FINANCIAL PRODUCT ADVICE – HIGH COST, HIGH RISK & DIMINISHING REWARDS

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The provision of financial product advice is becoming a high risk, high cost, diminishing rewards business model, particularly for sole practitioners and small practices.

Although there are one or two exceptional value for money ‘boutique licensees’ in the AFSL market, licensee fees among the larger providers are becoming an increasingly prohibitive fixed cost to cover each year.

Added to that are the additional, rising costs of PI cover, ASIC fees, ongoing CPD, and software fees.

That’s just the costs.  What about the risks?

The need for many licensees to micro-manage adviser compliance has resulted in the advice process being slowed down to varying degrees by vetting all or some SoAs before presentation to clients.

Any process that slows down advice delivery also limits adviser revenue.

Then there’s the ever-present ASIC enforcement tightrope to walk. One slip here can rob an adviser of their lifetime of work by means of a huge fine or banning.

Add to that the ever-present risk of a litigious client or one with self-serving bias seeking to shift blame, having a free swing. The risk here is a very long and expensive slide into the AFCA complaint pit where the playing field is anything but level, for advisers.

Of course, the biggest risk of all is the Australian government, driven by political agenda, making it worse by doing more of the same, in the name of fixing it.

As a result of all of this, the price of advice has risen to unaffordable levels for most low net worth and disadvantaged Australians; those who need it the most.

So it begs the question, “Why would anyone actually choose the provision of financial product advice as their preferred career or indeed, as the centrepiece of a thriving business?”

It’s a definite yes for those prepared to build a business for the times.  The advice business models of last decade simply do not suit the fast changing environment of this decade.  That is evidenced by the number of adviser business owners who have exited the industry in recent years.  And the reasons go well beyond the exam.

Just take a look at the modern financial planning practices run by gen-X advisers and emerging gen-Y advisers.  They look nothing like the product-driven, commission-funded businesses of the past.  They are completely client-focused, client-funded and innovative in the way they deliver knowledge-based advice to clients.

The only way that high practice (fixed) costs and adverse ASIC & AFCA outcomes can hurt advisers is if they sit and wait and do nothing different.  The antidote is a combination of energy, expert knowledge, ethical practice and practice management skills, in particular financial management.

Therefore, key among the desired goals of change have to be (a) to convert high costs to manageable costs (b) to reduce high risk to low risk and (c) to turn around diminishing rewards into high rewards, in terms of both money and lifestyle.

And one last point to ponder!

If you are an adviser and not providing ‘financial product advice’, a concept narrowly defined in the Corporations Act, then perhaps it’s time to reconsider whether you should be playing in ASICs backyard at all.

THE NEW ERA OF THE NON-LICENSED FINANCIAL SERVICES

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Image credit: Chase Clark (@chaseelliottclark)

The great irony of financial advice regulation in Australia is that Chapter 7 of the Corporations Act covers every aspect of selling financial products, including the disclosure and behaviour obligations of AFS licensees and their representatives who advise, arrange and sell those products.

Meanwhile, life-changing strategies not involving a financial product, don’t rate a mention.  For example:

  • Financial education
  • Managing money
  • Household budgeting
  • Property affordability
  • Estate planning strategies
  • Govt. services support (e.g. Centrelink, aged care)
  • Mortgage broking (requires Australian Credit Licence authorisation)

Why is this so?

The reason is that these services lie outside the definitions of a ‘financial service’ (s766A) and ‘financial products’ (s763A-764A) for the purposes of AFS Licensing.

To add perspective, the Corporations Act 2001, including Chapter 7, was introduced to address a range of unconscionable financial product practices of the past, when most advisers were agents of life insurance companies offering high commission based super and investment products. Hence the sharp legislative focus on financial products, disclosure & conduct obligations, BID, etc.

Nevertheless, non-product advice is critically important.  It is in high demand.

And indeed for AFSL authorised advisers, the obligation to provide this type of advice when requested is heavily reinforced by both RG175 and the Financial Planners & Advisers Code of Ethics.

Interestingly though, if non-product advice is the only advice being provided, and no financial service ‘as defined’, is being provided (which includes ‘financial product advice’ plus a few other specific services), then there is no need for an AFS Licence under current law.

