Category: The Finance Industry

Things a Financial Advisor might tell you … and May 2023 – End of Month Update

From the Sydney Morning Herald

Slack Investor has blogged about financial advice before – and although an advocate of trying to do as much as you can by researching finance world yourself, it can be a very difficult journey to be across all the fields of saving, mortgages, investment loans, insurance, superannuation, taxation, and investment. 

Most people want financial advice but the problem is that it is so expensive. MoneySmart.gov.au outline a case study where “Rhett” has $400 000 to invest – He might be hit with fees of $13 600 in his first year of advice . These fees include a Statement of Advice and Insurance premiums and layers of platform and investment advice fees.

Where to invest your money is the easiest thing to sort out for yourself – with the key words being diversification and low fees. There are cost-effective ways of investing in a diversified way that will suit your risk tolerance without involving a financial advisor (e.g. Stockspot, Pearler). But some people (Not Slack Investor Readers!) need a trigger to just start investing. Finance world is much more complex than just investing your money. Slack Investor can see the need for finance professionals

Things a Financial Advisor might tell you

Firstlinks have trawled the data to determine the most recommended strategy used by financial advisers – the most common of these are listed below.

From Firstlinks

Let’s just have a look at some of these in more detail.

Rollover Your Super – “Rolling Over” your superannuation is just a way of describing the transfer of your “protected” super into another protected super fund. Slack Investor readers will be all over this one – Of course it makes sense to put all of your super with one provider to avoid multiple administration fees. Combine your super into one fund – preferably an industry fund (lowest fees) with a good 5-10 yr performance record.

Retain Your Super – This is again good advice for the long-term accumulators of wealth. Unless under extreme hardship, resist all attempts for early access to your super. During the COVID-19 outbreak, $4 billion was paid out to 456,000 people under the early super access scheme. This would have helped distressed businesses and individuals in the short-term but may not have been a great idea in the longer term.

Super Contributions – This is a more complicated area and, it might be good to have advice on when, and by how much ,you should boost your super contributions above those which are compulsory. This is tricky when you have competing loads on your take-home pay (Family, Mortgage, etc). Slack Investor was big on maximizing his super contributions once he had a firm grip on his home mortgage.

Apply for Insurance – When you have a family or debts (home loan?) to cover, life and disability insurance is a good idea. You don’t need an advisor to tell you this. Insurance through your super fund is usually the most cost effective way to do this.

Estate and Aged Care Planning – This area is really complicated for the layman. Professional Advice, or much research, needed.

Commence, Rollover, Retain Pension – You may need advice here if planning to mix aged-pension and super to fund retirement. If there are no aged-pension issues, Slack Investor believes that it is best to start an account pension (from your super) as soon as possible and re-contribute any surplus funds as non-concessional contributions.

Commence, Rebalance Investment – An old truth – Best time to start investing? 20 years ago. Next best time to start investing? Now! Rebalancing can be done automatically with cost-effective platforms e.g., Vanguard Super, Stockspot.

What Types of advice Do You Really Need?

The current financial advice system is complicated by well-meaning regulations that are in dire need of reform. In 2022, the Australian Treasury provided a consultation paper seeking feedback on changes to the regulatory regime that would allow financial advice on specific matters without the obligation that the advisor should know everything about your financial situation – No need for the expensive Statement of Advice (SOA).

Ideally, in a future world, you could get advice at various stages in your life from finance professionals at an hourly rate – perhaps in the same way you would consult a medical specialist about a problem. For Instance

  • Early/Mid-Career Advice: Am I on track with my savings, super contributions and retirement plan? What strategies should I employ to achieve my goals?
  • Pre-Retirement: Am I ready? Taxation Issues? Aged-pension/Super mix?
  • Estate and Aged Care Planning: Complicated – Many issues to discuss here.

Alternatively, you could just turn your financial future into a hobby (Like Slack Investor did), and use the internet and books to educate yourself.

