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The Fierce Girl's Guide to Finance

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financial advice

If financial planners are greedy, dishonest or stupid, who should we trust?

That’s a big call, I know. But it’s what the Royal Commission (RC) into financial services seems to be suggesting.

Not all financial planners, just the ones who’ve been blowtorched by bad-arse special counsel Rowena Orr, affectionately  nicknamed ‘Shock-and-Orr’ by the media. (Pictured above, showing  strong side-eye game).

I’ve been following the RC  closely this week. Partly for professional interest and partly because it’s car-crash viewing – i.e. hard to look away from the wreckage.

So far we’ve heard about greed and dishonesty at the top. AMP management all but confessed to charging fees for no service, then lying to the regulator about it. So far, the CEO and head lawyer have taken the fall, but there will be more, I suspect.

We’ve also heard about incompetence and greed at the frontlines.

An adviser who told a couple they could buy a property within their self-managed super fund, to live in. Anyone with even the slightest knowledge of SMSFs knows you can’t do this: only investment properties can be placed into super. That couple ended up with no home of their own to live in.

There was another adviser who suggested his clients change super funds, even though they’d be slugged with a $16,000 exit fee – or a quarter of their (fairly meagre) savings. Because it would make him money.

Then there was a high-profile, TV-star adviser, who told a client to leave her super fund and join his firm’s. Even though it would cost her $500,000 to do so.

This was after his staff had impersonated the client to contact her super fund (which is absolutely not required, because you can easily give an adviser authority to call on your behalf).

Turns out he was confused about whether his client was in a ‘deferred benefit’ fund or a ‘defined benefit’ fund. Those two things are in no way similar; it’s like saying you’d like a pinot noir and being serve a pinot gris. When a girl wants red wine, she does not like getting white.

Luckily, this client is a smart and savvy lawyer, so she picked up the error, rejected the advice and complained to his professional body. In the planner’s response, he called her ‘nitpicky’ and ‘aggressive’.

I don’t know about you, but if I’d picked up a $500K error in advice I’d just been charged several thousand dollars for, I’d feel a little aggressive.

And if knowing the difference between ‘defined’ and ‘deferred’ is nitpicky, then sure, sign me up for pedant of the year.

These are just some examples of the train-wreck that is the Royal Commission. And while there is some schadenfreude in watching it, mostly, it just hurts my heart.

It hurts because these are everyday people who have done the right thing and sought professional advice about something important. Then been totally screwed over for it.

It hurts because, for every dodgy and stupid and incompetent planner, there are many more who care deeply about their clients and give solid advice that’s in their client’s best interests.

But sadly, it’s hard to sort the good from the bad.

When you get a bad hairdresser, you know straight away. Your partner will no doubt declare the shitness of your new ‘do as soon as you walk in the door. Ah well, six weeks and you can move on.

But bad financial advice can take a long time to emerge and even longer to fix. In fact, many of the people affected by bad advice don’t even know it yet. Seriously, AMP admitted that they haven’t quite got around to telling a bunch of clients that their adviser is a chump who’s cost them money.

I’m at a loss to know what to make of it all. How can I sit here and tell all my Fierce Girls to get professional advice? What if you end up with one of the spivs who send you off in the wrong direction?

What if you get sold crap products and solutions just because it puts money in the pocket of the adviser and their company?

You can look for recommendations from family and friends, but what if they have also been given bad advice and just don’t know yet?

I honestly don’t know the answers to these questions. It’s mindblowing to me just how devastating the RC’s findings have been. From the Prime Minister through to the average woman on the street, we are all left shaking our heads at the breathtaking combination of greed and stupidity that appears to infect the financial planning industry – or perhaps the finance sector more broadly.

Take charge of your own money

The only advice I can offer in light of these revelations is this: you can make plenty of good decisions about your money without financial advice.

The first thing to do is get a handle on your spending. Good money management is the biggest challenge for most people; working out how to invest comes later on.

So before you do anything, check out my take on Guilt-free spending and how to wrangle your bank accounts into order.

Beyond that, financial advisers mostly help you in three areas: personal insurance, investments and superannuation. Here are some DIY ways to improve them.

