Welcome to Finance and Fury, the Say What Wednesday Episode, where every we answer questions from you guys!

This week’s question comes from Nelson,

“Hi mate, Love the podcast. Admittedly don’t agree with some of your more conservative political opinions but that aside I think the financial education you are providing to many people including myself is amazing. I have a question for Say What Wednesdays, something probably quite close to your heart.

Can you please elaborate on the role of a financial advisor/planner. What do they do? Do you have to pay them up front? And, as a 24-year-old would it be suitable to go see a financial planner from the beginning of my journey or are they more targeted towards older people?”

Awesome questions! And thanks also for sticking with the podcast even though we may have different political points of view.

It’s really nice to see, because there seems to be a lot of people bail on others, just because there’s one thing they don’t agree with.

For anyone else – if there’s anything you disagree with please let me know! I really like to hear other points of view as I might be missing something or haven’t thought about, so any feedback would be greatly appreciated.

To the Questions: The term Financial Adviser/Planner can be fairly broad which is why there is a bit of confusion about our roles. Each firm does have different methods of providing advice, and different ways of charging fees which further complicates things.

The Focus of Advice; What Advisers Should Do

Advisers SHOULD focus on helping individuals achieve their individual financial goals

  • How well this is done does vary – giving the industry a pretty well-deserved bad reputation.
    • Reports of ‘self-interested’ advisers. This might be inappropriate advice for customer given just so the adviser can benefit.
  • The main focus should always be on how to achieve each client’s objectives
  • The advice provided to younger individuals should focus on setting up some foundations for building wealth over time, and achieving lifestyle goals such as buying a house.
  • For someone who is 60 and looking to retire, the advice should be around strategies for funding income passively after they finish work.
  • Cookie cutter advice for everyone, regardless of their situation, has landed some advisers in trouble with ASIC as the advice is not always the most appropriate for the individual’s situation.

The Process

The process and the type of advice varies between advisers

  • Advisers’ process can vary but it generally involves at least 2 meetings, where one is a “Fact find” meeting, and the second is a presentation and explanation of the financial plan (called a “Statement of Advice”).
  • My initial process involves meeting with clients (either in person or online) to complete a fact find, where we work out what people want to achieve financially (short and long term), looking at what they have to work with now, and then ways of achieving this.
  • Research and prepare strategies that will help to achieve these goals. These strategies are discussed with the client in a second meeting.
  • The advice is then finalised and presented again with the chosen strategy in a third meeting.
    • Advice is then implemented and reviewed regularly – I prefer to think of it as an ongoing relationship
    • This is why it is important to get along with and trust the person, which is a difficult initial step to take.

Costs

In most cases, initial consultations are at no cost.

  • Advisers will either charge a fixed dollar amount or a percentage of the funds invested / under management.
    • Upfront initial advice costs, and then ongoing annual costs (“Upfront” and “Ongoing” Fees)
  • Percentages – these advisers don’t normally want to see younger/low balance individuals
    • It isn’t very profitable when there is a low or no balance to charge a percent against.
    • This is how all of the industry used to charge, up until the past decade – plus product providers used to pay percentage commissions on the balance of funds invested to the adviser (up until 2014).
    • This is also where the reputation came from that advisers only want to see older clients, as older clients tend to have the largest balance out of the demographics to target.
    • Savvy tip: If an adviser is charging a percentage of funds invested as their upfront fee, invest a lower amount upfront and then contribute funds later – $1m to $50k, at 3% ($33k to $1,650)
  • Flat Fees – Typically charge based on the level of services provided
    • Strategy, product, meetings – this all depends on the specific firm as to what is charged
  • Percentages are slowly dying off
    • Fee Disclosure Statements (FDS) and Opt in regulations
    • This is what sparked a lot of the Royal Commissions – Advice business provide letter with $ and clients have to opt in every 2 years
    • People were getting a letter in the mail showing they had paid a few hundred (or thousands!) to someone you don’t know was charging you.

