Barefoot Investor: Beware of being the meal ticket
In life the smartest people are those who fearlessly ask the simplest questions, and then back themselves. No one cares more about your money than you do, so when it comes to “financial experts”, trust your gut, writes the Barefoot Investor.
A woman I’ll call Lynne emailed me with the subject line “Devastated”.
Here’s what she wrote:
Scott,
Over the past three years I had become increasingly anxious about the state of my finances, which have been controlled by my “trusted” financial adviser of seven years. Finally, I sent him an email last Friday asking him the three questions you suggested in your book.
He replied the following Monday, terminating forthwith his services!
I am a single mother of three adult children, without a home, living alone, paying rent. During the seven years he has been my adviser, my capital assets have been reduced by over $500,000 (to $800,000). What can I do?
WORST ACTS OF GREED FROM FINANCIAL ROYAL COMMISSION
THE DANGERS OF HAVING MULTIPLE CREDIT CARDS
Lynne
Bingo Bango!
I’ll answer Lynne’s question in a moment, but first, here’s the email I wrote about in my book:
Dear (adviser’s name)
I’ve decided to do a review of my finances. Could you please do the following three things for me:
1. Print me a statement that clearly shows my annual percentage return since we began, net of fees.
2. Benchmark my return against the relevant accumulation index for the same period.
3. Provide me with an itemised list of fees (expressed in both dollars and percentages). Include any and all ongoing fees, commissions and administrative costs that I’m charged.
Kind regards,
Client
Lynne, you can almost picture how this went down:
Your adviser double-clicks on his email: “Oh, I got an email from Lynne, I wonder what she’s up to …”
As he starts reading, his eyes start to squint like he’s getting a root canal.
And then he gets to the end of your email and theatrically spits out his frappuccino all over his mainframe, which ricochets and ruins his Roger David tie.
Lynne, know this: good advisers — and there are many — actually want their clients to ask these questions.
They can justify their fees because they’re working in their client’s best interests.
A good adviser wants smart clients who understand and value good advice.
A shonky adviser, on the other hand, will do what this guy just did — sack you and move on to the next chump.
They see you as their meal ticket … it’s not personal, it’s just lunch.
I spat out my coffee when I read that your assets had decreased by $500,000 in the past seven years (thankfully I was not wearing a tie).
Here’s why:
Aussie shares have achieved a compound annual return of 8.5 per cent over the past seven years, while international shares returned 14.5 per cent a year, according to Vanguard.
In other words, a $10,000 investment would have grown to $17,701 (Aussie shares) or $25,801 (international shares).
In the same period the average default super fund (with a higher weighting to cash and fixed interest) has returned 9.1 per cent per year (industry funds) or 8.4 per cent (higher-fee retail funds), according to ratings agency Chant West.
Someone needed to be given the boot here, Lynne, and I don’t mean you.
So now it’s time for you to write a few more emails — the first is to make a complaint to the firm.
The adviser’s financial services guide will tell you how to do this (look through your paperwork and you’ll find it, otherwise call the firm and request a copy).
The next is to lodge a complaint with the Australian Financial Complaints Authority via their website (afca.org.au).
Look, one of the biggest fears we all have is looking dumb in front of others.
And sometimes experts can use that against you — whether they’re a mechanic, a doctor or a financial planner.
Perhaps that’s why you didn’t act on the feeling you had in your gut about this bozo for three years, but the smartest people are those who fearlessly ask the simplest questions, and then back themselves.
So back yourself.
Remember, no one cares more about your money than you do.
Tread Your Own Path!
Q&As
CREDIT CARD HELL
MAX ASKS: My aunty has got herself into trouble with credit cards.
She is not savvy with money and I really do not think she understood what she was doing.
After a lifetime of work, she has $10 in her purse — and $211,000 in debt across 15 cards.
She has been cash-advancing to make the minimum payments for years.
I think most of the debt is interest, and she has nothing to show for it (no car, holidays or smashed avo) — at this rate she is going to lose her home.
Is there anything I can do to help her?
BAREFOOT REPLIES: It sounds like your aunt is going bankrupt … or at risk of going bankrupt.
It also sounds like she has a gambling addiction.
Now you don’t say whether your aunt has any loans against her home, but she will be forced to sell it.
If the credit card company, or a debt collector who has bought any of her debts (for cents on the dollar), works out there’s a chance she may have money left after she pays her secured mortgage, they’ll carve her up.
Your aunt is facing two battles that you can help her with, but can’t fight for her:
First, you can help her get some independent financial advice — encourage her to sit down with a community-based financial counsellor (call 1800 007 007).
They’ll help her weigh up her options (either a debt agreement or bankruptcy).
They can also investigate the inappropriate lending she’s received.
No one should have a $211,000 credit card debt — there are responsible lending laws in place to stop people getting into this mess.
The second, and most important, thing you can do is get her some psychological support.
You’re right to be worried about her mental health.
The debts she’s racked up are a symptom of what’s going on in her head.
Something is seriously wrong and she needs professional help.
Money comes, money goes, but this really is life and death stuff.
BEST LAID PLAN STOLEN
BEN AND ELISHA ASK: We are in our early 30s and not working — we sold everything in 2016 to caravan around Australia, rented out our family home and used the equity to buy our $80,000 caravan.
This extended our home loan, but the rent covered both loans. Winning!
We returned home, sold the caravan and mistakenly invested $30,000 in Bitcoin, which was stolen (hacked from our “Binance” account).
Our mortgage is $440,000, and we could sell our home for about $700,000, but with all the fees it would cost $75,000 — is it worth selling to consolidate?
BAREFOOT REPLIES: Having your Bitcoin flogged from one of the world’s largest crypto-exchanges is shocking.
I honestly have no idea what the recourse is on an investment whose main feature is anonymity.
Apart from that, you have a straightforward question: should you sell your home to become debt free?
Well, you could take the easy option and sell your home, but I personally wouldn’t do that, for a couple of reasons.
First, because I’m a tightwad, and I don’t like to see you paying transaction costs, especially if you’re planning on buying another home in a similar area in the future.
(I also don’t understand how you’ve calculated the selling fees as costing $75,000 — an agent should cost at most $20,000, and you won’t incur capital gains tax if you’re selling within six years of first renting out your property.)
And second, because you’re in your 30s and you’re fresh from the holiday of a lifetime.
If I were you, I’d work hard, pay down my mortgage and build my net worth.
The bottom line: it’s either the magic diet shake or the daily 5am run. Which will you choose?
RANDY ANDY’S LOAN WIN
ANDY WRITES: I called my bank to negotiate after seeing a special home loan rate on its website. I followed your script and asked for the new rate. I was told “Sorry, that’s only for new customers”.
When I replied with, “Well paint me red and call me Randy”, the operator laughed and said, “You’ve been reading Barefoot?” — then he gave me the lower rate.
You saved me more than $1000 a year in a two-minute phone call. Thanks, cobber!
BAREFOOT REPLIES: That’s totally wild!
I was speaking to a banker the other day who said his call centre staff know when they’ve got a Barefooter on the line, following my script to get a better deal.
He also said if they’re a good customer they’ll “more often than not get a discount”.
That’s not because the bank staff are kindhearted, but because they’ve also read the book, and they know my next step — they know that customers (if knocked back) will move to another bank and get a better deal.
If you’ve got a burning money question, visit barefootinvestor.com
and #ASKBAREFOOT
The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice.
The Barefoot Investor for Families: The Only Kids’ Money Guide You’ll Ever Need (HarperCollins) RRP $29.99. Available now in all good bookstores and online
Originally published as Barefoot Investor: Beware of being the meal ticket
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