May 2023 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100.  It was a dreary month for the Slack Investor followed markets. The ASX 200 performed poorly this month – down 3.0%, and the FTSE 100 even worse – down 5.4%. The S&P 500 was flat (+0.2%) for the month.

In this month of turmoil for stock indexes, the Slack Portfolio did quite well. This is because it is heavy with technology stocks that are having a moment in the sunshine. The Nasdaq 100 index was up 7.7% for the month of May.

All Index pages and charts  have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Checkmate! ASX

From Chessbase

Slack Investor is all about “continuous improvement” Obviously not me … but everybody else! I normally have low expectations of “clip the ticket”, almost monopoly, systems such as the Australian Stock Exchange (ASX) as there is little incentive for improvement – they are going to get there cut anyway. Last year, I did get off the couch briefly to have a bit of a rant about ASX Paper …I’m Drowning!‘ But I did end the blog on a hopeful note, that system change was just around the corner with a new “blockchain” based system to replace the Clearing House Electronic Sub-register System of the ASX (CHESS).

After reporting five delays on the CHESS replacement project, the ASX has just announced a move to drop the whole project – that it has been thinking about since 2005. In a damning review of the ASX’s handling of the project by Accenture, that has been described by business leaders as “embarrassing”. There are now undermined expectations that the ASX can ever deliver on any new market infrastructure with its current board and management.

The project, which has dragged on for seven years, will now be “reassessed”, the ASX stated in a media release this morning, with the abandoned software being “derecognised” at a gross cost of $245 million to $255 million.

Tahn Sharpe – The Inside Adviser

Although the structure of the current CHESS system is not broken, there are a lot of things that should be fixed.

The underlying software that runs CHESS was a legacy gift from the NASDAQ exchange (i.e. Cost = $0). It is starting to creak a bit though, as it was written over 22 years ago in COBOL. Slack Investor was hoping that the new system would improve on the layers of fee-charging “ticket clippers” that are in the current system – but it seems that the vested interests still have the ear of the ASX.

… the reality is that the CHESS replacement looks more like a replication of all the old systems with its layers of fees being paid to half a dozen different players.

Chanticleer – afr.com

Instead of being the first National Stock Exchange to try use the blockchain technology, perhaps the ASX could wait and see whether other exchanges can bed down this new “distributed ledger “technology – then adapt their systems. After all, using market value, our exchange represents under 2% of the world’s companies.

Countries with largest stock markets worldwide (January 2022), by share of total world equity market value – Statistica

But what would Slack Investor know? – he is only a punter. In the meantime, streamline the current CHESS system – make it better. Whatever we do … it should cost less than $250 million!

Control the things you can control … Super Fees

File:Tax payment to a lord - BNF Fr9608 f11v.jpg
Tax payment to a lord – Meister der Apokalypsenrose der Sainte Chapelle

While the market is doing what it does and there is the feeling of Armageddon in the price of stocks, Slack Investor knows that he has no control over market sentiments and, as a welcome distraction, he is having a look at some of the things he does have control over – the fees that he pays for financial services. Superannuation fees are still too high – some of the highest in the OECD. This is a recurring theme for Slack Investor.

I like to think that the Slack fund is a pretty trim ship – but, there is always room for improvement. Slack Investor runs his family super through a Self Managed Super Fund (SMSF) – but this is not the best option for those who are time poor or, don’t want the stress of the management of your own retirement. On the plus side, for larger balances, if you use a low cost provider, it is relatively easy for a SMSF to restrict fees to less than 0.5% of funds under management.

High super fees linked with underperformance

Fees are the other most important factor when choosing a superannuation fund. You can’t control how markets perform, but you can control how much you pay for the management of your hard-earned money.

Stockspot Fat Cat Report 2021 – Annual Report on Superannuation funds by Stockspot that sorts each fund into “Fit Cats” (Good) and “Fat Cats” (Bad).

