10 FREE Tips Your Financial Planner Doesnt Want You to Know

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  1. Make a Will
  2. Choose a credit card with no annual fee, low interest rate, and a long interest free period (eg: 55 days) as credit cards with an annual fee and a rewards program often have higher interest rates and are rarely worth having
  3. Always pay off your credit card balance before its due (with cash not another credit card!)
  4. Take out a basic level of Private Health insurance to cover you for dental, optical, physiotherapy etc
  5. Get Life Insurance if you’re married, have kids or other dependents
  6. Make regular voluntary contributions to your Superannuation (retirement) fund
  7. Buy a house if you want to live in one, but only if you can afford the loan repayments if interest rates rise
  8. Keep 6 months expenses in the highest earning at call internet savings account you can find to cover for medical or other emergencies
  9. Invest the rest of your spare cash regularly in an index shares fund and don’t touch it until retirement
  10. If any of these are hard to understand or you have special circumstances (retirement, existing loans/debts etc) pay a fee based financial planner to do the research and explain the options to you, typically first meeting free and then paying a few $1000 for a detailed customised plan to be created for you.

Don’t choose a financial planner with no initial fee who charges a percentage of your investment eg: 2% because they’ll take this commission from your money every year for doing nothing and probably get kickbacks from the company whose product they sold to you as well.

There are more tips to help you choose a financial planner at my new article:
Trustworthy Financial Planners Hard to Find: Commission vs Fee For Service

39 thoughts on “10 FREE Tips Your Financial Planner Doesnt Want You to Know”

  1. The ANZ is set to become the first of the banks to move away from commissions to a fee-for-advice payment model for its 330 financial planners, as consumer demand for more transparent fees gains momentum.

    The deputy chairman of the Australian Securities and Investments Commission (ASIC), Jeremy Cooper, welcomed the move, which follows a similar shift by AXA, MLC, RetireInvest and Financial Wisdom last year.

    Cooper says fee-for-advice requires planners to justify the value of their advice in a much clearer way than before. By contrast, commissions are harder for consumers to understand, let alone work out how much they will pay in the long run.

    Excerpt from SMH & The Age article “You get what you pay for”

  2. Why would your financial planner not want you to know about the first 9 items? They are great advice and I would and do recommend them. Except for 9, should be a diversified portfolio (including index funds).

    10 is a whole different matter and is more complicated than you think. It can be cheaper to see a commissioned planner than a fee for service one if you only have small amounts of funds to invest.

    Its not about what fees you pay, its about the overall benefit after fees

    EDITOR: in the interests of full disclosure, judging by his email address (which is @1financial.com.au) Brett appears to work in the financial industry (not that there’s anything wrong with that)

    Regarding commission based planners the reason I don’t like them on principle is that a significant number make recommendations based on hidden kickbacks. If you rebate all these to your clients than I have no problem with your practices

    To see what I mean read the article quoted below: AMP caught out by regulators (ABC PM program):

    The financial services giant AMP is facing embarrassing revelations today [27 July 2006].

    The Australian Securities and Investments Commission has found that AMP’s network of financial planners used flawed advice to lure people into switching super funds, so the company could make profits, and the planners could make fat commissions.

    After entering a court-enforceable undertaking with the watchdog, AMP is being forced to restate advice to up to 7,000 customers. There may be compensation involved.

    Consumer advocates say it’s symptomatic of widespread problems with the industry, whereby commissions paid to middle men can corrupt their advice.

  3. The faulty financial planning advice scandal that ensnared AMP last year has enveloped 35,000 of its customers – five times as many as first thought … after an investigation found the company’s financial planners gave them inappropriate advice between November 2004 and July 2006.

    Excerpt from SMH article “Thousands more snared in superannuation scandal”

  4. Thanks for the advice on index funds. I had a broker who I realized was recommending high fee churn and burn funds.

    Needless to say I dumped him and am invested a little more sensibly now

    So out of curiousity, how do you choose which Index funds you are invested in. Do you do a wide spread across the market? Or do you focus on a specific area like Technology or overseas?

    EDITOR: In Australia the market leader for index funds is Vanguard (as in the USA to the best of my knowledge). No one else comes close to matching their fees and charges in the Australian market unless you have $100,000’s to invest in one go.

