Barefoot Investor: Tips for getting financial advice

GETTING financial advice is the same as to dating in your 20s, ‘play the field’, writes Barefoot Investor.

“My approach to financial advice is the same as to dating in your 20s: by all means play the field to seek out the right people, but keep it transactional”. Picture: monkeybusinessimages

THERE are times in your life where you need the expertise of a professional financial adviser — and today I’m going to show you exactly how to find the right one for you.

Even better, the people I’m going to refer you on to are not only independent, but some of them work for free.

Seriously?

You’d better believe it.

Today I’m going to show you how to do it right.

But first let’s have a bit of fun. Let me show you how to do it wrong.

HOW TO DO IT WRONG

Let me introduce you to Greg and Cindy (real people, different names).

Greg was in his local bank (which bank?) depositing the day’s takings from his shop when the friendly teller hit him with the old Ronald McDonald line, “Would you like a financial plan with that?”

Over the next few weeks Greg and Cindy had a number of meetings with the bank’s financial planner.

The first was a brief ‘getting to know you’ chat. The second got a little more intimate.

The planner instructed the couple to pull down their financial pants and touch their toes.

Then he poked and prodded at their lack of savings, asked them about their insurance, and went through something called a ‘risk profile’ (which is kind of like asking a virgin to fill out a questionnaire on sex).

“Your first meeting with the adviser should be both fee free and obligation free.” Picture: Kupicoo.

A few weeks later, Greg and Cindy received their Statement Of Advice (SOA) financial plan.

The couple made themselves a cuppa and began flicking through what looked like a phonebook. They got a bad feeling. That’s when they got in touch with me.

“We just paid $4000 for a financial plan — and I can barely understand it”, Greg grumbled.

“It feels like a template with slabs of cut-and-paste legal mumbo-jumbo”, Cindy said.

Their SOA contained a lot of asterisks for things that will change the moment life throws a left hook — like ‘longevity risk’*, ‘share market returns’*, ‘interest rates’* and ‘inflation rates’*.

I pointed out to them that their financial planner was at least very certain about one thing: rolling them out of a low-cost industry fund and into his own bank’s fund, which would mean they would be charged thousands of dollars more in fees each year.

“Apparently his fund has more features”, Greg told me.

“Like what? And do they justify paying thousands of dollars a year more?” I asked.

Greg shrugged his shoulders. He had no idea.

The planner had also disregarded the existing insurance within their industry super fund and recommended they purchase multiple policies from the bank’s own insurance arm, which would earn him thousands of dollars via both an upfront and trailing commissions every year.

Greg and Cindy’s adviser had framed his service as an ongoing ‘relationship’ for which they would be charged another annual review fee.

Now they wanted to break up with him.

HOW TO DO IT RIGHT

TO avoid Greg and Cindy’s dud date, you need to get a few things clear. In fact, there are three things that I passionately believe when it comes to managing your money.

— First, you should keep things as simple as possible. Focus on savings, owning your own home, and long-term investing. Case in point: I asked Greg and Cindy to explain their expensive financial plan to me and they couldn’t. If you can’t explain it in 60 seconds, you don’t really have a plan.

— Second, you should keep your fees to an absolute minimum. The more money your adviser takes, the less you make. And asset-based fees could end up costing you tens of thousands of dollars over your life. The majority of these are paid after you retire—when you can least afford it.

— Third, you should never give up financial control to anyone.

Having said all that, seeking out truly independent financial advisers at certain stages of your life is one of the wisest things you can do (as long as you do it right).

“If you can’t explain it in 60 seconds, you don’t really have a (financial) plan.” Picture: Ridofranz.

WHO YOU GONNA CALL?

IF you have school-aged children, you should call your (low-cost, preferably not-for-profit) super fund and ask to speak to one of their financial advisers.

Yes, I know you might not have any money right now, but you have important assets — your children. You need to make sure your kids are protected financially should anything happen to you.

Your fund’s financial adviser can do a risk assessment and recommend insurance both inside and outside of super — and at wholesale rates instead of the eye-gouging commissions most financial planners charge (up to 125 per cent of the first year’s premium — now that is what I call eye-gouging).

If you’re in your 40s or 50s you should ask the financial adviser for a strategy to maximise your super contributions before you retire and to advise you on which investment option to invest.

Again, no one has a crystal ball, so it pays to keep things simple.

Warren Buffett is famously investing 90 per cent of his estate in a simple low-cost index fund and the other 10 per cent in cash.

Your first meeting with the adviser should be both fee free and obligation free.

Thereafter they’ll charge you an hourly fee, just like your plumber does.

Your super fund’s adviser can also help you draw up a will and appoint an enduring power of attorney, though you may also want to make an appointment with a professional at the State Trustee. That’s their bread and butter.

And what if you’re already retired?

If you need help setting up and maximising your Age Pension, you should call Centrelink on 132 300 and arrange a face-to-face meeting with one of their Financial Information Service Officers.

They can help you sort out your Centrelink entitlements and also give you unbiased general retirement planning advice that lays out your options without the hard sell.

They can also help you navigate aged care options. The service is free and independent — and it rocks.

My approach to financial advice is the same as to dating in your 20s: by all means play the field to seek out the right people, but keep it transactional — “Wham, bam, thankyou ma’am (or man)”.

There’s no need to get into a long-term relationship with someone who’ll make you hand over a percentage of your ‘assets’. Remember the golden rule: no one cares more about your money than you do.

Tread Your Own Path!

Originally published as Barefoot Investor: Tips for getting financial advice