I thought it wise to share with you what financial planning is and what a financial planner actually does, because in my experience most people either have misconceptions or just don’t know. I’m also going to provide some guidance on the different types of financial planners and crucially, some important steps you need to take before choosing a financial planner.
In a nutshell, I like to think of financial planning as the process where the client and planner get together to initially discuss the clients’ current situation. The financial planner and client then explore what’s important to the client and what their future goals, aspirations and objectives are. The planner then works out a strategy to meet these objectives and prepares a written ‘blueprint’, this is legally known as a “Statement of Advice” but commonly called a Financial Plan. Normally this covers retirement planning, eg. informing a 40 year old of the steps required for him or her to retire at their preferred age of, say, 60 with a retirement income of $75,000, in today’s dollars. But as you will see below, it is more complicated than that.
Table of contents
- What is covered with a Financial Planner?
- What is in a Financial Plan?
- What are the different types of Financial Advisers?
- How do I find the right financial planner for me? (Basic Due Diligence)
What is covered with a Financial Planner?
Naturally, the areas of discussion will be dictated by your stage of life and your objectives and needs. The actual areas which may be covered with financial planning often include:
- Budgeting – cashflow planning and budgeting are probably the cornerstone of financial planning; monitoring your expenses and knowing what your surplus income is.
- Salary sacrifice – a useful strategy to save tax and build your retirement funds.
- Implementing savings plans
- Tax Planning – This may involve tax effective investments or just general strategies to reduce tax. Most financial advisers are now registered with the Tax Practitioners Board as “tax (financial) adviser”.
- Government co-contributions – Whenever the government is handing out our taxes; make the most of it.
- Centrelink Pension maximisation strategies – There are a few strategies which will ensure you get the most Centrelink aged pension possible.
- Starting a transition to retirement – Due to legislative changes, this is now less beneficial than it used to be, but it can be a worthy strategy in some cases.
- Self managed super funds (DIY) – An alternative to traditional super funds which allows access to alternate products such as direct property.
- Investment Portfolios – When you’re still a number of years or decades from retirement, locking wealth away in super may not be an attractive option. So you need to invest outside of super.
- Property investing –
- Mortgage speed repayment strategies – Non tax-deductible debt should always be a focus for reduction.
- Estate Planning – This will help structure your assets and affairs in a manner which will make life easier for your loved ones and also ensure your assets will be distributed according to your wishes.
- Life Insurances – It can be beneficial to meet with a financial planner who can help evaluate your insurance needs. Most financial planners also sell the life insurance, however if they earn a commission from this it could be viewed as a conflict.
- Concessional and non-concessional super contributions – Maximising contributions into super prior to retirement is important. This is one of the main things people come and seek my advice about. Getting as much money as possible into a tax free environment is crucial for retirement planning and the decades in retirement.
I would consider any discussion covering a number of the above points to be ‘holistic’ financial planning, meaning that it covers the client’s entire situation rather than just bits of it. Having said that, there are numerous occasions when clients see a planner for just one specific reason. For example, they may want advice on how best to invest an inheritance or other financial windfall, or they may only want to arrange income protection or life insurance. Whilst financial planners can help with these ‘one off’ situations, I think the majority of financial planners would agree that the clients best interests are served if they have a broader and more comprehensive meeting.
What is in a Financial Plan?
Unfortunately, a lot is of no benefit to consumers.
I don’t want to be flippant but it’s true. And anyone who has received one would agree. A frequent complaint I hear from new clients is that they didn’t like the advice documents of their previous adviser; they felt it was a generic template, not tailored to them and full of irrelevant information. I sympathise with their complaints, especially when they have paid thousands of dollars for it. However, the blame rests squarely with ASIC and the federal government; not the adviser. Unfortunately the advice document has become a compliance document; it is used to cover the adviser’s backside rather than deliver something special for the client. I am mindful of this, and also that the client is paying me decent coin as a financial plan fee, and I in turn have a responsibility to deliver something special.
So, whilst two thirds of a Financial Plan may offer zero value to clients, the remaining parts will hopefully show a detailed plan of action for the client to get to where they want to be, and this will be through the use of some of the strategies listed above. There should be financial projections showing a (hopefully) realistic outcome. Sometimes the clients’ goal can’t be met, in which case the client is informed that there will likely be a shortfall, but that the shortfall can be limited by working a few more years, or foregoing their annual overseas holiday etc.
What are the different types of Financial Advisers?
The name ‘financial adviser’ and ‘financial planner’ mean the same things and are interchangeable. And all financial advisers should aim to be providing tailored advice and solutions in order to help you achieve your financial and lifestyle goals. However, there are obviously differences between financial advisers, and three key ones to be aware of are:
1. Areas of financial planning specialisation
At Cornish Wealth Management we have decided to focus specifically on clients who are either self funded retirees or actively planning for retirement. We believe that we can deliver a superior service by specialising in one area and so have chosen the area we enjoy most – helping people plan for the some really enjoyable years and decades in retirement. Other advisers may just focus on life insurance, or ‘accumulators’ (younger people building their wealth). Most financial advisers you come across will consider themselves holistic and cover all areas of financial planning (with varying degrees of competence).
