Superannuation/preparing for retirement.

With the boarder idea, be really clear on whether the boarder's rent is inclusive or exclusive of bills (electricity/gas/water). Some folks can do a great job of running up those bills if they are not responsible for them. You'd have the option either of charging a flat rate for the room and bills inclusive, or just the room and advise that the bills are shared. This can be a tad tricky when bills only arrive quarterly if the person moves out before the end of the billing quarter.

 

That must be tempting to quit, access the super and own her home. Think about the 150k mortgage vs 150k in super. What is the mortgage interest rate vs return in super? If the home loan interest rate is only 4.5% but the super is earning 7.5% that is quite a loss of future earnings if the money is moved from super to the home loan.

I think transition to retirement could help here but I don't know a lot about it. I know my cousin increased his super balance by over $80,000 during transition to retirement but he was not trying to pay off his house at the same time.

It is good you are looking into this for her. The paid financial advice she got doesn't sound very useful to me.

 

Don't forget paying down a home loan is like getting tax free earnings. So it the rate is 5% you may be making like 8% before tax. There is also the possibility to pay down the loan and then borrow to invest - debt recycling.

Super is taxed at 15% while in accumulation phase so compared to investing outside super where you are earning and then paying perhaps 37% tax on earnings. This can mean super can go faster assuming the same returns.

 

Yeah, because recommending debt recycling to a 59 year old is a great idea...

Don't be quick to judge, my friend. Keep in mind that we are getting sprinklings of third hand information here, with no background in relation to the person's circumstances, where they are at now, what their risk tolerance is, etc.

 

It may or may not be a good idea, but I didn't recommend it.

 

It certainly doesn't sound like she was happy with the advice she got.

 

Mate... I've been in the financial planning industry for over 10 years and I can tell you that there have been many occasions in which people have received solid advice and they have walked out unhappy. Mostly because it's not what they wanted to hear. A lot of clients go into the relationship with certain ideas and thinking they know much more than they actually do and if they don't get the advice they believe they are entitled to, they blame the adviser for providing 'poor advice'.

I've also been privy to situations in which people have been given the advice they wanted to get, even though it was not what was best for them. Guess what happens then... I actually had a bit of a tiff with a client not long ago over some advice they were providing to one of their clients that would actually have left them (the advisers' client) worse off in the long term - because that is what the client wanted to do. I didn't keep them as a client for long after that.

I am very much of the view that it is every advisers' job to provide the client with the best recommendations for their individual circumstances and sell those recommendations to the client as being what is best for them, as well as educating the client on *why* it is best. Even if the client doesn't like what they hear (initially). The adviser is being paid to provide high value advice and I consider it intellectually lazy to just go with whatever the easy sell is.

 

@Mombius Hibachi - great to see there's some folks with solid integrity out there

 

Hi Jacqui, thanks for the compliment, I appreciate it!

A few years ago I read a white paper by an American consulting company that specialises in working with financial advisors and far and away the most successful advisors (in terms of how successful their businesses were) are the advisors that focus on the client and providing the client with high value advice. Which to me, makes perfect sense. Contrary to popular opinion, people are prepared to pay a premium to receive advice tailored to their individual needs, knowing that their advisor genuinely has their interests at heart.

If one looks after their clients first and foremost, the rewards naturally follow.

 

That's good. I always appreciate people who do the right thing, even if doing is difficult or unpopular. It would be great if most financial advisers where like this. However, you know that not every adviser is like that. In the absence of additional information, we have no idea whether the person in question paid a good adviser who gave good advice or a self-interested adviser who gave unsuitable advice. I am sure you are aware of people who have paid for financial advice and have received advice that is unsuitable for their situations.

 

Perthguy, I absolutely agree with you. Unfortunately, only a tiny percentage of advisors are on the straight and narrow. Having said that though, I believe that is the case with any profession. Not that that makes it okay, but moreso that it is human nature to tread the easy path.

 

Even though a client may have paid for and followed the advice to a tee (ie the FP arranged the structure etc), without frequent monitoring of what may have been sound advice, things can take a turn for the worse.

Should the FP monitor the progress and suggest tweaks as part of the service? How often (as market conditions can change rapidly eg present state of the stock market, falling oil prices etc)?

 

True.

I have no idea because I have never spoken to a financial planner. All I know about it is what I have been reading about how many financial advisers are not really independent:

Truly independent financial advisers in Australia - SuperGuide.com.au

As far as a FP tweaking strategies as part of the service, it would depend on the arrangements made between the client and service provider. I would suggest that a competant finacial adviser would let their clients know that markets change. For example, at some point it may have made sense to purchase resources shares. At the point in time it may not make sense to do so. If the FP advises the client essentially the advice has a shelf life, it is up to the client to revisit as and when they think it is necessary.

 

Excellent feed back and greatly appreciated.

 

Agree with @Mombius Hibachi , there's only snipets of info so far, obviously she's not happy with what was said, regarding purchasing property when she's not interest in buying investments at a time when she wants to pay her house off, and be in the best possible outcome. I will have all the info next week from her fp which she's has already paid for, and currently she's seeing a superannuation expert. Which is great that she's taking control to understand where she is, and where she wants to be, and how the best path to take to get there. Thanks for the feedback.

 

@Barny I am glad you are helping out. It's also good that she is questioning the advice she has been given.

Years ago I paid a decent amount to consult with a tax accounting specialist who gave me tax advice on how to structure my businesses and property investment purchases. Having done some background reading, I felt very uncomfortable with the advice he gave me.

I got a second opinion from another tax specialist who was reccomended to me by a friend I trust. I felt he was more experienced and more qualified to give advice. He advised against following all the suggestions made by the first tax specialist with clear reasons why. The advice he gave me was consistent with what I had read beforehand.

 

Was the advice received right for you or what you wanted to hear as it backed up your reading?

 

The advice of the second adviser was definitely not what I wanted to hear. I wanted the first adviser to be right because I would have been a lot better off financially. Considering I followed the advice of the second adviser and it worked out well, I'm assuming the second adviser was correct.

 

Second opinions are fantastic, and great to hear you did something about it. This is another reason why I like PC, it's great to hear all opinions, learn from more than one person, and decide which advice you choose to take onboard.

 

With this sort of advice there is no one correct answer but there are many answers that are incorrect.