Five Financial Planning Misconceptions

Quality financial advice benefits everyone.  We all live in a rapidly changing world.  New opportunities are emerging every day.  It’s probably time to rethink the role a qualified financial planner can play in your busy life.

Perception governs behaviour and the Australian financial advice industry is working hard to improve its public perception.

1. Financial planners are all the same

Financial planning is a very personal interaction.  While most financial planners are able to provide you with advice on superannuation and basic personal insurance such as income protection or life insurance, some financial planners have specialist skills with differing degrees of experience.  The majority of financial planners are aligned to bank backed dealership groups while less than five percent stand alone, preferring to have no ownership influences.  Some financial planners choose to earn their income as a result of selling financial products. Their operating relies on commissions and percentage based trailing fees.  Modern advisers charge fees that are not linked to the sale of products and prefer to charge for the provision of quality financial advice.  Specialist advisors have particular expertise in areas such as self managed superannuation (SMSF), business succession planning, direct share ownership and business risk insurance.  Finally, adviser styles differ just as you’d find in the broader population.  Advisers can be outgoing and they can be introverted. They are male and female. There are those who communicate complex ideas clearly and there are those that adapt well to all manner of client personalities. WealthSpan’s strength is our ability to take complex strategies, analyse them and turn them into ideas and concepts more easily understood by our clients.

2. Financial planners are in it to sell financial products

Unfortunately this is too often the case.  Firms that produce and sell financial products well are very profitable financial institutions.  These firms take the form of banks, superannuation funds and insurance companies.  Financial product sales result in ongoing income for the product manufacturer and it’s for this reason they often pay advisers handsomely for selling the product in the first place. It’s always the unsuspecting consumer that is penalised through higher financial product fees and charges.  The good news is, there’s an alternative.

Financial planners who rely heavily on the sale of a financial product are easy to spot.

  • They often charge less than $500 for the advice report they produce.
  • They will usually recommend a new product sometimes replacing a product you already have with something almost identical.
  • They will rarely recommend you retain existing financial products citing ‘cost savings’ or ‘increased features’ as the reason why a move is recommended.
  • Often the replacement product is made by the parent firm they are aligned with.
  • They often charge nothing to implement their recommendations.
  • Advice will rarely if ever weigh up the benefits of repaying debt or similar options available to you that have no commission benefits for the adviser.

WealthSpan often recommends that clients change their financial products.  This becomes necessary if existing financial products are too expensive, are of a poor quality or are providing poor value.  The difference is that WealthSpan receives no commission or percentage based trailing fees from the product’s manufacturer.  Instead WealthSpan charges a set fee based on the time and expertise needed to carry out the work.  In certain situations, it may be advantageous for you to have our fee paid for by the product manufacturer.

3. Financial planning fees are not tax deductible

Under Australia’s convoluted tax laws, a fee paid by a client to a financial planning firm for investment advice is not tax deductible if it relates to investments held in the accumulation phase of superannuation. The reason being, the expense is not incurred  in the course of you earning assessable income.

A Solution:  Your super fund pays the advice fee.

The advantage of a super fund paying the advice fees comes about for anyone earning more than $37,000 per annum. It all comes down to the different rates of tax paid by you compared to your super fund. What’s more, the higher your income the more valuable this option is.  Savings of up to 49% are available for some clients.

If you’re interested in reading more, the following taxation rulings, regulation and determinations address the topic:

  • Income Tax Ruling IT 39
  • Section 51(1) of the 1936 Tax Act subsequently replaced by section 8-1 of the 1997 Tax Act. Section 8-1 Taxation
  • Determination TD 95/60

Confusingly, a fee paid by a client for investment advice is tax deductible if it relates to investments held in the superannuation pension phase, which is of no help to anyone under 55 requiring advice.

4. You need savings before a financial planner can help

If you are earning an income, paying money off a home loan, have funds invested in superannuation or are paying personal insurance premiums, a meeting with a WealthSpan financial planner will most likely be of benefit.  The reason most financial planners prefer to advise clients who have large sums of money to invest, comes down to the way they prefer being paid.  If as an adviser you charge clients 1% of the funds they invest, speaking to a couple with two kids, a home loan and little by way of disposable income, is of no interest – they have nothing to invest in the type of financial products you sell.  On the other hand,  if you measure success as WealthSpan does, by the value we create for the clients we assist, then the couple mentioned above have a lot to gain.

WealthSpan’s claim is that ‘we are the most proficient creators of financial value in the country’.  Now you understand why we can make such a claim.

5. We have plenty of time

When it comes to building wealth, time is the most powerful force anyone has.  With enough time, less risk needs to be taken to achieve the same result. With time, greater results can be achieved without the need to take unnecessary risks.  Time, if used in conjunction with discipline and a plan, builds significant wealth.

Clients with young families gain substantial long-term financial benefits by investing an average of eight to ten hours working with us.  That’s it.  We don’t mean eight to ten hours every year, we mean eight to ten hours early on in your working life, it need be no more complicated than that.