Should I not reveal all to my advisor so they don't over charge me?

Come on ROSS! Specifics that Frank can relate to. I showed you my hand keeping it simple with a $500K verses $5mill plan. Mine would both be invested exactly the same way percentage wise.
One other thing springs to mind. Is the share ASX CBA risky? I think it's as safe as houses - literally, but I guess we'll see.

 

I'm about to send the listing of advisors Peter Thornhill recommends to Frank.

 

Some excellent points. However I would have thought the above is more a retiree scenario. Of course there are many variations of the "bucket" approach.

The answer to these questions is not straight forward. It's depends on your stage of life including human vs Investment capital. Your risk tolerance and behavioural attributes also plays an important role. The irony is some younger investors can be more risk averse than retirees as they haven't been conditioned to market volatility. Then as Ross mentioned the investor's level of wealth will impact on how much risk one can take.

However the one thing I disagree with many planners is that the more money one has the greater the number of assets they recommend you hold. I often think this is just planners trying to make you think they are clever so they can charge you more.

I think Ross might agree that whether you have $1 mil or $10mil the same simple portfolio can do the job. Eg for those that prefer the index approach simply some cash for liquidity and three funds that cover bonds / ASX / International.

Finally depending on one's stage of life the tax and retirement system eg Super and employer / aged pension play an important role. In fact in Australia the Government unintentionally and stupidly make it more worthwhile for many lower to middle income earners NOT to invest outside of compulsory Super. The following article is quite thought provoking but not suggesting I agree with all assumptions. Bear in mind this is aimed at the general public rather than PC investing enthusiasts:

Super changes behaving badly - SMSFAdviser Magazine

 

In response to Frank's original question, I think honesty is always the best policy and you may in fact deny yourself some benefits by withholding information. Look for an adviser who operates on set 'fee for service basis' as is ASIC's preferred industry standard now and does not accept commission or trailing fees from client investments.

I get more than a little tired of hearing the herd mentality catchcry "Don't trust financial planners". This is unfair stereotyping of an industry where I know full well a lot of us go way beyond the call of duty to do the right thing by our clients and the value of the work we do speaks for itself in terms of financial results and outcomes. Let me relate a very personal and recent story regarding one of my staff members Sarah....in January this year Sarah, a 33yo admin assistant in my business suddenly passed away unexpectedly literally standing on her driveway at home. Quite a few PC members who have dealt with Rolf and myself knew her. She left behind a husband and two daughters 18 months and 6 months old. To say this was a shock to all who knew her is a massive understatement, needless to say this was a terrible tragedy, very disturbing and still something I think of nearly every day. A few months prior to that I had done a presentation to the staff on personal insurance just as a reminder to keep it up to date and check their cover levels. Sarah came to see me and after a discussion we did an increase to her policy from 250k to 500k and had it approved within days.

As it turned out this was one of the most important decisions she ever made and the difference was between leaving her surviving family with significant debt or completely removing the debt and leaving a small lump sum on top. Her husband who is a both a friend and client has needed a lot of help over the past 8 months and I could not count the times I have personally driven over to his home to discuss complex estate and financial planning issues and simply offer support and listen to him. In the clients own words his most recent feedback to me was "Thank God I had someone I can trust to guide me through this". Believe it or not this type of situation is quite common and most financial planners that I have met actually care about their clients, who would have thought huh?

Simply making a blanket statement "Don't trust financial planners" is an equally stupid view to hold as "Don't trust mechanics" or "Don't trust lawyers", we all know there are a small % of "bad eggs" in any industry but if you are an observant human being you can figure out who they are and make a better choice. Financial Planning is one of the most heavily scrutinized and regulated industries in Australia and the vast majority of planners add tremendous education, strategic help and risk protection benefits for their clients. Statistically, seeking advice gives you a far better chance of covering any major personal risks along the road to wealth (something Aussies are generally poor at) and developing a sensible cash flow based (meaning realistic) asset building plan that leads to retiring fully self-funded.

Planners must fully disclose fees so the "kickback" negative stereotyping is a non issue for qualified and licenced planners as Rolf rightly pointed out. As for property scheme operators with no licence to give advice, no legislated requirement to act in the client's best interest, no financial planning qualifications and who try to pose as quasi-advisers.........well don't get me started. That's where you need to go looking for unfair "kickbacks".

It comes down to working with individuals and assessing who is the right fit for you, the level of service you require and what you want to achieve.

A good financial planner plays a significant role in developing significant and often life changing benefits for their clients and is one of the most valuable professional consultants in any wealth builder's circle of mentors.

Terry is right there are a lot more independent advisers out there than that small list.

 

Find someone you resonate with and tell the full story. If they are professionals they will appreciate this and advise accordingly.

 

Presume you left RE agents out intentionally?

 

H

Hi Austing
That SMSF link has some eye opening information.

Regards your 3 Fund approach ummm" now where have I seen that before?

Are you now one of us?

 

Bloody hell no. You won't ever catch me investing in a Bond fund.

I invest in Shares for income and cash for liquidity / emergency / opportunity.

Donald Trump always told me "never trust a Boglehead".

 

Hi Frank,

It sounds like you've been to an adviser or two before. I tend to think of an adviser as a professional I could consult with to develop a holistic financial plan based around my life goals and current financial situation.

I'd be inclined to be upfront with my adviser, as their plan will center around the information you provide.

You've already worked out that a 5% return on your 1.25 mil will be sufficient for your to retire on. Allocating your funds to an ETF such as Vas and LIC's such as MLT, ARG, BKI, AFI, AUI, will produce this return once franking credits are taken into consideration.

An adviser may add value to your situation though by suggesting the correct investment structure to set up (eg Trust, SMSF, personal names etc) and by reviewing your debt (if any) and insurance needs. They would also take into consideration estate planning.

I guess you have to decide whether you need assistance with the above, or whether you are happy to go it alone.

Kind regards

Jason.

 

All reasonable points.

I took a slightly different approach by using a solicitor (well versed in the legal aspects associated with money) with a financial planner in attendance provinding expert input to prepare a Trust Will which also covers control of the shares of the Corporate Trustee of the SMSF including the Binding Death Nomination. Even I understood what was going on which is a small blessing!!

 

But this is good, but would only apply once you die. What about in the meantime?

 

Yes, it's a vexed issue in many respects and I believe it could depend on the attitude of both the client and the FP.

Back in "simpler" times when the SMSF was established, it took quite a while to finally click with a planner whose approach was suitable. Many false starts, especially where it involved recommendations to transfer all holdings to superannuation. Rattled my psyche at the proposals to then charge a percentage fee on the superannuation assets. I just had the gut feeling it was tax and fee driven advice as opposed to what I actually wanted, i.e. the best of both worlds

In the end, finally able to get a dude from a firm who charged by the hour which was very rare back then. Still use them but only for occasional technical advice, e.g. CGT relief (yeah, I'm in that situation but it ain't an unpleasant problem to have really.)

Of course, things have changed since then - although the client's dreams and aspirations probably haven't - with the vast majority of FP's no longer simply ticking the boxes but now having a holistic approach according to the client's needs and circumstances which can also change over time. And they have in my life.

In regard to the OP's question, my opinion for what it is worth, is be open and honest about your financial position. Having said that, I hold the view that the FP's recommendations are just that, recommendations. As far as I understand, there is no legal obligation to adopt them if you don't want to. As one character once said (I forget who) people are free to have the opportunity to make mistakes and wipe themselves out financially as much as they are allowed to be successful. Your dosh, your future, your responsibility, so make sure you accept that before you make decisions. It's a view which resonates with me.