Do I trust finance managers with handling my cash?

Discussion in 'Financial Planning' started by Frank Manno, 13th Feb, 2017.

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  1. Frank Manno

    Frank Manno Well-Known Member

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    I've never invested in anything other than Property and I've never put cash anywhere except in the bank.

    So how does it work when other people need to manage your money to buy and sell shares? How do you trust them to do this and how can they not just pocket your cash and go overseas forever?

    How am I supposed to trust some guy from XYZ Financial Services with my money who says he will invest it for me? I would rather I open up a Comsec account and pay him to tell me what to buy and what to sell at least that way I'm in control.

    Am I worried for nothing??


    -Frank
     
  2. Marg4000

    Marg4000 Well-Known Member

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    No one cares about your money as much as you do.

    No way would I be handing over money to someone else to invest as they see fit. You give up all control and far too many get ripped off and lose heaps, if not everything.

    If you need guidance, consult a stockbroker and invest into selected shares to suit your requirements - capital growth, income etc.

    Or, if you prefer, do your own research and invest in shares or managed funds directly or via an online share site.
    Marg
     
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  3. willair

    willair Well-Known Member Premium Member

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    At least your worried,Comsec is very good but it's up to you to make the call all those sites do is give you a entry level..But the one good item about Comsec is you can practice the trade on simulators ,visualise the set-up,and that takes hard work and that takes practice..
     
  4. Ace in the Hole

    Ace in the Hole Well-Known Member

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    If a fund manager gets lucky and makes you money with all the risk on you, they get paid.
    If a fund manager gets loses your money with all the risk still on you, they still get paid.
    The question probably should be - Do you trust them more than you trust yourself?
     
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  5. Zenith Chaos

    Zenith Chaos Well-Known Member

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    I don't trust anyone in the Financial services industry based on previous experience and the fact that they are paid to place your money into investments that pay them a fee. Entirely nonsensical. Note, I am sure that there are honest Financial advisors out there but I personally don't trust them.

    In reality, the fees should be:
    1. Entirely performance based, including paying people money back when money is lost OR
    2. Fee based. That is, you only pay for advice, and there can be no commissions involved.

    However, my suggestion is that you start by learning off the internet and books. You can start with this forum and focus on index ETFs, LICs and diversification. Subsequently you might want to understand more about direct shares. With this knowledge you should feel comfortable when you work with an advisor. Alternatively, if you feel comfortable you can invest yourself and save yourself the fees.

    There's a great article posted here by @austing that explains why there is no way to predict the future of financial markets with certainty, especially at a micro level; at a macro level you can say that markets are over/undervalued but that still doesn't decide how they will move, only how a fully informed and logical investor should invest. My conclusion: an advisor can't advise on the specifics of what to buy as they know no more than you do. They can advise on strategy: ie asset allocation (Australia / International; Large / small caps) and structure (trusts / super allocation), which you can then maintain yourself. [I forgot to mention bonds / cash, which are important in certain scenarios / strategies].

    I personally am aiming for a low maintenance strategy that means I don't need to spend time watching the markets and/or research individual companies. This strategy involves buying:
    1. Index ETFs for capital weighted market diversification in across Australia and the rest of the world
    2. LICs for intelligent market diversification across Australia (primary focus) and the rest of the world
    3. Individual shares that are undervalued and buy / hold forever (most of which are already covered in 1 and 2). By that I mean:
    a. I don't trade shares: i.e. buy shares that I think will go up in the short term to sell, because as I stated earlier, no-one knows what will happen in the short term.
    b. I only buy shares in companies with good balance sheets, reasonable history of success (although this is not a guarantee of future success it is helpful), generally long-term dividend stability / growth (a sign of a good company), competitive advantage (e.g. although Aldi has come into the market and there is potential for internet sales to grow, WOW and WES are the main two players in the Australian fmcg industry who would almost be impossible to move from that position), future demand and growth opportunities. My current preference is undervalued ASX top 200 industrial (not resources) blue chip shares where dividend yield is high enough and P/E is low enough. Based on all this criteria, my only individual share is TPM, which I purchased at what I consider a bargain basement price.

    Good luck. Enjoy the learning process. People on this forum are very knowledgeable and helpful.

    Not advice.
     
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  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    My advice is not to give anyone access to your money ever.

    You may lose it!
     
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  7. Zenith Chaos

    Zenith Chaos Well-Known Member

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    Having had my rant about the Financial Services industry, I would trust @Terry_w with setting up the best legal structure for my money. Check out his forum posts.
     
  8. BingoMaster

    BingoMaster Well-Known Member

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    I think there is a basic misunderstanding in the original post of how investing in shares works. You don't give your money to a broker and let him buy and sell for you (some do, but thats pretty rare and silly IMO). You make the buying and selling decisions, the broker is just the custodian. He needs your permission for each transaction.

    If you're giving full access to your money to a bunch of professionals who are all charging a fee to manage it for you... yes you should be worried. Don't do that!

    If it's simply a yearly management fee from your Super fund, fund manager, ETF, etc... and it's not too high.... then that's a different story
     
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  9. Frank Manno

    Frank Manno Well-Known Member

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    Well I'm dealing with a financial services company who invest people's money. The original question was about the mechanics of this. The guy at the company said himself that he needs permission from me to buy and sell shares and also for every transaction but I still don't understand how this works?

    In my eyes 'needing permission from me' gives me no security. He still has access to my funds with or without permission right?