Insurance – You normally get insurance through your super fund without even asking – mostly it’s just death cover and TPD (read this post for more detail). Call them up, check how much you’re covered for, talk to them about whether it’s too much or not enough. Most funds are allowed to provide this ‘limited advice’ as part of your membership. And you should definitely look at adding income protection if you don’t have it already.

Investments – Knowing where to invest your surplus savings is a good problem to have. However, many of us could do great things just by paying extra off our mortgage (and therefore saving thousands in interest over the life of the loan).

We could easily start small with an exchange-traded fund (read more here) or a micro-investing app (like Acorns, which this week rebranded itself to Raiz). Investing doesn’t have to be scary and complicated – and a bit of self-education goes a long way.

Super – With the RC findings ringing in our ears, I’m gonna make a call: a big-bank super fund may not be the best option. I’ve worked with lots of super funds over the years (as clients) and have found that industry funds and values-driven funds (like Australian Ethical) really do approach things with one purpose in mind: their members.

If you’re already in a bank fund, I’m not saying you need to bail out of it. But if you want to roll all your super into one fund (which you totally should, to cut out duplicate fees and insurance premiums), pick one that aligns with your values.

And consider putting a bit extra into super, as it’s a good way to cut your tax bill and keep money aside for the future.

Another thing you can do is speak to your fund about which investment option is best for you. Again, this advice is often part of your membership, so it’s worth seeing if your risk profile is right for your age and situation.

In some cases, the ‘default’ option they put you into is one-size-fits-all. And as anyone who has been entangled in a cheap, Chinese-made ‘one-size’ top in a change room can attest, one-size does not actually fit all.

Take charge

To sum up, I would reiterate what I say on here all the time: you are responsible for your money. Educate yourself. Pick up the Barefoot Investor. Read http://www.financy.com.au or the Money section of the newspaper. Get engaged and involved. The more you know, the more control you have.

Is doing nothing worse than doing the wrong thing with money?

Sorry to my email subscribers – this link got broken. Here it is again. I am not really that profesh after all.  

I want to confess something. I’m probably wrong.

Some view I hold, some article of faith, some strongly held opinion. It’s completely wrong.

Because you know what? We’re all wrong, some of the time. I was wrong about Trump being unelectable (me, and a bazillion other political junkies).

I was wrong about Beyonce being the only viable winner of Album of the Year at the Grammy’s. (Adele. Huh. Who knew).

And I have been wrong about the romantic suitability of more men than I care to remember (although some of them are burnt into my heart: from Doug the 15-year-old drop-out to Mr Darcy, the 40-something divorcé).

Nobody has all the answers – regardless of how much conviction they show when giving you those answers. (In fact, the more conviction the higher the chance they’re wrong).

This is really important to know when it comes to money, for two reasons:

1. You should run all advice through your own bullshit filter (mine included)

2. You don’t want to let fear stop you from acting

Let’s look at the first one. As a woman, you’re going to come across a bunch of people offering free advice about money. Your folks want you to buy property. Some bloke at work wants to mansplain why you should invest in shares. Some blogger wants to tell you to stop getting eyelash extensions  (oh, that’s me).

Some of it will sound legit. Some of it will make perfect sense. And some of it won’t sit well with you at all.

One of the best ways to increase the sensitivity of your BS filter is to find your own information. Read widely and get a feel for different viewpoints. And then …

Pay attention to the numbers

I work with a wide range of fund managers and they all have a different approach. Every time I sit down with them I totally believe that they have found the holy grail of investment theory. Most of them are indeed pretty good, but it’s their numbers that tell the real story. And those numbers show that some are definitely better than others.

Key take-out? Numbers don’t lie – always look at performance figures. And not just the last year, but the last three and five years – and longer if possible.

Someone can tell you that buying an apartment off the plan and renting it out is THE best way to make a solid investment. But it’s pretty easy to test that theory. Take the purchase price, and divide it by the rent it brings in. This is the rental yield, and it tells you a lot about the return on investment.

An apartment that costs $800K and is rented out at $500 per week, gives a gross yield of 3.25% (before costs such as maintenance and strata). Yield also doesn’t take into the cost of interest on the loan, so it’s a pretty blunt instrument to work out our return on investment.