When to see an Adviser

  • In my opinion, it is always better to start thinking about setting your finances up sooner, rather than later.
  • At 24, you have around 36 years to work towards your retirement (assuming you want to work till 60).
  • Knowing what you need and what you are on track to achieve is the first step, as it gives a long time to close any gaps. The longer the time, the easier it will be to achieve.
  • Example: $80,000 of passive income needed = $1.6m invested earning 5% (assuming no tax, just for simplicity)
    • 36 years’ time = $194,602 (future value) needed = $3.9m invested
  • Projections
    • Perhaps you see you’re on track to get to $2.5m by 60: you’d prefer to know now, so you can start to invest the $545 p.m. now to begin closing the gap of $1.4m
    • Opposed to being 55 years old with $2m and needing to invest $18,600 p.m. to close the gap in 5 years
    • 7 times longer requires 5 times less in contributions due to growth

Is advice for you? – Knowing what you are trying to achieve is better

  • Depends on how committed you are
  • Depends on how time poor you are – Some people love to DIY which is great, but sometimes life takes over

 

Thanks again for the questions!

Is your money safe in the banks?

 Welcome to Finance and Fury, the Say What Wednesday edition. This week, two questions – both from John’s about banking system security  -   First John: I know you’ve spoken about this before, but would be interested to hear about if you think there could be liquidity...

Say What Wednesday: Australia’s National Debt Crisis – a ticking time bomb

Welcome to Finance & Fury, the ‘Say What Wednesday’ edition. Today’s question comes from Brad, “Any chance you could do a podcast on Australian foreign debt? Is it possible to pay it off? Will paying it off have a negative effect on our economy? Are most or all...

The Weapons of psychology politicians use to win your vote

Welcome to Finance and Fury The election has been set for the 18th of May The marketing has been coming in and it has been pretty forward with the smear campaigns It seems like a lot of it preys off people not understanding how the economy works, and there is nothing...

Who controls the World Bank and why do they seem to do more harm than good?

Welcome to Finance and Fury, the Say What Wednesday edition. This week’s question comes from Francesca. “I have really liked your podcast on the pandemic bonds, I had read about these bonds maybe a month ago in The Economist. My question after listening to the podcast...

Is it worthwhile to invest in defensive Managed Funds or ETFs?

I hope you are going well and welcome to Finance and Fury – In this episode we go through the second part of a question from David – that is: Are the cash assets that held in managed funds or etfs equivalent to holding cash in the bank? If so, instead of investing in...

Furious Fridays: The price of free is freedom – Taking a look at Lenin’s reign of terror

Furious Fridays The price of free is freedom: Taking a look at Lenin's reign of terror Today we’re going to run through the very first implementation of Communism on a mass scale. Our last few Furious Friday episodes are a lead up to this. If you didn’t catch those...

How accurate are economic statistics and do they really matter in our daily lives?

Welcome to Finance and Fury, the Furious Friday edition. Today we’re look at if economic data really means anything. I was thinking – and do any of these numbers really matters to you? Or even to me? Think about this – talk about a lot of the metrics – GDP, Inflation,...

Where to invest in a post election world?

Welcome to Finance and Fury There is a saying that goes hoping for the best but planning for the worst. With the election around the corner, for those wanting to make it for themselves and create financial security may be in for a bit of a shake up Today I want to...

Say What Wednesday: The best way to save for your children

Welcome to Finance & Fury, the 'Say What Wednesday' edition, today we have a question from Mila: Question We are expecting our first child very very soon, so what is the best way to invest money for your children, apart from the obvious solution of having a...

Eco-warriors are protesting for exactly what mining companies, Banks and the IMF want

Welcome to Finance and Fury, the Furious Friday edition Today is a Bonus episode on most recent series – Current events unfolding – Extinction Rebellion – Today focus more on the economy - Talk about How eco-warriors will collapse the economy – a self-fulfilling...

Pin It on Pinterest

Share This