    -Frank
     
  10. The Y-man

    The Y-man Moderator Staff Member

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    Sounds like a full service broker.
    Basically they'll phone through with an "advice" or "recommendation" for you to approve.

    If unsure, just check the T&C's of the broking service.

    The Y-man
     
  11. Perthguy

    Perthguy Well-Known Member

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    You don't.

    I think this is the right track. Only your advisor can give you advice, you can do your due diligence and then decide if you want to buy/sell/hold.
     
  12. BingoMaster

    BingoMaster Well-Known Member

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    Oh ok. Well my point is that a set up where your financial service provider has a lot of control is both quite rare, and in my opinion not the best idea.

    But if it is what you're dealing with, you're right to have concerns, and tread with some caution.
     
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  13. BingoMaster

    BingoMaster Well-Known Member

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    There are legal protections that dictate ownership of shares, what a broker can do for you with or without your permission, worth investigating. Your personal agreement should go over this.

    But at the end of the day, it does come down to trust - there may well be some great people who you have every reason to trust fully with your money. It'll just be a case by case, person by person situation, so I can't offer anything more than to just continue to do your homework I guess.

    Keep us informed. Good luck!
     
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  14. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    I'd be just as concerned about what they're buying for you as much as them nicking off with your cash - the end result is the same if it goes bad.
     
  15. Redwing

    Redwing Well-Known Member

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  16. Redwing

    Redwing Well-Known Member

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    Financial adviser Frank Furness says, “For me, it’s the best job in the world. Where else can I go out and meet somebody, drink their coffee, eat their cake, and walk out with $5,000 in my pocket? No other business.”

     
  17. Xenia

    Xenia Well-Known Member

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    Trust implies you are advocating your responsibilities to another person and expecting that they will do things in your best interest and to your expectation.

    Given that most successful relationships have boundaries and expectations set and communication - not just trust, then why would you just trust that somone is going to do the right thing with your money?

    Even if people are well meaning, you need to be the one steering your own ship - always!!!
     
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  18. Alex Straker

    Alex Straker Financial Life Coach Business Member

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    Money is a sensitive topic and of course we all love to feel in control. We have grown up hearing that the best places to trust are the bank and the best thing to buy is property. However, if you don't learn to break out of that narrow zone of thinking and expand in to new horizons plus trust a few mentors/coaches/advisers who will assist you along the way, you are unlikely to ever reach your full potential for financial success. Plus you are going suffer under the burden of complexity and poor decision making when it all becomes too complex to manage. The key is working out who to trust and who offers value in their services (and plenty do).

    In my experience the more wealth an individual accrues the more they realise they need help with structuring and decision making and the wealthiest clients I have actually SEEK OUT good management expertise and NO desire to self manage everything, in fact more often than not they are desperate to offload some of the asset management hassles ASAP. Of course they normally have specialty areas of investing they will continue to manage and focus on but they are smart enough to acknowledge when help is required for areas they simply don't have the expertise or time to deal with.

    Actually ASIC is currently steering FP's away from a commission based fee structure and through legislative change they now are encouraging 'Set Fee for Service' based models. Personally I have been operating on 'Set Fee for Service' for over 12 years and we charge zero commission on client investment portfolios. There are a small number of providers doing the same but a lot still use commissions so always ask.

    There are some good points by the posters above and don't take this the wrong way but some of the comments are coming from classic misconceptions. Investing through a managed fund structure, ETF, LIC, etc whether through an adviser or not is not anywhere near as scary or dangerous as the picture painted in some posts above. In fact it is most likely nearly every PC member is already using fund managers through their Superannuation account. These are no different to fund managers outside Superannuation, same funds, brand names, processes etc just done under different ownership structures.

    Another point is that If you did in fact decide to get advice and invest under a licensed adviser, unless you sign an MDA (managed discretionary authority) the adviser cannot by law manipulate, access, or in any way interfere with your account, all they can do is simply advise you on it. Ultimately the adviser is not the person in control of the funds or the account - YOU ARE. The account is opened in your name and they can only act under your signed instructions, think of it as like 'a bank account' in your name that holds investments in a trust structure. Of course if the adviser recommends a fund manager, they (meaning the manager and research team) will make decisions on changes to the portfolio but that is exactly what they are there for.

    The truth is that upon reaching a significant level of wealth holdings, people desperately need fund managers, advisers and other people with expertise for many reasons. The shear volume of administration and decision making involved in managing a large portfolio of varied assets is extreme. You could not possibly hope to replicate, let alone manage the same spread of assets a high quality fund can at the same cost and make all the ongoing decisions needed as effectively as a fund manager. For starters the transaction and admin costs if you tried to do it yourself direct to market would be FAR greater than if you simply bought the units in the fund. Why? Economy of scale, being pooled with other investors actually lowers costs to individuals.

    Another very important thing to realise is that for a small investor or for DCA accumulation plans managed funds are a god send. Why? Take the case of a small investor with $2k to get started or someone sho wishes to accumulate at a rate of $2k per month. This investor would like some diversified exposure in the market for safety but quickly realises with $2k if they purchase shares directly they can only purchase 3 or 4 shares at best. Instead by using a managed structure or similar vehicle, they can diversify in to 10 - 500 stocks depending on the type of fund they choose. Absolutely fantastic way for them to gain a foothold without the risk of over exposure to a single share or sector.

    Moral is learning to seek out and embrace worthwhile expertise will help you move forward in your journey. I still do it and I'm an FP :) DYOR, no advice.
     
    Last edited: 28th Jun, 2017
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