Firstly I would tell her I love her and thank her for all the wonderful memories.
With those formalities over, the next thing I would tell her is my criteria for choosing a financial planner.
#1 The Financial Planner MUST be Independent
Institutions either wholly or partly own the vast majority of Australia’s financial planning groups. Institutional ownership has the potential to distort the independence of the advice.
More often than not, the institution’s product/s (wrap account, master trust, managed fund) tend to figure in the planner’s recommendations. Perhaps it’s a coincidence, but it does make you question the independence of the advice being offered.
Imagine going to a doctor’s surgery that was owned by a pharmaceutical giant. Would you think twice about the script you’ve been given? Is it really in your best interest or does the doctor have a quota to achieve? The fact these doubts are raised goes to the heart of the independence question. Without the institutional ownership, these thoughts would not be entertained.
There are also planning groups not owned by institutions, but that have arrangements with wrap accounts and master trusts to consolidate their (that should be, your) funds under management. They do this for the purpose of creating a saleable business entity.
This is sound management from the planning group’s perspective. Perhaps the planning group has been able to negotiate very attractive administration costs and the recommended administration platform could very well be the best option for my heartbroken widow.
However, for my grieving wife this alignment between planner and administration platform would probably cast a little doubt over the transparency of the advice.
The truly independent planner is not aligned with any institution or administration platform. They are a rare breed. So finding one will not be easy.
Also it should be noted that being independent does not necessarily translate into competence. But for my ‘heartbroken better half’ it is a start.
#2 Genuinely Fee Based Financial Planning
Finding a fee-based planner became a lot easier from 1 July 2013. The Future of Financial Advice (FoFA) legislation came into force on that day. Commissions are banned (for new investments).
Percentage based management fees are still permitted on ungeared products or investment amounts provided the client agrees to this arrangement.
Also there is greater emphasis on transparency of fees — annual fee disclosure statements must be provided to clients. Every two years clients must provide written acknowledgement to remain in the ongoing advice arrangement.
In my opinion a genuine fee based arrangement would be calculated on an hourly rate for work undertaken (similar to an accountant) rather than a percentage of funds invested.
An all-encompassing financial plan is more than just the funds invested. It can be about tax structures, tax planning, insurances, Centrelink eligibility and estate planning. The planner needs to be compensated for undertaking this work in addition to reviewing the portfolio asset allocation.
So I would instruct my wife to find out exactly how the planner intends to be remunerated for their services. Charging on an hourly rate basis only would be another tick of approval.
#3 An Experienced Financial Planner
‘You cannot create experience. You must undergo it.’ ― Albert Camus
When it comes to investment markets, there is no substitute for experience. Anyone, and I mean anyone, who has been involved with markets for a long period of time knows how truly humbling they can be.
The textbooks espouse the theory of market efficiency hypothesis, but nothing schools you in the wily ways of the market like the market itself.
The reason ‘black swan’ events occur is precisely because very few, if any (least of all the academics) saw them coming. Markets can be like snow on a mountain; one minute a postcard picture, the next minute an avalanche.
My good wife would be instructed to ask some probing questions, like:
- ‘How long have you been a financial planner?’ (OK, so this is not really a probing question.)
- ‘What have you learnt about markets during that time?’
- ‘Are you familiar with the concept of Secular markets?’
- ‘Do you have more or less than the amount I am seeking to entrust into your care?’
- ‘If less, how much less — a lot or a little?’
- ‘How do you invest your money?’
- ‘What has been your biggest loss and how did you feel?’
- ‘Besides the standard mainstream economic
rubbishcommentary, where else do you source independent research and viewpoints?’
Pretty soon my beloved will get an idea of whether she is talking to someone who has spent their years in the industry productively or not.
#4 A Financial Planner with Empathy
‘When people talk, listen completely. Most people never listen.’
― Ernest Hemingway
Find someone who understands you and genuinely listens to you. They have the ability to appreciate and understand your situation.
They may not necessarily tell you what you want to hear, which can be a good thing. Sometimes people have unrealistic expectations, and want a planner to make a ‘silk purse from a sow’s ear’. Honesty and respect between both parties is essential.
In summary, if the planner is Independent, Impartial, Genuinely Fee based, Experienced and Understands you, then my wife should be in pretty good hands and I can Rest In Peace.
However I do have one final piece of advice for her.
Make sure the planner is not single and too good looking.
for The Markets and Money Australia
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