  5. In the South African Context
    South African Personal Finance editor Bruce Cameron’s 20 steps to financial planning

    1. Investment is for the long term.
    2. Get good advice from a well-qualified financial planner who is prepared to work on a fee basis.
    3. Structure your strategy on a financial needs analysis
    4. Get rid of debt and be very judicious about borrowing to invest.
    5. Decide whether you want capital growth or income or both.
    6. Understand investment risks.
    7. Decide on your risk profile.
    8. Diversify your financial investments.
    9. Understand how financial markets work in broad terms.
    10. Understand what drives markets.
    11. Understand the investment styles used to provide investment growth.
    12. Take account of the liquidity of an investment.
    13. Consider all proper guarantees, which really only come from the life assurance industry.
    14. Costs can wreak havoc on your eventual benefits.
    15. Be aware of tax.
    16. Compare investment products that are regulated.
    17. Only once you have followed steps 1 to 16 should you choose a product provider.
    18. Measure the results against benchmarks such as the indices over the medium to long term.
    19. Rebalance your portfolio if it no longer meets your required diversification strategy.
    20. Revisit your investment strategy.

  6. On the whole commissions paid to the middle man issue. Did you know that even if you dont use a planner and go direct to the fund manager, (re super, managed funds, pensions, master trusts), with many products you still pay the annual trailing commissions, but are kept by that Fund Manager. You can invest via a online discount fund broker whereby they may rebate the upfront commissions, but they still keep the trailing commissions. All in all, annual trailing commissions can be well hidden from the average investor.

  7. I agree to the points concerning insurance, saving and paying all the bills. But as for investments… it is very risky, to my mind. My general view of finance advisors is that they all cheat their customers, more or less. If you use special books or sites for free plus your own brain, you will gain more.

  8. i am sure that this is the most useful guide i have found so far. You also forgot to add a option to shop around for the best deals in financial products

  9. When come to financial planning, unfortunately most of the financial planners in the market just deal with a particular issue at a time. They are either ‘specialise’ in insurance or managed funds. They do not look at client’s overall financial circumstances. They are happy to take commissions (trails) every year and it is encouraged by the dealer groups too.

    I have the pleasure of working in a firm that takes financial planning serously (after a few disappointing experience). The planners are fees-for-services and they are seriously at helping clients achieving their financial goals. We address all the issues you mentioned above (of course, some with different of opinion) plus more, and the clients walk away with the knowledge that they are in working hand-in-hand with the planners towards the same goal.

    EDITOR: Good to hear that you work as an ethical financial planner 🙂

  10. Well, actually the above 10 tips are close enough to what licensed financial advisers will tell you. So great marketing oriented title. The tips are worth including in the melting pot of investment ideas.

    And for 7 more tips to throw into the melting pot check out the free my free e-book

  11. Take Control of Your Finances

    here is a tip

    Accept that you’re too busy If you’re overspending, and you’re over busy, you have to get less “over busy”.

    If you’ve ever said, I’m too busy to do a financial analysis for myself, then plainly you’re too busy. If you’re truly interested in working out of your own financial crisis, then you need to re-prioritize your schedule and spend time working on your financial structure.

    You may need to stop some of your activities ( if only temporarily ) and give yourself time to organize your finances. This is a hard thing to do. Especially when you’re busy with kids, activities, hobbies, etc.

  12. I agree to the points concerning insurance, saving and paying all the bills. But as for investments… it is very risky, to my mind.

  13. I really think that the article should be titled 10 things your financial planner should want you to know. This gives the impression that all planners do not want one to know the basics and are dodgy which they are not. I have had a really good planner for years and they have added value. I am sure they are many more out there.

  14. Good straight forward advice in the Australian context costs more than a few hundred dollars. Simply expecting someone to meet compliance obligations alone (Introduced to protect the investor) will cost more than a few hundred dollars.

    A straight forward approach is on the mark.

    Make sure that the planner you select understands who you are, is fee based and not commission based and has a full understanding of your current position prior to making any recommendations. This is a 2 meeting process (At least)

    Ask for referrals and follow those referrals up prior to doing business.

    Finally, use the Financial Planning Website to check on the planners credentials you are considering. They also have very helpful advice on what to ask etc.

    Anthony Stedman
    LifeTime Financial Group. Brighton Victoria

  15. I attended one seminar yesterday about financial planning. The speaker said something like suppose u r on 90 K and you will be under 41.5 % tax. So if you invest that money that’s supposed to go on tax and bring ur net income at less say 75k then u will end up paying 31% tax. So can we have a discussion about it.

  16. Newbee. I’m not really 100% sure what you are asking, but if you are earning $90,000 per annum and wish to lower your taxable income in an effective way, you have a few options, and here are 3 of them.

    1) Salary sacrifice to Superannuation
    2) Borrow money to invest and the interest repayments will be deductible
    3) Invest in managed investment schemes that offer tax deductions upon entry

    Each of these options have benefits and risks and of course not knowing your full circumstances, it’s almost impossible to say which one you should undertake to lower your taxable income. I would never however recommend entering an investment JUST to lower your tax bill. That should be a side dish rather than a main meal. At the end of the day it all needs to fit in line with your plan, which should be focused on achieving your short and long term goals.

    For more information, I suggest you speak to a fee only financial planner such as myself.