2. Who licenses the financial planner?
ASIC grants Australian Financial Services Licenses (AFSL’s) to organisations, who in turn authorise financial advisers to act. These organisations are known as ‘Dealer Groups’. In days gone by, the dealer groups were the big banks, insurance companies or other companies which either offered their own products, or received back handers from those who did. Since the Banking Royal Commission, the banks have pretty much exited the wealth management industry, but there are still dealer groups, and most advisers operate under these dealer groups. I took issue with some of the conflicts dealer groups had, and successfully applied for my own AFSL over 10 years ago.
It is worth knowing who owns the AFSL which an adviser operates under.
3. Is the financial planner independent?
With the changes from the Banking and Financial Services Royal Commission, a significant amount of conflicts have been removed; they are gone and most advisers are pleased about it.
One thing that will be occurring though is that all financial advisers must make it clear, if they are not independent, why they are not independent. And this is “independence” as defined under section 923A of the Corporations Act, which is not necessarily aligned with what most people would consider “independent” to be. I think it is a pointless and unnecessary requirement because I don’t agree with the Corporations Act’s definition of “independent”. A far more independent criteria, which can’t be disclosed, is independence of thought. You don’t want an adviser who just parrots what his Dealer Group, or his employer, tells him/her to say. You want someone with their own educated and informed views.
That said, I am officially independent and meet the Corporations Act definition. So I can proudly state that I offer independent, impartial and unbiased advice.
How do I find the right financial planner for me? (Basic Due Diligence)
This is more than a worthy question; it’s critical.
An active advice relationship will often last for many years. I now have clients who have been placing their trust in my advice for over 15 years. And I have other more recent client joining me because they want someone in my age range so they have certainty that I will still be working for another 20 years, and hence able to provide them with advice for that period of time. And whilst it often a very simple process (just a one page form) to change who the listed adviser is on your superannuation, life insurance or investment products, it would be ideal if you didn’t have to go through this process and reset your advice relationship.
It should be a given that any financial adviser under consideration is suitably qualified, appropriately licensed and operates in a compliant (although also client-centric) manner. Two things I do when I want to check out a financial adviser are:
1. Search ASIC Register
For some reason ASIC has two registers, however this moneysmart one is the best one to use. Unfortunately, despite having the full resources of a bloated government bureaucracy, ASIC ignored my comments that a field for “preferred name” should be provided. So for me, I appear under Michael Cornish instead of Chris Cornish. But despite that, when you locate an adviser you will pick up three interesting points.
In my order of importance:
i. Disciplinary Action
The first is whether there has been any disciplinary action from the regulator against the adviser.
ii. Adviser Qualification
The second are the qualifications of the adviser – although ASIC only allow five to be listed .
iii. Employment History
The third is how much movement has occurred in the adviser’s employment – you don’t really want a long list under the “previous appointments” otherwise you run the risk of developing a relationship only for the adviser to leave again. And why do they keep leaving?
2. Find the Financial Services Guide
This is generally a very boring compliance document, however because it is a compliance document and considered important by ASIC, it can be better relied upon to convey an accurate picture. The first thing though is to get your hands on it. All advisers will, or at least should, provide you with their Financial Services Guide (FSG) prior to, or at the beginning, of any meeting. But if you’re researching which adviser to contact, you’ll want to read it beforehand. You will find a link to mine at the bottom of every webpage and also next to my profile in our about-us page , and most advisers will have it located somewhere on their website, but not all make it easy to find. I use google to search a specific website with their “site search” feature. This is done by using the following format – site:https://perthfinancialplanning.com.au fsg (or try ‘services guide’ instead of ‘fsg’).
Anyway, once I have located an FSG there is one area of great interest that I look at – fees.
The FSG will detail the full spectrum of advice fees and this is often the only place the fees will be disclosed other than the actual advice document – by which time you are pretty much already committed. Very, very few advisers are as transparent as we are with our financial advice fees. Rightly or wrongly, the vast majority say that “the advice costs will be dependent on the complexity of the required advice”. The broadness and flexibility of that statement almost makes it meaningless, and I believe is often used as code for “I’ll charge as much as I think I can get away with”.
Another item of interest in the FSG is the controlling entity. It is a fact that many product manufacturers (banks, super funds, life insurers) try to hide that fact that they control the advice being provided. The FSG provides the details on who licenses the financial adviser – this is important information.
Once you are aware of the above, then you need to find someone you trust. Financial advisers know a lot about clients. Essentially they know what the doctor, accountant, lawyer and counsellor/psychologist knows. And you need to be comfortable with the person you are disclosing all this information to; you need to trust them.
The difficulty is knowing who to trust. Let’s face it, watching a financial planning video only gives you limited insight into the financial planner. You ideally need to meet face to face. Most financial advisers offer free/complimentary meetings for this purpose. And I suggest using both the internet (but please don’t google “financial consultant near me“:) and personal recommendations from friends/colleagues to create a small list of advisers who you then meet with. If you are currently retired or planning for retirement, then we hope to be on your list.
By design, I am a very small business and I do pretty much all the advice work myself. If you’d like to have a chat, please make contact.