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Financial Planners

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If you read newspapers, you’re aware that the financial advice industry struggles to manage conflicts caused by ownership, targets and remuneration. Accountants, as a profession, have generally managed to avoid these conflicts by not providing financial advice to their clients. Instead, accountants refer clients to specialist advisers and mortgage brokers.

It seems like a good strategy. Is it really?

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The Importance of an Investment Philosophy

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:

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Photo Credit: caseygoodness via Compfight cc

Photo Credit: caseygoodness

There are biases that affect the quality of advice we get every day of our lives. And not just financial advice.

When a real estate agent shows you houses for sale, they are working for the seller, not you. This affects which properties you are shown and your ability to negotiate the best price.

(This is why buyer’s advocates have become popular. As you are paying them to find your ideal property, your advocate’s interests are aligned with yours.)

In assessing the quality of any advice, it’s worth considering which party the seller is working for: you or the owner of the product.

There are other more subtle influences on the advice we get. While the medical profession manages potential conflicts by operating under a professional code of conduct, your GP may be influenced to prescribe some brands over others, due to a relationship with the pharmaceutical company (this could be done unconsciously…see below).

 

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Photo Credit: social.englishme

Photo Credit: social.englishme

 

This morning I read an interesting article “7 Ways to Pick a Better Adviser”.

Knowing how to work out a good from bad advisor seems to be the biggest challenge people face in getting financial advice. That’s certainly what most people tell me.

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Photo Credit: Itani stock photos

Photo Credit: Itani stock photos

“He was actually a little uncomfortable and embarrassed”.

Last week I was contacted by Ross, a lawyer in Melbourne, who was concerned he was being charged unfairly for financial advice. He told me that his planner seemed “uncomfortable and embarrassed” about the fees he was obliged to charge.

Ross used the words “fee grab” to describe his current financial planning company’s new policy to charge an asset based fee (brokerage) for switching managed funds.

Financial planners need to charge for their advice and service. But in Ross’s eyes, this fee seemed to be excessive and incidental to the service.  

But this fee is not what gets me worked up. 

Ross‘s financial planner seemed to think this fee was disproportional to the value his company was providing for this transaction.

It’s hard not to conclude that this financial planner is putting the interests of his employer, and in turn his own interests, before his client’s.

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Photo Credit: Eric Flexyourhead via Compfight cc

Photo Credit: Eric Flexyourhead

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 contact@justinbrand.com.au – 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:

  •    Fees you have paid for ongoing service
  •    Ongoing service you should have received
  •    Ongoing service you did receive

So lets look at each section.

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