The great unknown is how much capital growth it will get – i.e. how much the value will go up. Same deal with shares – you can broadly predict the yield on those (as dividends tend to be similar every year), but less so what the share price will do.

So like every decision in life, you have some things you know and some things you just hope for the best on. Everything we do is a calculated risk.

I bought a pair of navy suede ankle boots this week, and there is a risk that I might not get as much wear as I hope out of them. But I took a risk, because they are really cute and they were on sale and I have wanted blue boots for months.

(Side note, I broke my own promise not to go to Wittner. I have a problem).

Key take-out: you can and should run the numbers on an investment, but you also have to accept there is no perfect answer and no guaranteed outcome. You need to identify and manage the risk, through things such as diversification or building in a buffer. (Read this piece about risk if you are interested).

And this brings me to another point. When you are trying to run all these numbers, you may want some help. So, should you use a financial planner?

Probably. Like colouring your hair or getting a spray tan, you can do an ok job yourself, but you will probably get a better result with a professional.

It’s the same reason I pay a stupid amount of money to a powerlifting coach. Sure I could read a book on training, but that book isn’t going to stand in front of me and shout ‘knees out, chest up!’ when my form goes to shit.

So yeah, do the basics on your own. Learn some stuff, read a book or two, get your budget and savings sorted. But if you want to move up from messing around in the weights room to actually building some serious muscle, you need a coach. In this case, a money coach.

How do you find one? Well, asking other people is a good start. But if you don’t have any recommendations to go on, take a look at the FPA website.

But let me explain the industry a bit, so you know what to look out for.

Most planners will be attached to a bank, a big financial institution or something called a ‘Dealer Group’. It’s a complicated thing where they need to be part of an organisation that holds a license. The Licensee takes all the heat of the admin and compliance (there is a shit-ton of it in this industry). The people who work under this license are called Authorised Representatives.

So the person you deal with has some sort of network behind them, whether it’s a bank or a dealer group, and that institution may or may not want to sell you some of their products. What products? Managed funds, margin loans, life insurance, mortgages. Financial products.

Now, these may be right for you. Or there could be something better out there. If you get your make-up done at the Mac counter, they’re hardly going to point you over to the Estee Lauder counter are they? Well, actually there was this one time when the Estee Lauder girl at Nordstrom recommended the Smashbox mascara she was wearing (and it was awesome). So it’s all about finding someone with your best interests at heart, and won’t just push their products on you.

Luckily, there is a law that says they have to do this – i.e. act in the client’s best interests. So regardless of whether they have their own products, an adviser will generally recommend things from an Approved Product List – a list that their Dealer Group has checked out and made sure they are legit. It’s like going to Mecca Cosmetica or Sephora, where they just give you the best of the best regardless of brand.

Key take-out: Make sure you ask lots of questions about why they are recommending one product over another. Think about how long you spend choosing a foundation – and then maybe double it.

The important thing is that you do something. Don’t fall into the trap of thinking it’s all too hard, there’s too much to know, so you’d better not do anything. That’s how you miss out on building wealth, and instead just let your life run ahead of you and your goals.

So if you are a bit scared about getting started on the finance thing, here are some tips:

  1. Do some basic research. Google is your friend. Read Warren Buffet – he makes a lot of sense and is also one of the richest guys in the world.
  2. Speak to a few grown-up people you trust (and who have money) and get their input
  3. Ask around and find a professional you like and trust. You generally get a first session free, so if you don’t click, don’t go ahead. It’s like Tinder, but less awks.
  4. Use the process to think about your goals, priorities and plans. Then map your finances against these.
  5. Ask questions,  don’t be afraid to be annoying and demanding. If you can’t understand it or it doesn’t feel right, don’t do it.

And of course, you can always cruise around the Fierce Girl blog and enjoy its truth-bombs.

Is doing nothing worse than doing the wrong thing with money?

I want to confess something. I’m probably wrong.

Some view I hold, some article of faith, some strongly held opinion. It’s completely wrong.