As a general rule, for profit (Retail) super providers charge fees in the 1.4-1.8 % and the not-for profit funds charge 0.8-1.0 %. For larger balances (>50K), if your annual fees are more than 1.0% of your total super balance then it is time to look elsewhere – try to get your super fees below 1.0%.

Fees Charged by APRA regulated super funds as a percentage of assets. For profit funds (Retail) funds compared to Not-for Profit funds (Industry funds) – From Crikey: Why the hell are our superannuation fees so high?

There is a clear correlation between high fees and long-term underperformance in superannuation.

Stockspot Fat Cat Report 2021

What to do?

I recommend all Australian readers to drag out their latest annual super statement and find the total amount of fees and charges. Divide the total fees by your total super amount (x 100) and you will have the percentage of your super that you are paying in fees.

Canstar have compiled a 2022 Outstanding Value Superannuation Award winners report that allocates a star rating for superannuation funds. based upon 5-year performance (after all fees) and features of each account. A four or five star rating is good. Their top rated funds for value in 2022 are all Industry funds and are listed below – these would be on the shopping list if I wanted to change my super fund.

Super FundType
Australian Retirement TrustSuper Savings
Australian Super Australian Super
Aware Super Personal
Cbus Super Cbus Industry Super
Hostplus Personal Super
UniSuper Personal Account
VicSuper Future Saver / Personal Saver

For more detail on how your super compares with others, there is a fantastic bit of superannuation comparison software, designed by Chantwest, called Apple Check. You have to give up some contact details for the form and access it through individual super fund sites … but they have provided great comparison info on super products to Slack Investor with no spamming. Worth doing if you are considering a switch and want to be fully informed of a fee comparison that applies directly to your situation.

I have compared two non-profit Industry funds (UniSuper and AustralianSuper) with a for-profit Retail fund (AMP Summit) for a nominal $300K account – in both Accumulation and Pension mode. Clearly AMP Summit has higher fees for both an Accumulation a/c and a Pension a/c. I would be happy to pay higher fees of a retail fund (AMP Summit) if there was an established increase in performance. However, the Apple Check report shows a 10-year net return (investment returns after all fees) of the retail fund is at least 10% worse than either industry fund.

Apple Check comparison of fees for ACCUMULATION accounts of $300K. Unisuper (0.48%), AMP Summit (1.22%) and AustralianSuper (0.72%).
Apple Check comparison of fees for PENSION accounts of $300K. Unisuper (0.57%) , AMP Summit (1.22%) and AustralianSuper (0.77%).

Market downturns are never easy, but Slack Investor knows that this time will pass – and in the meantime, I will pursue the distraction of fine-tuning the financial fees that I do have control over.

ASX Paper … I’m Drowning!

Slack Investor is drowning in paper. Owning shares is a lot of fun but the unnecessary postage and paper is a waste and a frustration. In particular, the posted CHESS Holding Statements from the Australian Securities Exchange (ASX) and useless bits of paper from the share registries are annoying.

(The) ASX sent out 19.2 million paper statements over the year to June (2020), a rise of 34 per cent, as trading surged during COVID-19. The statements used 103 tonnes of paper in the past year.

James Eyers – Australian Financial Review

Australian Investors will be familiar with CHESS, the computerised Clearing House Electronic Sub-register System of the ASX. It was introduced in 1994 and has been around for most of my investing life. All my share holdings are settled through CHESS, through a Holders Identification Number (HIN) and managed by a broker.

There is no doubt that the introduction of this system 27 years ago was a bit of a revolution as it simplified share trading from the cumbersome system of share ownership certificates. It was a world leading technology at the time. However, things have moved on and Slack Investor issues a plea to the ASX, enough is enough with the useless paperwork.

ASX charges companies $1.25 for every “CHESS holding statement” sent out to investors, who receive them even if they quickly sell shares bought. Many investors put them straight in the bin.

James Eyers – Australian Financial Review

I am by no means a frequent trader … but the constant statements that I get mailed to me for every small change in my share balances are a continuing source of frustration.