So what is the consequence of this?

With such a severe shortage of financial planners in Australia, it means that the door is open wider than ever for a new wave of education; strategy, coaching and other service providers to fill the much needed ‘non-financial product’ advice gap in the market.

And ironically, this demand is very likely to be met in part by of the legion of advisers who have recently been forced out of our industry; particularly given the tough and worsening economic times we are currently living through.

Such people already exist in our industry. They can’t use restricted names like financial planner and financial adviser, but they can use identifiers such as ‘Money Coach’, ‘Money Management Strategist’ and ‘Centrelink Support’.

I am not suggesting that these service providers should remain unregulated; and we certainly don’t need amateur finfluencers misguiding a vulnerable population.  As we know, bad strategy is just as dangerous for clients as inappropriate product.  It is critically important to have appropriately educated, competent professionals helping our community, because a huge proportion of low income and disadvantaged Australia is crying out for basic financial help and guidance that doesn’t involve a financial product.

Footnote: Former risk advisers please note that claims handling is now a financial service and requires an AFS Licence. See ASIC INFO 253

Call Gary for your free consultation

Nine Questions You Should Ask About Your Super

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gary weighSuperannuation is so much more than a low administration fee. We so often see TV ads for union-related superannuation funds, commonly known as industry funds, promoting low fees as if it is the only thing that matters.

It is not surprising, because what you are hearing is a provider of superannuation talk about the product features of their particular brand. Nothing more!

A superannuation provider is not licensed to give advice beyond their own product.

Find out how your super can be made to work well for you using the personal approach of a good financial adviser who specialises in superannuation and, importantly, using one that doesn’t have any bias towards any particular product provider.

Whether you are suited as member of an industry super fund, a retail super fund, a superannuation wrap, or a self-managed super fund depends entirely on your personal circumstance, your financial situation and your retirement aspirations.

Advice comes first! Which type of superannuation you need and which product you might ultimately purchase comes a distant second.

If you think your super is not working for you the way it should, and you are interested in improving it, then you might be interested in some general advice from an adviser who understands superannuation very well.

Whilst fees are important, here is a list of NINE other important aspects of your super to consider if you want your super to be the effective retirement vehicle it is supposed to be:

1. Is your super all in the same fund?

2. Does the fund you are in actually suit your needs from a control, investment management, tax effectiveness, and estate planning point of view?

3. Are you able to replace lost insurance benefits if you change super fund?

4. Do you have enough insurance in your super and is it tailored to your needs?

5. Do you know what to do with a government ‘defined benefit’?

6. Are your investments consistent with your tolerance for risk?

7. Do you understand the tax consequences of your withdrawal options

8. Are you aware that lump sum tax could apply to your benefit if you die

9. Are you aware that by being in the wrong fund that your spouse or young children could miss out on a lump sum tax refund in addition to your benefit if you die?

You have probably never heard of most of the issues I have raised above and, to be fair, they need to be explained to you. But as you can appreciate, superannuation is a complex area and there is so much more that matters besides a low administration fee. The points above are the areas that a good adviser will address to make an enormous positive difference for you.

With a good investment strategy and frequent reviews, your benefit can grow over time and then be repositioned to provide income for you when needed. But there’s much more!

With correct structuring; appropriate contribution and withdrawal strategies, personalized protection and inheritance planning, and an eye for tax consequences, you can potentially save a lot more money over the course of your working life, into retirement, and eventually, beyond death where your descendants safely receive your remaining wealth.

So as well as hearing about super from a superannuation product provider’s point of view, ask about super from a ‘how to make super work for you’ point of view from a knowledgeable adviser’s point of view.

General advice warning

The article above is general advice only designed to educate and heighten awareness of superannuation issues. It should not be regarded as personal advice because it does not take into account your personal circumstances, financial situation or specific goals. For personal advice that is tailored to your needs, please consult a licensed financial adviser.

a man in suit holding a credit card

Tips to Reduce your Credit Card Debt

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gary weigh

I find that people with significant credit card debt generally don’t like budgeting.  Most I meet as a financial adviser tell me that they are hopeless budgeters.   What they really mean is – it wouldn’t tell them anything they didn’t already know deep down, and because they don’t know how to change, there seems no point as they would not be able to live within its means anyway. 

