Financial Planners....confusion

I think the opinion of an amateur with plenty of experience investing there own dollars is more valuable than a professional with a degree that has not been around long enough investing let alone there own hard earned.
I’m defeinetly not using the advisor for planning or structuring advice but it was purely to point me in the right direction. 3 years ago I wouldn’t have know Magellan from an index fund or anything at all about shares for that matter. I needed him to point me in the right direction. After much thought and reading threads such as this I plan on making an adjustment in our allocation plan moving forward. Once we have agreed and set that in place I don’t know how much ongoing advice I need. I have no issue with continuing to work with him on say an annual review of the active fund managers we hold and bouncing the occasional idea or thought off him but paying a $8k a year fee for that seems to be excessive.
A good financial advisor should advise you that paying such a fee for the service I require is not advised. But how many advisors will admit that you are over paying for the level of advice they are providing?

 

Interesting discussion on the value of advice. @Nodrog and @Big Al, great points you make and I fully agree that paying those kind of ongoing costs simply for 'child minding' a portfolio with little other provision of strategic advice or ongoing information of high value this is simply too expensive as once a high quality portfolio has been constructed as we all know if we have built one of these things it is reasonably easy to maintain assuming you are not chasing further performance goals from it.

Having said this, portfolio construction is only one very narrow area of advice (very important also of course!), but there are so many other areas where clients would be better off placing their focus. Most of it comes down to understanding better 'tweaks' to boosting passive income streams and protecting risks through better tax planing, insurance advice (complex area!) estate protection, automated cash flow management and structuring, particularly in complicated gearing scenarios with multiple assets, almost no one gets the maximum efficiency right in this area without advice from a gearing strategy specialist (and there are not many of these either).

These are a list of the things I regard as important in seeking advice to set up a good future:

1. Goal Setting - written goals with well defined numbers and dates, particularly for the retirement income stream.
2. Budgeting - Mapping out forward plan for expenses (not looking backwards!).
3. Cash Flow Structuring - Automating flow and structure of regular pay checks and income so it goes to the most efficient placers and is driving achievement of goals. There can be much more $ value over time to this than most people first realize.
4. Debt Structuring - Driving the debt structure responsibly for high performance plus safety.
5. Superannuation - There are strategies and performance aspects, but also risk protection mechanisms come in to play particularly personal insurances and this is a complex area with big consequences for poor decisions and lack of understanding.
6. Insurances - Boring but necessary particularly where there is debt. One area of finances where advice is essential IMHO. No one outside of a specialist in the area has time to do their homework properly on the nuances of different policies, it is just too complex and easy to miss things or misunderstand what you are getting. Four key personal areas are Life, TPD, Trauma and IP.
7. Estate Planning - A risk protection essential, again boring but necessary. Wills are only the beginning, there is much more to this area also.
8. Tax Planning - We all love to save some tax but it should not drive our strategic approach. Understanding how to create a true 'boost' to annual passive income through using tax law is helpful.
9. Investing outside Superannuation - the freedom portfolio! This is the stuff everyone wants, is easy to get in the modern world, comes in a ridiculous assortment of colors and flavors and again is quite confusing if you are new to a particular market. Tremendous benefits can be created here but again it relies on taking advantage of the specialization and (rare) skills of individuals as well as some very robust simple strategic approaches. Lots of debate goes on about who what or where 'does it best'. In Vanguard's recent roadshow for advisers they again spoke of the core/satellite portfolio approach being 'as good as it gets' as a robust strategy. It was clear that even the 'Vanguardified' presenter believed in using some active management components as long as they are a 'best of breed'. They also impressed heavily the value of maintaining a constant portfolio asset allocation to your chosen benchmarks, in other words consistent long term investing to a benchmark allocation.

No advice

 

Been going over this thread and others trying to gain some insight into FPs and what to be looking for.

Recently my parents asked my advice on what to do with a lump sum of cash and there exisiting SMSF investment with Colonial First state. I'm not knowledgeable, or confident to give that sort of advice so I recommended they speak to a FP.

They had some CBA advisor and all their super funds in CFS, paying about $8k or so for no advice, who didn't get back to them. So, they have gone to another FP. They live rural and this guy travels out there which appealed to them.

This guy has now rolled everything over into an Asgard ewrap, with fees now, including the wrap admin and advisor fee, up at $14k!

About a 35-40% allocation to fixed interest cash etc, the rest spread across 16! Managed funds, all clipping the ticket too! Their projection show the values dwindling away with their very modest pension withdrawals.

Personally I'm just going down a simple dividend investor path with Ausie Lic and ETFs. I'll possibly look for a FP around super later in life when we are offloading our final IPs.

In my parents situation if they did the same, there's enough money to keep a couple years pension payments in cash and with franking actually draw more money than in the FP recommendation, with out franking it's still very close. They still have IP outside of this for diversification of cash flow.