A Sample of the 10 Chess Holding Statements that washed up into my post box last week. These statements are issued by the ASX and are currently unavailable online – they are only issued in hardcopy via post

Although these are mailed out to me at the end of every month – I have never used these statements. The definitive holding record of what shares I own at any given time is held by my CHESS sponsor, my broker (Commsec or SelfWealth).

In the same way I trust my superannuation fund or Bank (i.e not much!), I trust my broker with the record of share ownership – and, I also trust them to work out any dispute if I disagree with their tally. If there ever was a dispute … I would go back to the PDF contract notes and certainly not the paper CHESS Holding Statements to try to resolve it.

How to cope with share record keeping now

At the moment the only way that you can get your Chess Holding Statement is through the post. For 27 years, I have dutifully filed these statements but now, like many of my fellow traders, I have decided to shred them and put them straight in the recycling bin. Shredding is important as these notices contain your name, address and personal HIN.

However, there ARE other very important bits of record keeping that you should try to handle in digital form.

Share Registry Stuff

Share Registries are another intriguing layer in the ownership of shares – and another source of paper and postage. When a company lists on ASX, most companies appoint a share registry to manage the book of shareholders. For we share buyers, the registries manage our share holdings, dividend payments, and the voting at the annual general meeting.

Confusingly, there are three main share registry companies in Australia, Computershare, BoardRoom and Link Market Services and, it is a bit of a raffle which registry manages each company. On purchase, I always label each share with its associated registry. You can look them up at ASX Share Info. For instance CSL is always CSL (C) in my records (Computershare) and Macquarie Group is signified as MQG (L) as it uses the Link registry. I find this cross-linking very handy when chasing down any company payments (dividends) or tax statements and I can’t remember which registry manages the company shareholders.

Whenever you make a share purchase in a new company, through your broker, even though it is using your personal identifier (HIN), at the moment it is necessary to contact the registry and do three things. You will probably be prompted by a paper mail delivery asking you to contact the registry.

  1. Register your bank account details for dividend payments with each company (even though they may already have them)
  2. Register your Tax File or ABN number (even though they may already have them).
  3. Tell the registry how you want to handle all communications – (electronically/email) suits Slack Investor

Every registry change that you make usually generates a letter in the post. They charge the company (we shareholders) for this, though some registries seem to be letting me know by email if they already have my communication preferences.

Keeping track of your finances

These days most share transaction and income finance details are now pre-filled on your tax return. However, it is your responsibility to check on these things and, at a bare minimum, you should download a summary report from your share broker at the end of the tax year. This report contains your buys, sells and income and is usually sufficient evidence for your annual tax return.

A more complete share portfolio solution is using third party financial software such as Sharesight. This is amazing software and is free to use if you have 10 holdings or less. They supply end of tax year reports that even include a capital gains analysis.

Slack Investor is a bit “old school” here and uses the free Microsoft Money Sunset International Edition for portfolio management- But this is dated software now and not recommended for new users.

Because I like to keep track of everything without paper – Slack Investor also sets up folders on his computer for each tax year. There are subfolders for 1. Dividends and Distributions and Tax Statements (From the registries) 2. Broker Transactions.

Dividends and Distributions and Tax Statements: There is no excitement like dividend season as the dividends and distributions roll in via each company registry. I download PDF copies of all payments. I file them on my computer in the format: Tax Year_Investor_Company_Type_Date e.g., 2021_SMSF_CSL_DIV_2021-04-01. Or 2021_SMSF_RBTZ_TaxStatement_20210630.

Broker Transactions/ Contract notes: When you buy or sell a share through a broker, a contract note is issued. These should be emailed to you and your broker will keep a copy of them. I also download each contract note for a buy or sell from my broker in the format: Tax Year_Investor_Company_Type_Date e.g., 2022_SMSF_COL_BUY_20210809

Capital Gains: When you sell shares for a profit or loss , you need to declare it on your tax return. Capital gains calculations can sometimes be tricky. A simple example is described in this ABC Overview here and Slack Investor will plan a later article on how to handle more complex cases.

