUTION – key features

     Linked to basket of blue chip shares

     Guaranteed high return through 1 year term of investment –
    paid monthly

     Income is generated through derivative overlay using market
    volatility provided by Issuer UBS, investor though has no
    direct derivative exposure

    EVOLUTION – key features
     Limited capital protection, to 60% provided by Issuer, UBS
     1 year term
     Delivery asset is the best performing share in the basket

    EVOLUTION – stock baskets
     Three Baskets to choose from:
    Banks – Series 1
    Resources - Series 2
    Diversified - Series 3
    ANZ / CBA / NAB / WBC
    BHP / RIO / WPL / ORG
    BHP / NAB / WES / QBE







    Min Periodic Payment Rate



    Banks


    Resources


    Diversified

    EVOLUTION – limited capital protection
     Limited capital protection, down to 60%
     If none of the shares in the basket drop more than 40% -
    investors get their $1 back, delivered in the best performing
    share
     If one or more of the shares in the basket drop by more than
    40%, investors still receive as delivery the best performing
    share but to the value of the worst performing share


     Issuer:UBS AG Bank


     Fees:paid out of the cost of the product
    - 1% plus GST adviser fee
    EVOLUTION – FAQs


     Yes, you can elect for cash settlement

     Yes, it is an open ended product with weekly pricing
    availability
     Post the Initial Offer Period the unit price provided will move
    in line with the markets to provide pro-rata income for the
    fixed rate until the Final Maturity Date

    EVOLUTION – who is it suitable for?


     Investors seeking primarily income from their investment


     Investors seeking opportunities in current markets and are
    looking to make up for portfolio losses


     Are seeking the capital protection down to 60%, if held for the
    one year term


     Are comfortable to hold blue chip shares as the deliverable
    asset at the maturity date with potential downside risk


    EVOLUTION : EVOLUTION
     
  20. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    "Alpha EVOLUTION is designed for investors who are comfortable taking the downside risk of buying shares at today’s prices: they will receive the high EVOLUTION coupon in place of any upside and have some limited capital protection."

    It looks like they are selling options...

    I'm not sure how they can quote Warren Buffet when there is no upside/capital growth which is why he invests in businesses, only income through selling options with the downside risk...

    If investors wanted better income and to participate in the upside of the stockmarket they would be looking at the Zurich Equity Income fund http://www.zurich.com.au/zportal/cs...here=1195684653610&blobheader=application/pdf

    Cheers,

    Dan

    PS This is general information and not a recommendation to buy, sell or hold any investments. Speak to your FPA registered Financial Planner before making an investment decision.