Regardless, I still insist on a budget because it shows the depth of the problem and it helps prioritise spending.  After all, my job is to help, not judge!

The reality is people get into trouble with credit cards because they spend more than they earn and the credit card is being used to bridge the gap.  It occurs a lot with lower income earners but I have seen many couples on a combined gross income of $200,000 – 300,000 a year complain to me that they can’t make ends meet.  It is all relative!

When families can’t make ends meet, credit card debt increases and as each month passes, it becomes rising core debt.  Core debt means that the debt is not paid down to zero each month.  It therefore carries over to the next month where it is increased by new debt associated with current purchases.

Typically, this bad habit will continue for a couple of years until finally, at a crippling interest rate of between 15%-20% per annum, the debt eventually grows beyond the capability of the cardholder to manage it.

Growing credit card debt means only one thing – you are spending more than you earn.  Your two choices are simple – either to earn more or spend less (or both).

To reduce existing credit card debt:

  1. Obviously, stop adding more debt to your credit card
  2. Pay as much as you can afford each month as an extra payment in addition to the required minimum repayment, otherwise the number of years required to repay your debt, plus the total amount you will ultimately repay, will quickly blow out beyond your control
  3. To get some breathing space, renegotiate the interest rate on your existing debt either with your own bank, or take advantage of a better offer to transfer the balance to a new bank
  4. If you are a homeowner, consider consolidating your personal debts into your home loan and then increase your home loan repayments.  This would usually lower your total monthly repayments for all debt.  This may or may not be feasible depending on your circumstances, so it is important that you seek professional advice before you take action!
  5. If you are not a home owner, consider approaching your bank and ask them to convert your credit card debt to a personal loan.  Then work hard at paying off the personal loan.  Personal loan interest rates are generally lower than credit card rates.  This will generally lower the interest rate and therefore your decrease your monthly repayments.  This may or may not be feasible depending on your circumstances, so it is important that you seek professional advice before you take action!

Let me be clear:

“Using a credit card is the worst personal finance strategy you can think of!” 

If you have a credit card that is maxed out, or you have more than one credit card, you are either in financial trouble or trouble is looming and you should seek professional advice immediately.

Nobody needs a credit card.  For payment convenience in this cashless society, switch to a debit card where you are spending your own money, and not borrowing and increasing your debt every time you make a purchase.  At least then, when the account linked to your debit card runs out, it is an unmistakeable signal to stop spending.

Gary

christmas bokeh background

My Christmas Gift List

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Gary Weigh Financial AdviserI have finished my Christmas shopping without spending $1,000 or running up a credit card debt. This year, more than ever, I am looking forward to Christmas day because I have the following five gifts:

  • I gave up on expensive gifts with no lasting value
  • I have given over to my imagination and creativity
  • I am giving my time and genuine interest to my family
  • I want to give solo friends the opportunity share Christmas with me
  • I feel great about giving charitably to help those less fortunate

As the years pass and the composition of family and friends around the dinner table ever slowly change, I think the best part about Christmas is the light of excitement in children’s eyes, the pure enjoyment of being part of a family, and wonderful memories of Christmas past.

Have a Merry Christmas

Gary

Please make a small donation to Jacaranda Clubhouse Ipswich to help those recovering from mental illness http://www.jacarandaclubhouse.com.au

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old man wearing a beret holding a glass of wine

The Golden Years Retirement Myth

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Business coaching BrisbaneIn the words of Tennessee Williams, “You can be young without money, but you can’t be old without it”.   Retirement is often referred to as the golden years, but for many a golden years retirement is a myth, and not just because of a lack of money.

There are four (4) must-have requirements that must be met before retirement is likely to approach a golden era.  They are:

  1. Must have good health
  2. Must have enough money
  3. Must have satisfying relationships; and
  4. Must have a continuing sense of purpose

Regardless of the amount of money you have, poor health can devastate your retirement if it occurs in the early stages.  It can also make it much more expensive than it needs to be.  The irony is that in many cases, poor health can be the result of the decades spent under stress to earn the money to fund a life, including retirement.

