Financial Planning - It’s more than you think!

Many people are unaware of what Financial Planning actually is, what it involves and the benefits that can be derived. Lack of information coupled with often confusing messages in the media can put it in the “too hard” basket. Here we seek to give a bit of an overview to the uninitiated.

The media are constantly reporting on the financial services industry whether it is good, bad or indifferent. This can lead to much confusion and uncertainty. For instance, most people in Australia would be aware of the “compare the pair” TV advertisements highlighting the difference between different types of superannuation fund providers. For the average consumer it must be rather confusing as to whether to employ the services of a Financial Adviser or not. In the context of running a business it can seem even more complicated. What services are actually provided by a financial planner, and how relevant are they to you?

One way to look at it is to compare the situation to doing your tax return or BAS - Do you:

a) get a tax pack form the ATO and do it yourself?

b) employ the services of a tax agent?; or

c) appoint full-service Accountant to do the tax return?

The choice between these three will be based on how much money you want to spend and this will determine the depth of advice you receive.

Appointing a Financial Adviser is much the same thing. Financial advice can vary from being recommended a simple investment portfolio right through to a complex investment/tax strategy that takes the client right up to retirement and then moves into estate planning. While you could do it yourself to “save money”, ultimately it could potentially cost thousands of dollars in lost investment opportunities and overpaid tax.

Supposing that based on this you determine seeking professional financial advice is the way to go. The next bridge to cross is the type of advice you employ. There are generally two types of Financial Adviser - The Retail Adviser and The Wholesale Adviser.

The Retail Adviser

More often than not a retail adviser only charges a minimal fee, if any, to prepare and present a Statement of Advice (a Financial Plan in the old language). The reason being, is they receive commissions including on-going trails for the product placement. The Fund Managers can afford to pay these commissions as they are charging a higher management fee (MER).

Whilst this type of adviser has received negative press in recent times they do provide a service to people who wouldn’t normally be able to afford financial advice. So there will always be a place for the Retail Adviser.

The Wholesale Adviser

A Wholesale Adviser normally provides financial advice which the client pays for directly. The adviser and client will discuss and agree on a fee to prepare and implement a statement of advice and fee to manage the investments/strategy on an annual basis.

Some advisers charge an hourly rate and some charge a percentage of the funds under advice (FUA), with no limits on client/adviser contact inclusive of multiple portfolio/strategy reviews. Both these types of fees are tax deductible.

The investments the adviser chooses are normally on a wholesale platform. These come with a lower management fee because the Fund Managers are not paying commissions.

Grant Thornton’s Wealth Investment Management Services fall into the Wholesale Adviser category.

Whether you chose a Retail or Wholesale Adviser, by law they have to disclose all fees they are charging and any commissions they are receiving.

Most Australians haven’t planned for their retirement and are relying their superannuation to sustain them, which may not be enough in the context of today’s society when we’re living longer. While good financial advice can help you address this issue, financial planning is not just about putting money away for retirement. A good Financial Planning offering should encompass the following elements:

• Retirement Planning
• Wealth Creation
• Estate Planning
• Tax Effective Investing
• Personal Insurance (Life Insurance, Salary Continuance)
• Household Budgeting
• Tax Strategies

Seeking the advice of a licensed Financial Adviser is the first step in making sure you are maximising your investment opportunities and that you are protecting yourself and your family from unseen hurdles such as long term illness.

Author: Matthew Kidd, March 2008

Matthew is a Director of Wealth Investment Management, based in our Sydney office.

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