confessions of a financial planner student

Indeed, thanks for the link!!!

Most FA/ planners remind me of the insurance salesman of yesteryear, out to advance their own cause at the expense of their clients. The unfortunate thing is that most people need them as without these people they wouldn't do anything.

Just to illustrate how poor an investment they actually recommend this is part of the article. Note the affect that fees have on the investment

The impact of fees and charges is mentioned here and there but nowhere (neither in module Investment Planning 1 or in module Investment Planning 2 or any other module I have looked at) is there a discussion of the impact of fees and charges over time.
There is a lot of discussion of diversification, because managed funds are more diversified. "If a client owns shares directly he or she should sell them to invest into a diversified fund"; I gagged when I read that. There is no discussion of the trade-off between diversification and fees and charges. The more you diversify, the more you pay.
You pay the least when you own shares directly. You pay substantially more when you own an index fund. You pay a third of your assets every 20 years when you own an active fund, assuming 2 per cent a year in fees. If you include tax, you lose another 1 percentage point a year at least. Now you are down to 54 per cent - you have lost 46 per cent to a convenient ideal.
Click to expand...


Cheers
 
Thanks for the link Macca.

It's an interesting and disturbing read.

I started a fin planning course a few years back, but only got as far as the equivalent of DFP 1. Aside from thinking the course material was purile compared to the other course I had recently finished (MEc), what put me off continuing was the more I looked at the fp industry the more I saw fins and sharp teeth.

M
 
Sure the FP training could and certainly should be more rigorous...don't disagree with that.

Should direct property form part of your financial strategy?...For most people the answer is yes I suspect.

Does everybody need a financial planner? Probably not. The members of this forum are, by and large, reasonably financially sophisticated in my view.

Can excessive diversification = diworsification, absolutely. Perhaps it's a case of finding an adviser whose investment principles match your own. But the vast majority of the population couldn't tell you the difference between a good and a bad investment.

Are commision based fees ideal? No, but better that than people go unadvised in my view. For some people it's the trade off so they don't have to fork out several thousand dollars in up front fees for advice. Curiously, many people are just not prepared to pay for good advice, but I suspect many will end up costing themselves lots of money through lack thereof.

I think personal risk insurance is a classic example of this.

Given most members of this forum are avid property investors I guess most of us have fairly substantial debts.

If you've got substantial debts, you should have income protection/ business continuity insurance and probably some trauma cover to help manage the scenario where you're unable to work and thus to service the debt. Some death cover to help your family out by clearing some or all of the debt is probably not a bad idea either.

I suspect the percentage of people on this forum who have adequate personal risk insurance is (like the rest of the population) very low.

If an insurance adviser said to you "it will take 3-6 months and will cost you $5000 of my time to get you medically underwritten and insured" most people would probably say it was "too expensive". But if the adviser can do the work and cost the client nothing up front then it becomes a much easier decision for the person to agree that insurance is necessary.

Does the client pay for it? OF COURSE, but the cost is amortised over their monthly premiums for the next 20, 30 or 40 years. Does that mean they will end up paying more? Well probably, but how much more depends on the level of ongoing service and review they receive from their adviser. Service which is being paid for by that ongoing trail...

Horses for courses. But given the woeful state of financial education in this country, and in particular the massive under insurance of most people, I think that if a deferred payment arrangement (which ultimately is what the commission and trail system results in) means more people have sufficient insurance then I think that's a better outcome than missing out on essential advice and protection.

No industry is perfect but the commission system only exists because many clients will not pay for their advice at fair hourly rates. Perhaps it will slowly move to pure fee for service, but I think that could have the effect of discouraging more people from getting advice they really need.

Cheers
N.
 
Interesting post Nigel.

Personally I think it is an industry that will always be viewed in less than favourable terms.

Above all else, I think that because it is such a grey area.

I mean, who is to say what is bad advice, what is good advice, what is great advice?

And how can any financial planner have a handle on all the options (how many hundreds of MFs are there??).

M
 
I think you've hit the nail on the head Pitt St.

It's only with the benefit of hindsight that you know whether an investment has turned out well, poorly or spectacularly.

For example, if someone had suggested investing in a little software company being run by a couple of geeks 20 years ago then it would have been laughed off as pure speculation. But look at the global giant Microsoft now...

Many of the best investments are the ones that have significant upside AND downside risk...

Given that, perhaps advisers can be forgiven for advising things that are safe, middle of the road options, AND most importantly which MATCH THEIR CLIENT'S DISCLOSED TOLERANCE FOR RISK.