Because you know what? We’re all wrong, some of the time. I was wrong about Trump being unelectable (me, and a bazillion other political junkies).

I was wrong about Beyonce being the only viable winner of Album of the Year at the Grammy’s. (Adele. Huh. Who knew).

And I have been wrong about the romantic suitability of more men than I care to remember (although some of them are burnt into my heart: from Doug the 15-year-old drop-out to Mr Darcy, the 40-something divorcé).

Nobody has all the answers – regardless of how much conviction they show when giving you those answers. (In fact, the more conviction the higher the chance they’re wrong).

This is really important to know when it comes to money, for two reasons:

1. You should run all advice through your own bullshit filter (mine included)

2. You don’t want to let fear stop you from acting

Let’s look at the first one. As a woman, you’re going to come across a bunch of people offering free advice about money. Your folks want you to buy property. Some bloke at work wants to mansplain why you should invest in shares. Some blogger wants to tell you to stop getting eyelash extensions  (oh, that’s me).

Some of it will sound legit. Some of it will make perfect sense. And some of it won’t sit well with you at all.

One of the best ways to increase the sensitivity of your BS filter is to find your own information. Read widely and get a feel for different viewpoints. And then …

Pay attention to the numbers

I work with a wide range of fund managers and they all have a different approach. Every time I sit down with them I totally believe that they have found the holy grail of investment theory. Most of them are indeed pretty good, but it’s their numbers that tell the real story. And those numbers show that some are definitely better than others.

Key take-out? Numbers don’t lie – always look at performance figures. And not just the last year, but the last three and five years – and longer if possible.

Someone can tell you that buying an apartment off the plan and renting it out is THE best way to make a solid investment. But it’s pretty easy to test that theory. Take the purchase price, and divide it by the rent it brings in. This is the rental yield, and it tells you a lot about the return on investment.

An apartment that costs $800K and is rented out at $500 per week, gives a gross yield of 3.25% (before costs such as maintenance and strata). Yield also doesn’t take into the cost of interest on the loan, so it’s a pretty blunt instrument to work out our return on investment.

The great unknown is how much capital growth it will get – i.e. how much the value will go up. Same deal with shares – you can broadly predict the yield on those (as dividends tend to be similar every year), but less so what the share price will do.

So like every decision in life, you have some things you know and some things you just hope for the best on. Everything we do is a calculated risk.

I bought a pair of navy suede ankle boots this week, and there is a risk that I might not get as much wear as I hope out of them. But I took a risk, because they are really cute and they were on sale and I have wanted blue boots for months.

(Side note, I broke my own promise not to go to Wittner. I have a problem).

Key take-out: you can and should run the numbers on an investment, but you also have to accept there is no perfect answer and no guaranteed outcome. You need to identify and manage the risk, through things such as diversification or building in a buffer. (Read this piece about risk if you are interested).

And this brings me to another point. When you are trying to run all these numbers, you may want some help. So, should you use a financial planner?

Probably. Like colouring your hair or getting a spray tan, you can do an ok job yourself, but you will probably get a better result with a professional.

It’s the same reason I pay a stupid amount of money to a powerlifting coach. Sure I could read a book on training, but that book isn’t going to stand in front of me and shout ‘knees out, chest up!’ when my form goes to shit.

So yeah, do the basics on your own. Learn some stuff, read a book or two, get your budget and savings sorted. But if you want to move up from messing around in the weights room to actually building some serious muscle, you need a coach. In this case, a money coach.

How do you find one? Well, asking other people is a good start. But if you don’t have any recommendations to go on, take a look at the FPA website.

But let me explain the industry a bit, so you know what to look out for.

Most planners will be attached to a bank, a big financial institution or something called a ‘Dealer Group’. It’s a complicated thing where they need to be part of an organisation that holds a license. The Licensee takes all the heat of the admin and compliance (there is a shit-ton of it in this industry). The people who work under this license are called Authorised Representatives.

So the person you deal with has some sort of network behind them, whether it’s a bank or a dealer group, and that institution may or may not want to sell you some of their products. What products? Managed funds, margin loans, life insurance, mortgages. Financial products.

