The source of financial stress

Two years ago I wrote about relieving financial stress for Stress Down Day.

Fellow financial educator Carl Richards of Behavior Gap just released a new diagram that summarises one key source well:Circle-Stress

One value of financial planning is in removing the uncertainty and replacing it with clarity of direction and the confidence to act.

So if you’re tired of constantly thinking about and even stressing about money related issue then I recommend you invest in professional financial planning advice.

P.S. Carl writes some insightful articles about how our behaviour impacts our financial situation. I recommend you consider subscribing to his newsletter.

What price for financial advice?

Two days before Christmas the Australian Securities and Investments Commission (ASIC) released an interesting report into the financial advice industry titled “Access to financial advice in Australia“. There are many interesting insights in the report – the one I will highlight today is the cost of delivering financial advice.

In conducting the research ASIC “surveyed 35 holders of an Australian financial services (AFS) licence (licensees) selected as a sample of the personal financial advice industry“, as well as more detailed discussions.

The ASIC research reveals that “Licensees reported an estimate of the cost of providing comprehensive financial advice to a client in the range of $2500–$3500.” (para 171, page 42)

The report does not go into greater detail but I suspect that cost estimate does not include the cost of providing support in implementing the advice. That would be an additional cost to licensees. I also suspect (know) that more specialised advice and complex client situations have a higher cost to deliver the advice.

No business owner interested in staying in business wants to sell their services for less than it costs them to deliver them. In fact to reward them for the risks of entrepreneurism they need to add a profit margin above the cost. (Many professional service industries target a minimum profit margin of 30% in order to be sustainable and rewarding.)

So in shaping your expectations of what advice will cost you (“the price”) keep in mind what it could actually be costing the adviser to deliver it to you. By quoting you a fee in the thousands they are not having a lend of you, they are just trying to stay profitable.

ASIC noted in summary  “Overall, it appears that the costs of providing financial advice are much higher than the average amount consumers are willing to pay.” (para 169, page 42)

That is no surprise to anyone in the industry. But it is a big problem as it means that many people miss out on getting great advice because we as an industry traditionally haven’t clearly articulated the value of advice. But the value of advice is a topic for another article.

An example of how DIY is costly

Do-it-yourself financial planning can be costly because often you don’t know what you need to know.  With a litte more knowledge you would make a more informed financial decision that can both save and make you money.

This was clearly illustrated in my conversation just now with one of the other tenants in my office building. Let’s call him John…

John’s DIY Superannuation Strategy

John mentioned that about 18 months ago he had cancelled his salary sacrifice into superannuation because, with markets falling the value of his contribution reduced soon after being made. Now that markets have recovered substantially he is going to restart his salary sacrifice.

That all sounds reasonable, right?

Well it was a costly decision and not because of the market movements.

The bit John overlooked…

One of the main benefits of salary sacrifice to superannuation is that you save tax on your gross income. By cancelling your salary sacrifice you end up paying more tax.

I asked John “did you know you could’ve directed your superannuation contributions into a cash investment rather than your former investment option?” Clearly he didn’t know that.

John could’ve kept saving tax by continuing to salary sacrifice to superannuation. In addition he could have avoided losing money on the contributions by directing them to a cash option.

Asking a smart financial adviser before changing his strategy would’ve meant John was wealthier already. The advice fee would’ve been quickly covered by avoiding a costly outcome.

If you, like John, didn’t know you could do that in your superannuation then I am pleased you have read this article. Ponder this: is it possible there are other things about superannuation you perhaps do not know that could be making you wealthier?

If you don’t know how, just ask

Perhaps the next questions that may pops into your head is “how?” How do you direct your contributions into cash but keep your existing balance invested and positioned for recovery?

Well, there are plenty of low cost, value-for-money superannuation products that have that facility. (Hint: they are generally not the industry funds who spend your money on advertising.)

Just ask your financial planner to review your superannuation account. Call me for a low-cost quick super review to see if there are better value-for-money accounts available to you.

John may also have benefited by pondering this before he acted: by what percentage does your investment in superannuation need to fall so that your “loss” equals the extra tax you would pay at your marginal tax rate (by keeping the contribution outside of superannuation)?

Do-it-yourself financial planning can be costly. Great financial planning advice will minimise your downside as much as maximising your upside. You’ll only know when you give it a proper go by hiring a true financial planner (like me, of course. 🙂 )

Latest Research: You Save More by Paying For Financial Advice

Want to save more money? Then pay for financial advice. That is the one of the findings revealed in this latest research by KPMG/IFSA. Clients of financial planners on average save over $2,400 per year more.

To some people it is a statement of the bleeding obvious to say that getting financial advice is an investment not a cost; you make more than you pay.

However, I know from talking to people after my seminars that when they are struggling to save money they also mentally struggle to pay for support in creating better behaviours.

What we professionals and our clients have know for decades has today been confirmed by research – clients of financial planners save and invest more for their future lifestyle.

On average clients “save an additional $2,457 each year, compared to a similar individual who does not have a financial planner.”

Source: KPMG Econtech research for IFSA (Investment and Financial Services Association).

Personally, I charge less than that amount for my Cash Flow Coaching program, which is just like having a personal trainer for your saving. Clients typically get control of where their money goes, accelerate their debt repayment and start saving for important lifestyle goals.

When you consider how much interest you save on your credit card and other debts then cash flow coaching delivers a very immediate return on investment by boosting your savings.

So if you are a little financially unfit enlist in a boot camp for your saving. Call or e-mail me now to join my cash flow coaching program.