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Money makeover, day 11 – why pay for the best advice?

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by Peter Switzer

On the penultimate day of my money makeover, which has stretched over 10 previous articles, I’ve tried to give you the solid foundations needed to turn your money life around.

Eliminate the chaos

Most of us live our money lives with varying degrees of chaos and the more you can minimise – or, hopefully, eliminate – that chaotic approach, the more likely it is that you will build wealth effectively.

Consider a financial planner

The point of this money makeover was to show that anyone, if they want to and have the time, can put together their own money plans.

And ‘plan’ is the key word.

You have to have a plan, and if you can’t or won’t do it yourself, then seriously consider a financial planner.

There are crooks

Yeah, I know that financial planners don¹t have good enough reputations, especially in light of the Storm Financial failure and others such as Westpoint, where dumb or criminal advisers mislead their clients so they could pocket big, hidden commissions.

But I believe the vast number of advisers are decent people, who want to do the right thing for their clients. That’s how we operate at Switzer Financial Services and that’s a fact.

There are problems

That said, the industry has had a problem with its pricing. Some advisers have taken commissions and other payments from financial institutions and haven’t been as transparent about what they do.

This can lead to product selection for clients that could mean the interests of the adviser came before the client’s.

Total transparency and nothing less

Others charge percentage-based fees and while this is okay if the dollars charged is clearly specified to a client, it can lead to over-charging.

That’s why I say transparency about what the adviser receives and what the client actually pays is crucial.

Many hours involved

Because of excessive laws aimed at weeding out bad advisers, anywhere between 10 to 15 hours could be needed for a good plan.

For more complicated situations, the hours could be longer and plans could be seen as expensive.

But there is a lot of work and responsibility with a financial plan. Plans generally should cost between $3,000 and $5,000 and they are not tax deductible, which is something the Federal Government should change.

Your first visit to an accountant is tax deductible.

Ongoing advice is tax deductible

Ongoing advice after a first plan is tax deductible and that’s why some advisers will undercharge on the initial plan to win over customers, who then sign up for ongoing service.

The importance of a plan

Some people need ongoing help while others don’t, but a first plan should be considered as it could answer key questions such as:

Should I be saving more for retirement?
Could I have a better super strategy?
Should I have investment properties?
Am I working the tax system to my advantage?
Should I pay off my house quickly or should I get into super salary sacrifice?
How can I plan for my children’s education expenses?
Can I use borrowing to quicken up my wealth building?
What estate planning do I need?
And how should I invest my money between all of the competing assets out there, which help to build wealth?

Investing isn’t a punt

Often it is with this last function that advisers are often judged.

They are seen as investment tipsters who can pick out the best funds, stocks, etc.

Clearly, they do have insights working in the investment game, but there’s always a degree of punting when it comes to investment. That’s why many advisers play it conservatively, relying on historically good performing funds. But this approach doesn’t always work out, as the last market crash showed.

All the above are important

An adviser’s biggest gift to clients comes with answering the questions above.

To secure great returns for 20 years but to be over-taxed because you don’t know the ins and outs of the tax system could cost you a packet!

Get help or change your habits

If you’re lucky enough to find an adviser who is well qualified and committed to honest service, the money-making experience should prove to be a great one for you and your adviser.

If you don’t go down this external help track, you can always do-it-yourself, but it will mean you changing you.

For advice you can trust, contact Switzer Financial Services.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

Published on: Thursday, January 07, 2010