Now, these may be right for you. Or there could be something better out there. If you get your make-up done at the Mac counter, they’re hardly going to point you over to the Estee Lauder counter are they? Well, actually there was this one time when the Estee Lauder girl at Nordstrom recommended the Smashbox mascara she was wearing (and it was awesome). So it’s all about finding someone with your best interests at heart, and won’t just push their products on you.

Luckily, there is a law that says they have to do this – i.e. act in the client’s best interests. So regardless of whether they have their own products, an adviser will generally recommend things from an Approved Product List – a list that their Dealer Group has checked out and made sure they are legit. It’s like going to Mecca Cosmetica or Sephora, where they just give you the best of the best regardless of brand.

Key take-out: Make sure you ask lots of questions about why they are recommending one product over another. Think about how long you spend choosing a foundation – and then maybe double it.

The important thing is that you do something. Don’t fall into the trap of thinking it’s all too hard, there’s too much to know, so you’d better not do anything. That’s how you miss out on building wealth, and instead just let your life run ahead of you and your goals.

So if you are a bit scared about getting started on the finance thing, here are some tips:

  1. Do some basic research. Google is your friend. Read Warren Buffet – he makes a lot of sense and is also one of the richest guys in the world.
  2. Speak to a few grown-up people you trust (and who have money) and get their input
  3. Ask around and find a professional you like and trust. You generally get a first session free, so if you don’t click, don’t go ahead. It’s like Tinder, but less awks.
  4. Use the process to think about your goals, priorities and plans. Then map your finances against these.
  5. Ask questions,  don’t be afraid to be annoying and demanding. If you can’t understand it or it doesn’t feel right, don’t do it.

And of course, you can always cruise around the Fierce Girl blog and enjoy its truth-bombs.

Why the baby boomers have all the money, and what we can do about it

I love my parents, and my parents’ friends and all the wonderful baby boomers in my life.

But geez they annoy me as a generation.

Swanning around in million dollar properties they paid 25,000 bucks for. Earning a tax-free income in retirement. Cashing in on their free university qualifications without a HECS debt in sight.

Baby boomers account for 25% of the population but own 52% of the wealth. They built their careers and wealth over an unprecedented period of economic growth.

Did you know we’ve now had more than a hundred quarters of positive growth? This is like having a hundred consecutive days of perfect dieting with no accidental chocolate incidents – i.e. practically unheard-of. (I admit we have lived through this period too – but with a lower base of assets to grow from).

Sure they had the recession in the 90s and the 1987 stockmarket crash. They had to live through skinny jeans before lycra was invented, and they didn’t get to play Where in the World is Carmen Sandiego at school. I’m not saying their lives were perfect.

But they have done ok, and Smashed Avo-gate brought this simmering divide to the surface. It’s partly because the world has changed so quickly, so deeply. Home ownership used to be an expectation for any adult with a job and a bank account. It’s now a mythical place of $100,000 deposits, heartbreaking auctions and million-dollar median prices.

The luckiest among us will get help from our parents. Others have parents who can’t or won’t contribute, creating a further divide.

So, what can we do about it? How can we stop those greedy (but totally loved and appreciated!) baby boomers from stealing our futures?

Don’t get mad, get even. And get advice.
Investment Trends says baby boomers account for four in five dollars under advice (i.e money being looked after by financial advisers). That means they are out there getting financial advice while all of us suckers are messing around reading The Fierce Girl’s Guide to Finance. JK! That’s a great idea!

But it might not be enough. I’m not a profesh, and I can’t tell you what’s best for your circumstances.
Sure, advice isn’t free, but it is an investment. Do it early, do it right and it will pay dividends in future. It’s like the difference between messing around at the gym on your own and losing half a kilo in six months, or getting a PT and dropping 5kg in six weeks.

And just like paying a PT makes you really think twice about eating that piece of cake (because hey, you just dropped 80 bucks on a workout), getting a financial plan can make you much more focused and disciplined. If you want to find a good one, my homegirl Nicole P-M has a good column about this.

If you still don’t want to stump up for the full box and dice, you could look at a digital option – aka Robo-advice. Decimal and Stockspot are some of the bigger players (but I haven’t used them so can’t provide a recommendation).

