To create wealth is it better to do it yourself or outsource? Is an active approach better than passive? If you do outsource some parts, how do you know what to outsource?
If you are wary of your financial adviser being biased by commissions then you will want to work with an adviser who charges fees and rebates commissions to you. But according to new research released today such an adviser may be hard to find, with only approximately 1 in 10 Australian financial advisers focused on charging that way.
The research by Investment Trends found that just 11 percent of Australian financial advisers now derived a majority of their revenue from pure fee-for-service models. (Read more here.) Some good news is that this number is increasing.
One very interesting result from the report is that: “those planners with over half their revenue derived from pure fee-for-service were likely to spend more time discussing planning for financial and lifestyle goals…”
To me financial advice and wise money management is not actually about the money – it’s about the lifestyle that you want money to facilitate.
So if the first questions you want your adviser to ask are about you and your lifestyle goals, and not about how much money you have to invest, then this research suggests you should seek a financial adviser who charges fees. That way you are more likely to find one who will ask you about your goals.
Don’t know where to start? Then start by finding advisers whose licensee is not owned by a product provider. That will eliminate about 80 percent of the market.
(This is not to say there aren’t exceptions to the general guide, but if you want a clear path through the maze then this is your quick start approach.)
Released last Friday, the February 2008 edition of The Australian Financial Review Smart Investor magazine announces the 2008 members of the annual Masterclass for Financial Planning. If you are seeking financial advice but unsure how to filter the thousands of financial advisers into ones you can trust to know what they are talking about, then this list is a great place to start.
By now your sub-conscious may have triggered that I may be writing about this because I am on the list – and you are right.
For the third year I have been acknowledged as one of Australia’s Top 50 Financial Advisers. Read more about the AFR Smart Investor Masterclass 2008 here.
About one in six Brits has received bad financial advice from their friends and family and have suffered financially and emotionally as a result, according to new research from the specialist mortgage provider (Birmingham Midshires)Almost one in five (17%) wasted a lot of time in the process. Just over one in 10 (12%) admitted that their relationship with the person who gave the advice had deteriorated. A minority of those questioned (4%) lost an asset such as a house, a car or another belonging of value.(Read the full article by Lorna Bourke here on CityWire .)
The results of this study reinforces the message of the “Dazza” commercials run by the Financial Planning Association of Australia in 2005. (View all three videos here.)
Following advice from unqualified people, no matter how well meaning, is high likely to be inappropriate for you specifically.
Here are some reasons why:
- The unqualified person may have much broader knowledge than you but it is probably not broad enough. They have probably only researched strategies and products that broadly fit their needs and goals.
- On the surface of what you each publicly share there may appear to be similarities between your situations. But it is in the depths that the subtle nuances appear. In truth your needs are probably vastly different to theirs.
- Human nature results in us generally crowing about the upside and the benefits while glossing over the potential downside and risks. You need to have a full picture and make an informed decision.
Do yourself a favour – save time, emotional energy and money by seeking good advice from a fully qualified and licenced financial adviser.
Socially when I speak to people who have never seen a financial adviser, and are still reluctant to do so, one of the main reasons has been that they don’t see any value in using a financial adviser. Sometime they sense that an adviser delivers some benefit but that those benefits don’t outweigh the costs and therefore don’t provide enough value. Does that sound similar to your view?
Almost everything that we do, buy and enjoy in life is facilitated by money. So, the benefits of a solid financial foundation are far reaching in our lives. Conversely, the cost of inadequate financial management can have a deeper impact than you may be aware.
A Financial Adviser partners with you to help you reap the rewards of a solid financial foundation. You could do it yourself if you invested the time. A Financial Adviser acts like a coach to help you achieve the benefits quicker and easier than if you did it yourself.
The benefits of financial advice are both tangible and intangible. In fact, in my experience of working with clients often it is the intangible benefits that have been the most important.
On my corporate website at FINDRE I have published a detailed article about the tangible and intangible benefits of financial advice. If you are interested in partnering with an adviser but first want to learn more about the value of advice I encourage you to read the article now.
If you paid your financial experts solely on the basis of a percentage of the benefit to you of their recommendations, what percentage would you prepared to give them?
I just had a conversation with a client who I sense is very fee conscious. Fee appears to be the major, initial focus and by comparison benefits seem to be almost overlooked. Conversion of my dollar based, fixed fee to a percentage of tangible benefit was one of the things discussed. (That’s ignoring all of the intangible benefits of advice, which you can check out here.)
If a financial adviser recommended a strategy to you that gave you a benefit of $10,000 this year how much would you be prepared to pay them for that advice? Would you consider a 60:40 split (i.e. you pay them $6,000)? Or would you be prepared to share more or less with them?
Having now voted please consider this analogous situation. How much of your employer’s total revenue (income) do you expect them to pay in total wages to their work force?
Is it reasonable to set the split exactly the same as the split you suggested above, or do you think it is more reasonable to be higher or lower?
In considering your answers to the questions I have posed you may find the following statistic interesting. It is my understanding that on average around 30% to 35% of total revenue is spent on remunerating and rewarding the workforce.
Does that change your answer at all?
Do you have investments, superannuation accounts and/or insurance policies sitting around? If you’ve had them for years then it’s quite possible that some company somewhere is receiving an ongoing (trail) commission from that product, and you possibly don’t know who they are.
If you’ve had no contact from them then they are just receiving the commission rather than earning it. Would you like to reclaim that money and put it towards your own wealth creation?
Here are the steps I suggest that you take to reclaim lost trail commissions. They are in a specific sequence:
- Contact the product provider and find out the contact details of the adviser appointed to your account/policy. Also ask the level of upfront and ongoing commission they receive at the moment. This is likely to be a percentage figure. You will find the contact details of your product provider on your latest statement.
- Contact the appointed adviser and ask them to define the level of service that you are eligible to receive in return for the income they have earned from the commissions. Plus the service you will continue to receive if they remain the appointed adviser. (Here, I strongly suggest you call with a tone of genuine enquiry rather than an adversarial tone.)
- If you are not satisfied with the existing adviser find a fee for service financial adviser who will either rebate the commissions or offset them against their quoted fees. You can use the Financial Planning Association’s Find A Planner service. Or contact me as that is precisely how I operate.
- If you are a die-hard do it yourself wealth creator who doesn’t even seek fee for service expert assistance then you may be interested to know that there are now a few discount brokers who will rebate most of the commission to you. You appoint them as the adviser to the policy and they send you a cheque. You can find out about two such discount brokers in this article published yesterday in the Sydney Morning Herald.
Update: I have compiled a public list of commission refund services. Follow the list using your Google account and you’ll be automatically advised whenever I come across a new provider.
If you do choose to use a discount broker and receive a rebate cheque then be sure to use it to boost your wealth creation by reinvesting it.
The financial advice industry is still evolving and consequently there are lots of different ways that you will pay for the education, guidance and advice that you receive.
Prior to seeking advice it is a good idea to be clear on what type of advice you are seeking and also to get a handle on the diferent ways you could be charged for that type of advice. To help you obtain a snapshot of some common fee for service charging models I recommend you read this article from The Australian newspaper.
In my opinion there is no single best way. You must agree with your adviser a charging method that you feel is appropriate to the type of service they are providing.
That said I am fascinated to learn how you would prefer to pay for financial advice, of any variety. So please let me know your preference by leaving a comment below. (You can choose to be “A. Nonymous”)