Of course some paper documents still sneak through the Slack Investor fortress and I keep them in a tray in my office and bag them in envelopes labelled with the tax year and keep them for five years, as required by the ATO.

The Future

I am hoping that the share registries can ask the ASX for an email only option for share owners. All registries should have an automatic default instruction to use the same Bank account, tax file # and communication preference – whenever a share purchase is made with your Holder Identification Number (HIN). No announcements from the registries yet – I lie on the couch and dream.

In late 2017, the ASX sent a ripple of excitement through the market, announcing that CHESS would be replaced with distributed ledger technology

Nicola Field, Money Magazine

… but not until 2023. In the meantime, if these holding statements are necessary – can we at least have an e-statement option.

The ASX has had many delays to the starting date of this new technology. Distributed Ledger Technology (DLT) is similar to Blockchain. The full difference between Blockchain and DLT made my head hurt … so I hope they know what they are doing.

Unlike the CHESS system, Mr Squiggle never gets old – even after a 40-yr career starting in 1959 – With thanks to Norman Hetherington, Mr Squiggle, and ABC TV

But, please hurry up with these reforms ASX … after decades of complaints. Streamline the share registry process, ask us for our email details and give us the option for email delivery of statements. In its current form, the CHESS clearing system and paper mail trails just seems a little bit … of another time.

Ride Your Own Bike

Like Sally, one day the realization will come that your best interests rely on you steering your own bike – in the direction that you want to go!

The ultimate goal is to get your three substantial piles going – house, income and investments. But before any of this happens you have to develop a mindset … I want to be in control of my financial life.

You must gain control over your money or the lack of it will forever control you. —

Dave Ramsey – Author of The Total Money Makeover

If you don’t take control, perhaps you’re plan is to take all your affairs to a financial adviser one day. Most people will feel the need for financial advice at some stage but only 20% of Australians have a financial advisor. The current structure makes getting advice a difficult step – and it’s not the financial advisors fault.

The pricing problem of Financial Advice in Australia

64% of survey participants agreed that financial advisers were too expensive.

ASIC Survey August 2019 – Financial advice: What consumers really think

The Australian Government passed a piece of legislation known as the Future of Financial Advice (FoFA) in 2012. FoFA was a series of laws that were supposed to improve the quality and transparency of financial advice. One of the main purposes was banning conflicted remuneration – where advisers were recommending products that gave them good commissions. While FoFA and the Hayne Royal Commission were well intended and vital in restoring some trust in the sector – there have been some unintended consequences.

(The Financial Services Royal Commission) identified the problem of conflicted remuneration without providing a mass market solution.

Graham Hand, Firstlinks – FoFA, the Failure of Financial Advice

There has been a huge rise in regulatory red tape and the associated compliance costs for financial planners. A combination of these costs, the big banks dumping their financial advice arms, and the need for upgraded qualifications has put this sector in crisis. The total number of licenced advisers is set to drop by a third in the next few years.

There is broad recognition that financial advisors have expertise that the normal punter does not have. However, the biggest barrier to getting financial advice is the expense. One of the big problems is that when you engage a financial advisor, they are obligated to present you with a full Statement of Advice (SOA). On the surface this makes sense, the client would want a document that takes into account your own circumstances and outlines the fees and risks of each strategy. However, according to one planner, the SOA has turned into pages of jargon, repeated disclosure and boring generic graphs. These statements are weighty tomes that take many hours to prepare. Sadly, they seem to confuse the actual advice and provide no real value to the client.

A full Statement of Advice (SOA) runs over 100 pages and the need to review all circumstances and develop a plan takes 10 to 15 hours and costs between $3,000 and $5,000 depending on complexity.