Feel like they've gone from bad to worse and the statement of advice is made so confusing and complicated.......$14k though......bloody hell.

 

disgraceful

 

Yep......I've just got off the phone to mum and found out that he booked an appointment with mum and dad, arrived at their house with their statement of advice, was there less than an hour and had them sign it. This is a 61 page document!

 

Bloody hell. Outrageous to charge that amount and, in my opinion, to spread the assets over so many funds. Have the "advisors" and I use that word very loosely already taken the $14k? Any chance of canvassing other advisors in the area to discuss what's on offer for (a) what could be a relatively simple arrangement and (b) possibly more concentrated focus without the variety of fees by the funds.

Annoys the bejesus out of me when I read about these. Tarnishes all FPs including those who are fair dinkum and not fee gougers.

As an aside, things could get worse. I believe a number of FPs have left the industry and more considering doing so in the light of the requirement for higher educational requirements. Not that that requirement is necessarily a bad thing.

 

I actually attended the initial appointment on Mums request, this guy was going to email the statement of advice to me as well.....but never did.

Obviously there is some personal rsponsibility here, but mum had forgotten I was to go look at it first for her.....to be honest she hadn't even heard the term "statement of advice" before. She just said she thought I ok'd him at the meeting.

 

So he did the statement of advice before even meeting them?

I would be making a complaint to the ombudsman.

 

I'm not sure just yet wrt the $14k, I've been going over this thing for hours!
Yep, I'm looking to make more appointments for them. I got them to have an initial phone call with PT's son so might try him again for one. They are pretty expensive too though.

 

Oh no sorry, parents and I met with him here in Newcastle for initial meeting. He was then going to do a statement of advice, which he did, but didn't forward to me (which I guess he had no legal responsibility to do so, only that we asked him at that meeting)

 

No way! Surely it's a more honest approach to allow the clients plenty of time to read and consider it. I assume there is something akin to a cooling-off period to allow your folks to properly read and understand the implications of the SoA. An hour just don't cut it. I'm likely to be wrong though.

 

FMD--I thought the Banking R-C was started to fix this sort of thing and I was told at the cba's agm late last year this would never happen again,and the more complicated the paperwork the more the modern snake oil salespeople succeed beyond their wildest dreams ,both personally and intellectually..
Home - Australian Financial Complaints Authority (AFCA)
modern snake oil salesman - Bing images

 

Hi Coconutwheels, I have a few questions or points on this.

The total fees are $14,000. AS you've alluded to there are 3 components to this.

1st component is the ''Investment Management fee". These are underlying costs built into managed funds and represent internal costs of the Fund Manager. Also known as an MER (Management Expense Ratio). You pay this through LICs and ETFs as well, typically a lot lower through ETFs as these are Index style. Depending on the $$ amount invested and funds chosen, this could represent the bulk of that $14k.

For example if you invested $1,000,000 through Magellan Global Fund. The MER is 1.35%, or $13,500 pa. In that case, the fee has been worthwhile as they've outperformed the index by more than 1.35%. If the objective is to minimise cost, you could replace most/all of the funds with ETFs/index funds.

2nd component will be Asgard Administration fees. You wouldn't want to pay more than 0.30% - 0.50% for admin.

Then the 3rd component will be advice fees. Anything above 1% is expensive. And I would argue, that for a conservative portfolio this should be a lot lower, as charging 1% to manage fixed interest and cash will eat up the entire return, in the current IR environment.

So yeah...it depends how much money is involved, and what is included in that $14k. If that's just for advice then it's steep, but if it includes all 3 components, then it really depends on the breakdown to determine if it's too high or not.

 

Thanks for the link

 

Maybe bypass all the sideliners and go straight to the top,because something like this would worry the risk management teams and those that sit on CBA BOARD and a social media bloodbath..
Matt--Comyn told everyone if you have a problem as a share holder write to me..
Matt Comyn - CommBank

 

Nope just the advisor fee and the admin, and yes it's 1% advisor fee and .25%, I think for admin. Which is about par for course I know.

Add another $11.5k with MER and it's no wonder the projections in their SoA show thier cash dwindling away.

At the initial meeting he also said he'd show a comparison with CFS performance compared to his advice including fees.......no surprises now that he omitted that.

I feel I've really let them down here, by not stepping up more

 

Nah the new advisor is an independent company........they moved from the CBA guy........bad to worse it looks.

 

Wow, unbelievable how much are talking about here

 

1.4m

 

Understandable but it isn't really the case. I know most want to do the best for their parents but you're not responsible for their decisions. Yes, I know it could be they were naive, trusted too much, didn't say Give us time to think about it and all those other things us impartial observers say when things go wrong because we know better obviously. However, they did sign and you didn't - nor could you unless you had an EPoA in operation.

So the issue is how to extract them from what appears to be a bad deal with the least damage to them both financially and emotionally. Work on that aspect and hopefully it'll come good somehow.

I do hope it works out for the best.