Take Baby Boomer advice with a very big grain of salt. The stuff our parents did to get ahead was done in a different world. Back in the 80s you could get 15% interest for sticking money in the bank. Inflation could be up to 10% as well, but worst case scenario, that’s still a 5% gain.

The best you can hope for today is a 3% interest rate if you shop around. Inflation has been hovering around 2%. So, that’s a big old 1% gain for stashing your money in a bank. (Don’t understand the inflation thing? Check out this post).


Before 2008, the world hadn’t heard of quantitative easing (i.e. governments printing money) or negative interest rates (an actual thing). Now, bank deposits barely keep up with anaemic inflation rates (and in countries like Switzerland you have to pay the bank to look after your money, thanks to negative interest rates. I shit you not).

Buying property was a stretch, but a sure bet for building wealth. You could probably even do it on one income. Today, a mortgage that’s 6 or 8 times the average income means you both work and possibly pay for childcare too. And the stockmarket generally doesn’t deliver the double-digit returns it did back then.

The finance industry calls this a ‘low growth, low return’ world.
So hey, thanks boomers for setting that up!

I’m sorry that have no good news for you on this front. It’s going to be like this for a while yet.
What it does mean is that taking advice from your folks can be tricky. They’re in a different headspace (in retirement or close to it) and need to focus on protecting their nest egg.


But we don’t.


There’s a concept called ‘pushing up the risk curve’ – it means that you take on more risk in order to chase higher returns. Instead of buying bluechip stocks you buy cheaper, more speculative ones. Instead of investment grade bonds you buy unrated ones. Instead of buying fixed interest bonds, you buy shares with high dividends.


Remember when you first start drinking alcohol and it took you two Bacardi Breezers to get hammered? But as you increase your ‘piss fitness’ you need a whole six pack and some shots to get to ‘hilarious drunk shenanigans’ level.

Similarly, we need to take more risk in this environment to get the same returns as before.


I am NOT saying go to Vegas and put it all on black. I am NOT saying attend a property spruiker seminar that promises you vast riches if you sign up RIGHT NOW, TONIGHT ONLY!

What I am saying is that we may need to look at something more aggressive than a bank account. Buying bank shares because your dad says they’re good? Maybe not. Buying an investment property because your parents made a killing on a Gold Coast apartment circa 1994? Maybe think twice.

The good thing is, we are young. We can tolerate more risk. If we go backwards we have many more years to go forward.

So just make sure you run any well-meaning advice through a filter, the same as you would when your mum gave you fashion advice as a teenager. (On second thoughts, my mum probably had some useful insights then). 

And short of just asking your folks to stump up funds for a house deposit, I don’t have a lot more advice than this: save more, spend less. That’s what a lot of our parents did. My family ate at the Yarrawarrah Windmill Chinese Restaurant once in a while, but that was the eating out budget. They didn’t get a new iPhone every two years. We had the world’s shittiest cars (Subaru Enduro – wtf). They never took to us to Disneyland. And that’s how my parents ended up paying off the house.

So, take the best bits of the boomers, ignore all the cushy tax breaks they’ve made for themselves, and crack on with you own money goals.

 

Insider’s Guide to Finance Part II: Financial Advisers

Financial advisers have had a bad run in recent years. But writing off all financial advice because of a few bad ones is like swearing off dating just because you watched The Bachelor choose Alex over Nikki (I know right!). Certainly there are stupid, incompetent or greedy advisers out there. But there are stupid, incompetent and greedy people everywhere, and to be honest, I would say quite a few of them make it onto reality shows.

So would I recommend using an adviser? Yes and no.

As I said in another post, I generally support outsourcing to experts. I certainly don’t let any of my finance clients write media releases, and they don’t let me manage millions of dollars of other people’s money. It works out pretty well.

So here are some reasons you would consider working with a financial planner:

  • You have a pretty big goal to reach, such as starting a business or buying a house.
  • You’re undergoing a change such as marriage, divorce or having a baby.
  • You want to make sure you are on the right track with planning for your retirement.
  • You want a roadmap that keeps you focused on a goal, with a tangible plan to get there.