The financial reality for most people is that they exist on a full or part government age pension.  Even if all the other requirements are met, a lack of money can mean a frugal lifestyle indeed plus a severe restriction on travel and other touted ‘golden year’ activities.

Loneliness can have a severe negative impact on the quality of a person’s retirement. Having one or more satisfying relationships is essential because all people have an innate need for social interaction and support.  The key relationship might not be a spouse; it could be one or more close friendships.

One essential requirement that is overlooked by eager retirees is an ongoing sense of purpose.  After a year or two of travelling overseas, or touring the country in a caravan, the reality of nothingness often sets in.  If you don’t like fishing, golf or bowls, life can become extremely boring.  For this reason, many people go back to work or give their time to charities.

Retirement is a period that can last for 30 years or more.  So if you do some golden years planning that great, but remember that money is only part of the plan.  If, like most people, you don’t plan, at least you know what’s coming.

Gary

a family of 6 gathering together for a meal

Give your children the gift of personal finance basics

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learn personal finance basics

Children learn financial management from their parents.  At a very early age, our kids become aware that money comes from a machine outside a bank (ATM) or a supermarket cash register (EFTPOS); and that flashing a thin sliver of plastic allows us to walk out of a shop with just about anything we want.   

So it comes as no surprise that older children can believe that a credit card is the one and only option when cash is needed instantly.  Of course, people skilled in financial management know that’s crazy because nothing capable of growing in value or earning an income return is ever purchased with a credit card and the amount that is ultimately repaid often far exceeds the original purchase price.

It is a natural urge of all parents to want the best for their kids.  Consequently, we all invest a lot of time and money into their education and career guidance.  However, the ability to earn good money is only half the story.  Keeping the money they earn and making it grow is far more important. 

This ‘make-or-break’ chapter of our children’s education is so often missing because parents don’t have the skills themselves.  As a result, young people do not see a good example in the way their parents manage money.  Worse, they see bad habits on a daily basis and copy them in the innocent belief that Mum and Dad are right.  They can also copy the negative behaviours that relentless money stress can cause!

One way or another, our children need to be shown good money skills.  With these skills, there would be less pressure on them to become high income earners just to get by.   Without self-imposed financial pressure caused by bad habits and a lack of know-how, our kids could be encouraged at a much earlier age to follow their dreams instead of the drudgery of a life lived merely for the sake of money.

To me, this is what personal financial management is all about – a life well lived!

Gary Weigh

the big c curse

Turning prosperity into retirement

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HOW-TO WORKSHOPS

Starting in Brisbane – February 2014

“Is a Self Managed Super Fund right for you?”

SelfBusiness consultancy Australia Managed Superannuation is a hot topic at the moment.  Many people are being talked into setting SMSF to own an investment house via slick property marketeering.    This can be a huge mistake unless you know what you are doing.

Merely setting up a Self Managed Super Fund (SMSF)  does not guarantee success.  It needs to be crafted to the owners needs.  A SMSF structure can be a tax-effective investment machine.  But it must be used the right way.   Like turning a house into a home, a new SMSF shell must be furnished to meet the particular needs of the family.

My 1-hour evening workshop will cover:

  1. How to know if a SMSF is right for you?
  2. How much money do you need?
  3. How much work is it to manage?
  4. How and when can you access your money?
  5. How to making a SMSF actually work?
  6. How to keeping the costs down?

Numbers will be limited to 8 people per session so that we can field questions and put everyone on the right path with their superannuation.  We will conduct as many small group workshops as we need to.

The workshops will be held at Toowong, Brisbane after hours and there is no cost to attend.  Yes, of course we would like you to consider us as your ongoing advisers but there is absolutely no obligation.

To register your interest just send me an email personally to gary@garyweigh.com

 

two buildings in brisbane

Business consultancy Australia

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Self-managed super – is it right for you?

