Another one bites the dust …

190326.Another one bites the dust
Westpac exits financial planning …

You may (or not) have noticed my Blog article output has reduced over the past 12 months. Having written about 180 articles over the last 10 years and with retirement imminent, it has become increasingly difficult to find new personal financial planning matters that compel me to “put pen to paper”.

Unlike the financial media, we have refrained from recycling our old articles. However, re-reading many of those articles gives me some pride that we have remained true to our original intent of 10 years ago to provide educative material that would stand the test of time. While often prompted by a topical matter, the articles always addressed the subject of interest in terms of our “Principles of successful wealth management”. There isn’t too much we would change if we were to write on the same topics today.

The catalyst for today’s article is Westpac’s recent announcement that it is quitting personal financial advice, the last of the “Big 4” banks to do so. The article is more commentary and personal opinion, rather than the usual educative piece. It is motivated by the irony that as I approach the end of my 20 plus year career in financial planning the institutions primarily responsible for making it increasingly difficult and costly for firms like ours to “help (more) people make better financial choices”[1] have finally decided to vacate the space that, in our view, they should never have been allowed to occupy.

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What investment returns should you expect?

181023.Investment returns

Is history a reliable guide to future investment returns?

When doing long term cash flow projections for clients, it is necessary to make some “guesses” of future investment returns. Unfortunately, for the 50 year cash flow projections we do, the results are very sensitive to these guesses.

If they prove too high, without any adjustments along the way clients may end up in a considerably worse financial position than projected while, if too low, they may have led unduly financially constrained lifestyles. The antidote, of course, is to regularly review the projections, ideally annually, and make regular small adjustments rather than put an initial Plan in the drawer and see how things turn out in 50 years’ time.

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“Back of the envelope” financial planning

180828.Back of envelope

Making financial decisions based on what others are doing can be dangerous

My children and many of their friends are now at the age where they are making very important decisions regarding starting families and meeting housing needs. These decisions, of course, have a strong emotional element. But they also generally have massive financial implications that, once made, lock in commitments that will extend for many years into the future.

Entering into such commitments, without detailed consideration of your “best guess” capability to both meet them and continue to be able to enjoy a desired lifestyle, sets up a high likelihood of serious, unanticipated financial pain later in life. Anecdotes suggest that many young adults who borrowed to purchase in the Sydney housing market over the past three to four years are already finding this out.

A focus on the “here and now” and peer comparison when making financial decisions is fraught with danger. Young adults often wrongly presume because their friends are buying houses and starting families, they can and should do the same.

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How “real” are your financial planning projections?


It’s maintaining real spending power that matters

When clients consider how much they expect or wish to spend in the future, they naturally think about it in terms of today’s dollars. The implicit assumption is they don’t want price inflation to erode the amount of goods and services they are able to purchase.

In our cash flow modelling, we assume an inflation rate of 2.5% p.a., mid-way between the Reserve Bank’s target of 2-3% p.a.. With inflation at 2.5% p.a., the spending power of a $1 would be reduced to about 48 cents over a thirty year period.

So, while a financial projection that shows your investment wealth grows from, say, $1 million now to $2 million in 30 years’ time may appear impressive, after adjustment for inflation of 2.5% p.a. the future $2 million is only worth $953,000 in today’s terms i.e. you’ve actually gone backwards in spending power.

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At last, a “good news” financial planning story

170418.Good News

Our clients respond to an online “Client experience” survey

In late February-early March 2017, a representative group of our clients was asked to participate in a confidential on-line “Client Experience” survey. The survey aimed to help us, among other things, better understand:

• what our clients look for in their relationship with us;
• how they measure the value of our service;
• their greatest personal finance fears; and
• how they felt we were doing.

We were pleased with the 70% response rate we received and thank those clients who participated.

The same survey was simultaneously offered to clients of other financial advisers that choose to use the services of global fund manager, Dimensional Funds Advisors, both in Australia and internationally. The results provide us with the opportunity to compare our clients’ feedback with that of almost 19,000 other respondents.

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What is “wealthcheck”?

What is wealthcheck?

What does financial independence look like, for you?

Our previous six Blog articles examined the rationale for each of the charts that comprise the “Personal Financial Dashboard”, a succinct graphical format we have developed to record a client’s progress and current position on some key indicators of personal financial independence.

Benchmarks to be achieved, or surpassed, are provided for each of the indicators. The Dashboard starkly reveals any gaps between where a client is currently positioned and each benchmark. It’s clear what needs to change to achieve financial independence and guides future financial planning action.

While there are no cast iron guarantees in finance, clients that sit at or above each of the benchmarks are considered to be in very good financial shape. They are well placed to cope with adverse financial market conditions and will further consolidate their position in the event of favourable conditions.

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A new era for personal financial advice?

A new era for personal financial advice?The Future of Financial Advice (FOFA) reforms ban “conflicted remuneration” … in the future

Many people will be unfamiliar with the new FOFA reforms that came into effect on 1 July 2013. In this article, we look at one of the key changes: the banning of “conflicted remuneration”.

The intent of the FOFA reforms is to improve the quality of financial advice in Australia. One of the key elements of the reforms is to ban “conflicted remuneration” i.e. the payment of commissions and rebates by financial product issuers to advisers who recommend their product to a client. This reform is not peculiar to Australia – there has been a worldwide push to remove commission based financial products.

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Financial planning as lifetime wealth management

Financial planning as lifetime wealth management“Living for today” has future consequences

We often hear people say that they don’t plan too much for the future. They’d rather live for today, as they argue you don’t know what’s going to happen tomorrow. And many of these people spend today as if there isn’t going to be a tomorrow.

Also, it’s not unusual for parents of Gen Y children, who are in their late 20’s or even early thirties, still living at home or travelling the world, saving very little, to suggest that times are different now. They are unconcerned that their adult children aren’t settling down and focusing on their desired futures, because that’s the “new normal”.

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Wealth management is much more than investment

Wealth management is much more than investmentInvestment 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.

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How does your “Personal Financial Scorecard” look?

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.

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