  17. I think it is very important that the person is well educated about the credit card that he is using. Many people apply for credit cards without reading the fineprint and end up paying huge interest and penal charges.

    The golden rule here is “Read the fineprint”.

  18. I agree with Brett. I am a personal banker and I would recommend all of the first 9 on your list. I have been a personal banker for 7 years and the first 9 are things we are taught to educate our customers in.

  19. Hi,

    Agreed on all points.

    There is one thing that it is very important these days – sticking to our budgets.

    Impulse buying is quite a common happening but with times such as these, exercising control will help tremendously.

  20. I really agree with the idea of saving in “highest earning at call internet savings account”. There are many online saving account offering better interest rates than regular term deposits. I can’t understand why term deposits can’t be more competitive. Thanks for the tips.

  21. This is really false advertising, those ten points are what all financial planners address. Well certainly the one’s I have spoken to. Shop around and feel comfortable with the planner.

    As for commissions, there is nothing wrong with commissions as long as the planner discloses them. The majority of people would not want to pay $1000 plus for a financial plan but are happy to have it debited from the investment/insurance.

    If you are so against commissions, why do Doctors, Chiros, physio’s etc get commissions? from the government. The more people they see the more commission the govt pays them.

    In fact unless you are a public servant, we all earn commission in one form or another. (bonuses)

    Even industry super funds pay commissions (even though they lie on TV and their websites) ING gets a commission from the indusrty funds of 10% of all insurance premiums. My financial planner gets $50 per person he introduces to Statewide and Hostplus.

    So, shop around and 1) like the person 2) are they qualified CFP or better 3) put your interests first
    If your planner does these 3 things then how he or she gets paid is irrevelant

  22. RE: Commission V’s Fee for Advice – My personal experience

    I recently got some financial advice and ending up going with a strictly Fee for advice planner. At first I wasn’t going to see this guy, I actually thought he was ripping me off because the initial fee was $880 (the other planner I had used in the past had only charged a few hundred).

    I had no idea about getting financial advice so I did some research into how to qualify a planner and what you should expect to pay for good advice. Found one good article (www.educatedconsumerstore.com/FinancialAdvice.htm) that explained how commissions worked and I ended using the tips in the article to research my existing investment and found out I was paying my original planner (the one who only charged a few hundred) over $400 PER YEAR from my account in the form of a ‘trail commission’. This was extra fees for me.

    So using on the website mentioned above, I was able to qualify the fee for service planner who ended up setting me up in an account with no commission so now I save about $400 per year in fees and I got some really good advice. Also I also saved about $300 per year on my personal insurance premiums which are now commission free too.

    Hope this helps.

  23. Financial Planners do have a place and the majority do perform a valuable service. What is wrong with the system is the level of qualifications or the lack there of.

    As far as I know, in fact I do know, that you can give advice without having qualifications if the dealer is happy to give you a proper authority

    I know of a someone who calls himself a financial planner and he does not have even the first four subjects, if fact he sat an open book exam twice and fail both times on one of the first four subjects.

    This bloke holds a proper authority with a very large dealer group in Collins Street, and he advises on all types of investment and trades on the stock market with amenity from the dealer.

    I say hold an enquiry into qualifications

    EDITOR: Agreed. There needs to a more rigourous qualification process to call yourself a “financial planner” than the current laughably easy short course

    However my main argument remains the same – most people who call themselves “financial planners” are nothing more than financial product sales people aiming to meet quotas of particular services to push by specific financial providers eg: Commonwealth Bank

    For these people commissions come first and the customers interests come second

  24. I recently got some financial advice and ending up going with a strictly Fee for advice planner. At first I wasn’t going to see this guy, I actually thought he was ripping me off because the initial fee was $880.
    Please suggest

  25. Paul, what did you get for the $880 you paid in fees? This blog was started in 2006 (and still going strong!); Neerav suggest anything more than a few hundred dollars is all you should pay for advice, but perhaps his view has changed.

    Everyone is different, some people are DIY investors and their situation is relatively simple and maybe only need to pay limited fees to add value to their situation; others have no interest and lots of complexity and pay much higher fees.

    I charged a client $13,000 in fees last year, but saved him 10 times that in tax; but the advice also included insurance, super, investments, estate planning, cash-flow strategies which will add more money over the years to come. It all comes down to what value did you get?

    EDITOR: Good point. I’ve changed the article text to “pay a fee based financial planner to do the research and explain the options to you, typically first meeting free and then paying a few $1000 for a detailed customised plan to be created for you”

  26. These are great tips. When it comes to investing, be sure to use facts and not just gut feelings. One of the best ways to do this is to find an experienced financial advisor that truly cares about your needs and goals. Meet with a couple different financial planners to get a good feel for what you are looking for in an investor.