Business consultancy AustraliaThe number of people establishing self-managed superannuation finds (SMSF) continues to increase.  People are enticed by the prospect of having control over their own superannuation affairs.  But in my experience, people don’t realize the full extent of what they are getting themselves into. Having control may be desirable, but being your own administrator, accountant and investment adviser is very challenging and can be a trap for many SMSF newcomers.   Although it is easy to outsource all of these knowledge gaps, the resulting cost structure can be very expensive. In many cases, people set up SMSFs without doing enough homework.  Often they fail to reach the objectives they set for themselves and could have been better off choosing an appropriate APRA-regulated fund. In my experience, people don’t understand the wide range of superannuation choice available.  Unless a member investor particularly wants to invest in direct property through superannuation, other forms of superannuation should also be considered before the decision is made to set up a SMSF. ASIC (The Australian Securities and Investments Commission) is also concerned about trustee knowledge gaps.  The corporate and financial services industry regulator has weighed in recently and, as part of its SMSF taskforce activities, has outlined a range of factors it believes are important for financial advisers to discuss with their clients. Conversely, anyone considering a SMSF should seek unbiased advice before acting.  In particular, more information should be sought and greater consideration given to:

  • the roles and responsibilities associated with being a trustee of an SMSF
  • the time, cost and resources required to run an SMSF
  • the risks associated with an SMSF structure (ie, not having access to a government compensation scheme)
  • whether the investor has the necessary skills and expertise to make investment decisions for the SMSF
  • the importance of asset diversification
  • whether the investor’s investment strategy will deliver the returns required to adequately fund their retirement; and
  • the advantages and disadvantages associated with a switch from an APRA-regulated fund

Check out the ASIC Moneysmart site to read a little more about how a SMSF works https://www.moneysmart.gov.au/superannuation-and-retirement/self-managed-super-fund-smsf Call me for a free 1-hour overview of a SMSF where I will give you a balanced explanation of both the opportunities and responsibilities that will be placed on you and your family as trustees.  Contact me at Gary Weigh & Associates Business consultancy Australia on 0408 756 531 or gary@garyweigh.com

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Pay one fee and be commission-free

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Business management tips – risk insurance

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9 myth-busters on personal insurance in Australia

Business management tipsYou hear it almost every night on TV.  Buy insurance direct and avoid the unwanted medicals.  Well here is the other side of the story – some business management tips, and tips for all individuals considering insurance.  When you purchase personal risk insurance through a licensed adviser, you will have a product recommended to you that suits your needs.  You will also have someone to explain the fine print to you, and to arrange everything for you.

So here is what really happens when you seek advice from an insurance adviser in Australia:

  1. Very few people are required to have a full medical for insurance purposes
  2. Most policies are accepted on the strength of your medical disclosure in the application and the report from your regular doctor (you agree to that in the initial application)
  3. You do not have to go to a doctor and pay for medical testing to get insurance
  4. If an insurance company wants you to undergo any medical test, they pay for it.  Because it is an expense to them, they try to keep all medical testing to a minimum
  5. Occasionally a blood test or other test is required.  If so, a registered nurse or other qualified professional from a specialist insurance medical testing service will arrange to see you at home or at work at a time convenient to you.  It takes 5 minutes.
  6. Most insurers have a tele-underwriting service where an underwriter will talk to you about your medical history over the phone in about 20 minutes.  You don’t spend hours filling in forms.
  7. If you apply for insurance that is personally underwritten, you will get a very competitive price because the insurer knows exactly the risk you represent to them.  You will also know up front what you are covered for and not covered for.
  8. Underwriting at application stage generally means that unless you fail to disclose information or you tell a lie, you are certain to be paid at claim time.  If you are not underwritten when you first apply, you may have the insurer asking these same questions when you make a claim.
  9. Insurance medical testing saves lives.  Many people have had their lives saved by finding out through an insurance requested blood test that they have a serious medical condition

Yes it is true that you will pay a fee to an adviser or the adviser will receive upfront and ongoing commission from the insurer.  It depends on the adviser however, every professional is entitled to be paid for what they do.  However, you will not necessarily save that cost by going direct, and you certainly won’t receive unbiased advice.

Personal risk insurance is must for business owners.  One final comment in this week’s business management tips:

“Ownership of an insurance policy is a crucial issue.  In the event of a claim, the money needs to be paid to where the protection is needed.  That could be to you the owner or your family; or to the business  (company or trust) if your business equity or a key person in your business is the subject of insurance protection.”

 

Make your superannuation commission free!!

Why pay an adviser you never see?