We can't all be serial entrepeneurs...

Cheers
N.
 
Thanks Macca. Sometimes the media publishes gems and this is an example.

Just this afternoon I was discussing these topics with a colleague (after our boss found out that I was a 'property baron' and I found out he was one too).

My colleage isn't into direct property (yet) but understands compounding and wants a certain amount put aside each month. Because he lost some money in Pyramid he most certainly undersands the relationship between risk and return!

He was thinking of managed funds, possibly through the same company that does his super. I suggested he investigate listed investment companies, with shares purchased through a broker.

He was worried about loss of capital, so we talked about all the things this could be prevented (due diligence, spreading investments, different asset classes, etc). But that cash earning 6% interest ends up being 1.5% after tax and inflation).

The article explains many of these topics better than I would have, so I'll forward it to him.

Peter
 
Tell you something funny. There is a suburb of Melbourne which has some very nice real estate called Templestowe. Some of the stuff there just oozes with wealth. Anyway, a family friend lives on one of the more "exclusive" roads of Templestowe. Now I'm not saying that where they live is undesireable, it's very nice in fact. But their home is certainly not in the "I have big money" catergory. Which is fine with me; rich people behind big fences, blah! But what I find so interesting about the whole situation is the profession of this person.

Have a guess...

Financial planner.

So if you want to have the money to buy something like this or this, are you going to ask a financial planner, or are you going to maybe ask someone else?
 
Thanks for the link mate. More people should be made aware of some practices in the financial planning industry. Being as leeching as they may prima facie appear, unfortunately you need to have them. Some good ones will provide excellent strategic portfolio advice. Would you be able to do better? At the end of the day, you don't have to take their recommendations but at the same time you need to balance that with them needing to make a living off your investments. Unlike direct property, there are a lot of layers wanting risk free income from your risk taking. Unfortunately issuers/fund managers are compelled to provide incentives to planners to promote their services seeing 90% of managers DO NOT beat benchmark looking over a 10 year term net of performance and admin fees. Its all part of life and we just have to use the system to suit our needs. Eg. pay a planner to get a plan done for you then you can replicate the investments yourself with 0% up front fees or even obtain a rebate cos you're dealing direct. If you like to be an arm chair investor, then you reap the fruits you sow.
 
the horror ...!

Thanks for the link. No real surprises here for me. Been there done that - got the t-shirt. A very big broom needs to be put through the 'industry'. A colleague at work the other day was telling me how pleased she was with her managed funds and platform. What her advisor didn't tell her was that through her own industry super fund she could have invested in funds without any entry fees, low expense ratios and no advisor fees. Her balance in the platform too (about $100 000) didn't really make much sense to me. You need about 250 to 300 to make the fee drags work. The industry funds by the way had outperformed her platform funds ... and this is before any fees etc.:eek: There is also a gearing option available with the industry fund. I'll make sure she's sitting down when I give her this to read. Best, Gabriel
 
There is also a gearing option available with the industry fund
Gabriel, Will QInvest be able to assist with this option ?
Thanks.
 
Spiderman said:
He was worried about loss of capital, so we talked about all the things this could be prevented (due diligence, spreading investments, different asset classes, etc).
Click to expand...

Peter, don't forget "Stop Loss". That is the most important thing to understand IMHO (having being burnt myself by not having it in place).

cheers :)
 
At this ppint it may be oppurtune to remind everybody of the alternative to using financial advisors. This was highlighted by a member 'andrew' some time back in the following post.


http://www.somersoft.com/forums/showpost.php?p=216160&postcount=298

The interesting aspect of this organisation is that you can move the 'management' of your current funds to this organisation and cap your fees.

This organisation would not necessarily be for those people who 'need' financial advise. But, to me it would seem ideal for anybody who can organise themselves and who doesn't need the handholding that a FA provides.

Cheers
 
Hi there Salsa ... The last time I spoke to someone at QInvest they told me there was some type of gearing option. I guess a quick phone call could confirm this for you. I hope I'm not missing something, but the industry fund options look very attractive. By the way, the work colleague who has the $100 000 with a well known platform also has a few investment properties. She told me that she knew nothing about funds but wanted to diversify. I just figure that if she has a good portfolio already in property, she may have been a little more knowledgable in this other area. Goes to show I guess how easy it is to go off the track. The $100 000 she put in is not borrowed $$, but compenstaion from a work or traffic accident. Best, Gabriel
 
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