  27. Hi,

    I am a financial planner and can I suggest that if anyone goes to a financial planner that they ensure they are CFP qualified. This means they have gone to university and done a Commerce/Business Degree and then have done a further 3 years study and passed rigorous tests to become a CFP qualified planner, rather than someone who has done a quick diploma and is not really qualified to give advice.

  28. Hi, i would like to start by saying that this article-whoever it is writen by simply doesn’t add
    up-those 10 things are reiculous, why wouldn’t a financial planner want you to know this, there is no reason because they know that if what they suggest doesn’t work the person will go to someone else. My father is a financial planner and he ensures that all of these are sucured(however i am unsure about no.9) before making a plan and after this develops a plan for the future taking into account the clients goals, lifestyle and quality of life. Therefore it may be so that some financial advisers may not have your best interests at heart (unlike John walker’s at circular quay) But i would be very careful about generalising such which you have done in this article

  29. Prudent advice Neerav. Belated reading, and request for clarification, more on point 7:

    “Keep 6 months expenses in the highest earning at call internet savings account you can find to cover for medical or other emergencies”

    Would that include mortgage repayments? (More than a little challenging to build/keep that stash.)

    EDITOR: Yes including mortgage repayments for people who only pay the minimum mortgage payments/month. Not including them for people who pay significantly extra into their mortgage so the loan interest and principal are paid off faster.

  30. PS. Everyone – time to wake up and smell the coffee…..

    Planners don’t care too much as long as you can fog a mirror and pay their bill. So you keep them in their Audi’s, Merc’s and BMW’s and their kids in private schools. And with each degree and qualification they can demand more money $$$$$$.

    A highly educated person can pretty much look after themselves with a little help from the net. Stay tuned because ASIC wants more information available online to all consumers, i know for a fact that alot of large financial service providers aare looking at this now. Its called “Financial Literacy” look it up…….

    And by the way, dont get suckered into paying your hard earned dollars on advice – DIY all the way.

  31. Commonsense, just another person who assumes that everyone wants the same thing in life as they do. Commonsense, has it ever occurred to you that some people just don’t want to think about these issues and would rather spend their time doing something far more fulfilling in life than sitting on the net all night trying to work out what the hell a non-concessional contribution is to super? Do you fix your own car too? Would you do an operation on your own knee? DIY all the way after all…

    Some people need to pay for advice. It’s a fact.

  32. I agree with all of the points but wonder why people continue to recommend and use Managed Funds in today’s world.

    Surely we have moved on from these investments that;
    Lack transparency around fees and charges
    Are mis-named creating a false sense of what they can expect from them in terms of performance etc
    Are confusing to use and not understood by most “Planners” never mind the poor client stuck in them.

    My message for all clients is to consider all of the above points but when it comes to investing, if you don’t understand it, the don’t do it.

    Really simple

  33. Anthony there are managed funds which are transparent, provide diversification and allow Mum and Dads who haven’t got time to get a degree in accounting access to capital markets.

    Google Vanguard, Dimensional and State Street Global Advisers for a start.

    Your comment about “not investing into something you don’t understand” is simple, effective but limits most people to bank accounts, term deposits and residential property (which isn’t such a bad thing). But it does mean that they miss out on wealth created on stockmarkets over time.

    Investing into Woolworths and BHP or a big bank directly doesn’t count if you can’t work out how to read a Profit and Loss statement, balance sheet, financial statements. Hence my comment about not having time to get an accounting degree. It’s not that complicated, low cost, low turnover, diversified managed funds are still a good solution for long term, patient, wise wealth accumulators.

  34. Matthew, you do make a good point about DIY. But consider the recent ASIC report on advice. Only about 23% of the working population has sort advice. The difference between what the consumer is willing to pay for advice ($300-$400) and what adviser charge is huge.

    How do you surmount the gap? How do we get more Australians to think about their finances and seek advice or information?

    If intelligent people are willing to take control of their own situation, why not give them access to information that they can use to make informed decisions? See the the government website moneysmart.gov.au. It has a range of information from managing your money to super, investing and looking out for scams. Try it! One of the best thing our government have done for a while. Cheers and happy returns for the festive season.

  35. How do you surmount the gap? Create a profession that provides advice, that can be trusted. What is in place right now is an industry full of salespeople (consider that 80% of financial planners in Australia are employed by or aligned to a product manufacturer, bank, insurance company or fund manager and you can see why this is a valid point).

    ASIC is slowly changing the rules, forcing us to become a profession. Shame the likes of the FPA didn’t have more guts to lead these changes instead of being dragged kicking and screaming to the place the profession needs to be.

    Intelligent people can get on Google and access all the information on the WWW that they need. It’s not rocket science, it just takes a hellavalot of time. That’s why real intelligent people seek advice from an independent financial adviser (and see the value in paying someone else to help them rather than re-create the wheel and possibly get it wrong themselves).

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