Advisers actually do quite a lot more than just tell you where to invest your money. They can look your life insurance (read more about that here), how to manage your tax affairs or help with ‘estate planning’ (i.e. they make you get a will).

HOWEVER.  There are a few things you should know about the way the industry works, so you go in with your BS detector ready.

Not all advisers are created equal

Remember in Clueless, when Cher explains her virginity? “You see how picky I am about my shoes, and they only go on my feet!”

clueless

So ladies, be like Cher. Be highly selective when choosing an adviser, because there is a wide spectrum. Some advisers only have a diploma, while others have a degree (although this is set to change in the next couple of years, under new government rules).

A degree is not, in itself, a guarantee of knowledge or integrity. And similarly, plenty of good advisers have gained lots of experience on the job, regardless of having done a uni course.

However, it does pay to look at their credentials. Ask about their qualifications and experiences. Ask for testimonials. Ask your friends and family. It’s your money, and you want to be like Cher with it.

Know enough to call BS on their advice

I got a big financial plan done many years ago, and part of the recommendation was to get a margin loan to buy shares (more about them here). It was late 2007 and the markets were great. In fact the whole economoy was great, and Australia was ballin’ like Beyonce in a pool of dollar bills.

beyoncemoney

Anyway, by the time I got around to implementing the advice, I knew enough to be worried. The sub-prime loan thing was happening in the US (a precursor to the GFC). It looked like the boom could be over soon, after a  period of ridiculous high growth. And anyone with a passing knowledge of economics knows EVERY boom has to have a bust. The trick is working out when.

So I sat out the storm. We kept our money in the bank, and soon enough, the sharemarkets dropped by more than 30% – which would have meant my margin loan got called in, and I’d have lost money or had to spend more.

This isn’t to say the advice was bad. But it came at the top of the markets, and I wasn’t comfortable with the assumptions underlying it.

The lesson here is, do enough reading and learning on your own, so that if something doesn’t sound right – for you – then you can say no. Or ask more questions. Or marry someone for 72 days.

The people who lost their homes in financial advice scandals such as Storm Financial were told that despite a really low income (sometimes just a pension), they could make hundreds of thousands of dollars. If they had had enough basic financial literacy, they would have known it was total BS. (If it sounds too good to be true…)

It’s like when you are in a shoe store and they only have size 38, but you are a size 39. That sales girl will tell you they are leather, they will stretch, yada yada yada. But you know in your heart those things will give you nothing but grief, blisters and pinched toes. So, you need to take advice (from anyone, including me) with a grain of salt, and listen to your own gut feel.

Someone, somewhere, wants to make money off you

You know when you go to the beautician for a facial, and you’re paying your 80 bucks for the service. But then she tells you your skincare regime sucks, and tries to offload 200 bucks worth of overpriced Dermalogica on you. And somehow, in the moment, a $60 moisturiser seems like a really good idea. (Newsflash: it’s not, and it never will be).

Well, the same thing happens in finance. If you go to a financial adviser at a bank, for example, they are bound by rules to recommend the best financial products for you. But it just so happens that the bank has a whole suite of financial products to offer too. “Look, here’s a managed fund I prepared earlier!”.

And just like the beautician is going to offer you the product that makes her money (I know, she swears by it, she really does) – the adviser is also possibly going to sell you a product that makes money for his or her venerable employer: the bank.

It’s called ‘vertical integration’, and while the finance industry didn’t invent it, they have built a huge business out of it.

Not every adviser is part of this vertically integrated structure. Many independent advisers are deadset against it, in fact. And I am not here to say who’s right or wrong. There are fantastic advisers – both independent and aligned – selling a wide range of products in a highly ethical way. It’s just good to be aware who is making money, and where, and how.

Know what you’re buying,  ask questions, and consider whether you couldn’t get a really bloody good moisturiser at Priceline for $12. (I have, and look at my youthful skin!).

So how do I get started?

Asking friends and family for recommendations is a good start. Check out the Financial Planning Association website. Follow some advisers on LinkedIn and see if you like what they say. I wish you well, and hope you never again buy a pair of shoes half a size too small.

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Photo credit: https://www.flickr.com/photos/dskley/

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