Wealth management is much more than investment
Investment is only a piece in the “puzzle”
The terms “wealth management” or “financial planning” are seen as synonymous with investment advice and investments by most people. This is not surprising given that much of the financial planning industry also thinks this way: the primary reason why the major financial institutions employ financial advisers is to sell their investment (and insurance) products.
But, in our view, wealth management should be much more than giving investment advice and promoting investment products. Its purpose should be to help you maximise the chances that you achieve your desired financial future.
How does your “Personal Financial Scorecard” look?
A picture paints a thousand words…
Our recent article, “What is “The Value of Financial Planning”?”, introduced a number of key metrics that we monitor to assess clients’ progress toward meeting their financial objectives. Together with some additional important measures, a “Personal Financial Scorecard” can be created for each client.
This Scorecard succinctly captures financial progress and highlights strengths and weaknesses in a client’s current situation. It’s easy to see whether a client is on track to achieve their desired financial future and what steps they need to take to enhance their financial position.
Why are most millionaire doctors and lawyers Income Statement Affluent?
Doctors and lawyers are inefficient at turning high incomes into wealth
In both his most recent book, “Stop Acting Rich”, and his previous best selling books, “The Millionaire Mind” and “The Millionaire Next Door”, Dr Thomas Stanley, US researcher of the behaviours of wealthy people, distinguishes between millionaire households that he calls Income Statement Affluent (“IA”) and Balance Sheet Affluent (“BA”).
Stanley defines millionaires as those holding more than $1 million in net investment assets. The family home and other lifestyle assets are excluded from this measurement, as they are seen primarily as sources of consumption rather than avenues to true financial independence1.
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Is the nation’s financial planning on track?
What trends in key financial planning indicators should we expect?
As wealth managers, we spend a lot of time working with our clients to structure their affairs to give them the best chance of achieving their desired financial futures. And we’re not just talking about structuring in terms of setting up self managed super funds, family trusts and the like. We’re talking about the structure and composition of their personal balance sheets. To us, this is the foundation of good financial planning.
We thought it would be interesting to look at the change in the financial position of the average Australian household over the past 20 years. Given the aging of the baby boomers over these two decades and their growing need to prepare for imminent retirement, we were surprised with what we found.
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What is “The Value of Financial Planning”?
Financial planning continues to get a bad rap …
Financial planning continues to get a bad rap. The Global Financial Crisis, poor investment returns, the failure of various financial planning firms and investment schemes, threats of further government regulation of the industry and a media that is all too willing to focus on the negative are contributing factors. As a result, many people that should under no circumstances attempt to look after their personal financial affairs have been convinced that this is the best way to go.
And for those that continue to seek financial advice, too many decisions are being made on the basis of immediate cost rather than an assessment of value. This is often because it is difficult to judge the value ahead of making the decision to appoint a financial planner. But cost may be a very poor guide to quality. And, unfortunately, it will not reflect missed opportunities, mistakes and poor decisions.
DIY Financial Planning – The real costs may not be evident
DIY Financial Planning appears to be a low cost alternative
There are a lot of smart people who make some rather dumb choices with respect to their finances. More often than not this is driven by short term thinking and the desire to save an immediate out of pocket expense. There is often a failure to lift the eyes and see the bigger picture.
An example that highlights this is the use of superannuation. We’ve talked previously about the significant benefits of making pre-tax contributions to super. However, in this article we look at the benefits of making post-tax contributions to super.
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Financial Planning: Personal Financial Advice or “Product Flogging”?
They make used car salesmen look good …
The financial planning industry (and a number of accountants dubiously playing on the edge) has come under intense fire recently.
The downturn in investment markets has exposed a number of products that have not turned out to be in clients’ best interests. These include high yield mortgage funds, absolute returns funds, agribusiness and protected equity products and excessive margin lending.
Criticism of planners and offending accountants that promoted these products is well justified. In many instances, it is difficult to resist the conclusion that their sale was driven or too heavily influenced by what was best for the promoter.
But, judging from public responses to a number of recent newspaper articles adverse to financial planners many people also blame their financial adviser for recent poor investment performance and/or failing to get them out of share markets prior to the downturn.
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