Graham Hand, Firstlinks – FoFA, the Failure of Financial Advice
From FirstLinks – FoFA, the Failure of Financial Advice, Take 2

James Kirby from The Australian uses the example of paying annual adviser fees fees of $3000 and he supposes that the structured advice that you receive will match the 4.3% pa return of the new Magellan retirement income product Magellan FuturePay (FPAY). He points out that for an investment of $500 000 and an expected FPAY return of $21 500, your advice fees would be 14% of your earnings. This does not make sense to him … or Slack Investor.

James Kirby suggests that a better model for the regulators to adopt would be that you could approach a financial adviser for advice that you need at the time … and pay the financial adviser for this “niche” advice. This is not possible under current legislation.

Take charge

So, with full service financial advice gravitating towards high net wealth clients, what is the average punter supposed to do? Robo-advisors such as Stockspot could be part of the solution. This automated service can provide help with allocation of assets other services that will suit your age and risk profile. But there are so many more financial questions you might want to handball to your financial adviser if you could afford one. Well, if you can’t … it’s up to you.

Decide what you want to achieve in the finance sense. Go through the savings basics and get your savings rate up. Take charge on where your money goes, get your superannuation set, reduce any unnecessary fees that you are paying, set a target on your financial piles.

Educate yourself on things financial. There are some great books. The Barefoot Investor is an excellent start. Some fabulous podcasts The Australian Finance Podcast will get you going and there are heaps of other Slack Investor favourites. Get involved and start to enjoy the immense freedom and satisfaction of riding your own bike.

Happiness is not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort.

Franklin D. Roosevelt

Robo-Advice – Disruptor Beams are ON


The Class M-3 Model B9 – From Source

The Class M-3 Model B9 (Pictured) was one of the first examples of Robo-advice and would always issue Will Robinson, of the 1960’s TV show, Lost in Space with sage guidance. Can we expect the same from this new generation of Robo Advisors? My Star Trek knowledge tells me one thing for sure, the Disruptors are on!

Slack Investor has already had a bit of a rant on the layers of fees that you can expect from seeing a Financial advisor. But many would benefit from financial advice – Can we get it from the Robots? There are quite a few Financial Robo-advice companies emerging. Lets begin with a couple that have caught Slack Investor’s eye – Plenty and Stockspot.

Plenty – A Good place to start

Plenty is a new service that, after a 15-minute online questionnaire, develops tailored (up to a point) financial advice for no cost. Plenty offer more than most robo advisors. In addition to an automated platform for investing, they offer a whole advice product similar to more conventional financial advisors. Their basic service is free and, if you need it, they charge fees to help you implement the plan. Their Blog is pretty good too. Due to high demand, unfortunately, Plenty are not taking on new clients at present. But this doesn’t stop us using their structure to develop your own financial roadmap. An example of the financial plan that it robo-generates is here.

Image from From Plenty Blog – What Do Financial Planners Do?

When Plenty takes on clients again, to get their online plan you must divulge your financial details (bank accounts, super, etc) – this is a bit scary and is usually the point where Slack Investor … Says NO!

However, the way that Plenty provides a free robo-way towards your financial goals is fully Slack Investor approved. They claim to be “product agnostic” and will only recommend the lowest fee (best!) products that aim to get you in a good financial state. The Plenty example financial plan contains plenty of good ideas!

  • Lower Fees – Oh Yeah!
  • Smarter Investments – Through ETF’s and Listed Investment Companies (LIC’s) – Sounds easy doesn’t it!
  • Lower Interest on Debt – Making sure you get the lowest interest rates on your debts
  • Save Tax – Thanks Kerry Packer!
  • Spend appropriately – Budget … and measure what you spend
  • Protect your financial position with insurance – Very important for those with dependants or a big mortgage. Slack Investor does not have financial insurances now that he is in retirement mode with little debt. However, when I did need insurance, I would get my income, death & disability insurance through my super fund – as this was the cheapest way.

