Yesterday, a journalist writing for a financial magazine asked me this question:
What are the biggest ways Australians waste money when it comes to their finances?
Here’s my answer:
An advisor without an investment philosophy is like a boat without a rudder.
If your advisor doesn’t have a convincing, evidence-based set of beliefs about the markets and how to invest in them, then you risk drifting from one idea to another.
An inconsistent investment approach is a common cause of capital loss.
An investment philosophy should inform an advisor’s decisions about your portfolio, so it’s important you not only understand and agree with their values and ideals, but that you can see evidence of a logical basis for making decisions about your wealth.
If your advisor recommends an investment strategy that doesn’t fit your values or view of the world – and that bothers you – then it’s not the right strategy for you.
My investment philosophy follows:
Bad decisions on a $400,000 home loan can easily cost you $100,000.
If you already have a mortgage, it’s not too late to fix old mistakes (or avoid making them with your next loan).
You should review your mortgage every 2 years anyway.
Why? Because less income needed to payout your mortgage means more money for other areas of your life. Your mortgage is probably the biggest financial commitment you will make in life. It is easy to get right and just as easy to get completely wrong.
Most people are surprised to find out that a low interest rate is not the most significant factor in reducing mortgage cost and paying out a loan faster.
You won’t see lenders advertising most of the tactics available to you, as it’s not in their best interests – the longer it takes to payout your loan, the more money they make. Lenders make money by lending you as much as possible, for as long as possible and with fees as high as they can get away with.
(This post continues from 13 Signs You’re Getting Bad Insurance Advice (Part 1).)
The recent CFP v Couper court case showed you could get insurance advice that leaves you uninsured and unprotected.
Here are 7 more signs you’re getting bad insurance advice:
Noel Stevens was dying when CommInsure rejected his insurance claim. The NSW District Court ruled the insurer was right to turn down the claim.
Mr Stevens passed away, but not before taking Commonwealth Financial Planning to court as he believed he had been given bad insurance advice. The court agreed.
Commonwealth Financial Planning (CFP) appealed the ruling and recently lost when defended by Noel Stevens’ daughter (CFP v Couper). The evidence in this case showed it’s possible to receive insurance advice that leaves you uninsured, where you were previously covered.
This client had no idea his insurance advice was poor. The CFP advisor didn’t know he’d given the wrong advice. In fact, the advisor followed a process you could find in any bank across Australia.
When your advisor is none the wiser, how can you check you have received proper advice?
What questions can you ask a financial adviser to help ensure you get advice that suits your interests and not theirs?
There are some great checklists available to help you choose a financial adviser, especially if you have no idea where to start. But, most focus on basic questions such as experience, professional membership and the services they offer.
While these are helpful as a starting point, they don’t get to the heart of what determines the quality of the advice and service your financial adviser provides.
I think there are a few additional questions you can ask to help ensure you get great advice and support.
Update (June 2016):
Over 11,000 people have read this article, after searching for information on financial advice fees. If you’re like them, and think you’re overpaying for financial advice (or about to), call me on 1300 369 045 or email email@example.com – and get a second opinion.
At some point over the next year, you may receive a Fee Disclosure Statement from your financial planner. If you know what to look for, this statement will help you work out if your financial adviser is worth their money.
As a part of Future of Financial Advice (FOFA) reforms, all financial planners who charge an ongoing fee for their service must give their clients a Fee Disclosure Statement (let’s call it an FDS). That’s for any advice fee your planner charges you on an ongoing basis, beyond 12 months.
This law is supposed to ensure you are told what you’ve paid for ongoing services and list what services you actually received.
But, the Fee Disclosure Statement is very basic. You need to ask additional questions to ensure you are not wasting your hard earned money on support that doesn’t benefit you, doesn’t suit your needs or is simply overpriced.
The FDS will give you key information for the preceding 12 months:
So lets look at each section.