Stockspot

“I started Stockspot five years ago because I saw too many people getting poor investment advice from stockbrokers and financial advisers”
“The evidence shows that simple, low-cost ETFs [exchange traded funds] beat picking stocks or paying expensive fund managers over the long run.”

Chris Brycki – From article in Business Insider

Stockspot was started by Chris Brycki, is Australian owned, and has excellent intentions. Their investment vehicles are low-cost ETF’s and through a quick online questionnaire you can determine your risk profile and suggested pre-determined mix of investments. For example, the Emerald growth portfolio is shown below

An example of one of the five Stockspot recommended portfolios

There are no entrance and exit fees, the fee structure is based upon the amount invested. For a $30 000 account, the fees are .055% (or $16.50 per month). This works out as a yearly fee of 0.66% (or $198). The fees are a bit annoying on first glance – However, Stockspot do not charge for brokerage and rebalancing your portfolio – this is a good deal for the more hands off investor.

You could save $100 per year to set up a similar bunch of ETF’s as those shown above and do the rebalancing yourself. Let us say, your target portfolio had 5 ETF’s and you rebalance them once per year, using the rock bottom brokerage of SelfWealth at $9.50 per trade – 10 trades per year would cost $95.

However, the whole idea about Robo Advice is to make things simpler and combat the inertia to action that gets in the way of our accumulating wealth. If embracing the full robo, then the extra hassle of doing everything by yourself is probably not worth the money saved.

Lets Robo On, there are plenty of other players in this exciting new area. Six park, Raiz, Clover, QuietGrowth and FirstStep will get a bit of a look next month.

Financial Advice – If you Must

Cartoon from the most witty and prolific Mark Lynch from toonpool

Slack Investor has long been in the school of “Educate Yourself” in financial matters and maintains this is the best way to do it – But a lot of people (Obviously not Slack Investor readers!) find financial organization very difficult. It is complicated to be across all the intricacies of saving, mortgages, superannuation, taxation, and investment. However, you can draw upon the wisdom of some smart financial bloggers here – Check out the Slack Blogroll – the internet is your friend.

If you must see a financial advisor, after the initial consultation, they will prepare a Statement of Advice – which should be the guiding document for your circumstances and contain a full disclosure of their fees.

According to the Productivity Commission, almost half of Australian adults need financial advice. With the industry coming under criticism for greed and conflicts of interest, it is difficult for consumers to be confident that they are receiving good advice.

from ABC News

Prepare for Layers of Fees

From Youtube

Let’s start with an example provided by ASIC – which I assume reflects typical financial advisor costs. Edward engages a financial planner to get a statement of advice together for his $400000 (including super). The adviser offers to put together a financial plan for $3,500 with a further implementation fee of $1,500. This almost doesn’t sound too bad so far – But, it is instructive to look at the full breakdown of costs below. Platform fees, ongoing advice fees, management fees and insurance premiums will result in poor Edward getting slugged $14000 in the first year and $9000 ongoing per annum. If these costs are typical, this is outrageous – He is paying 3.5% of his wealth initially, and then 2.3% ongoing. The fees can usually be paid separately or deducted from your investment income as part of your annual statement.

Example given by ASIC showing a financial advisor fee structure for the investing of Edwards assets of $400K From ASIC – Financial Advice Costs

The Hayne Royal commission exposed many cases where advisors were conflicted by personal gains (commissions, etc) when giving financial guidance. A lot of the commissions have been banned now, but there are sometimes internal incentives to recommend certain products. I don’t want to besmirch all advisors here, but it makes sense that you would have the best chance of getting good advice if your advisor was truly independent – There aren’t many of these according to ABC news, only about 60 in Australia – All are registered with the Independent Financial Advisers Association of Australia (IFAAA). But even with the independents, be wary of costs.


Cartoon from the equally witty and prolific Randy Glasbergen from source

If you don’t want to take the full responsibility for the nuts and bolts of financial independence onto yourself, I can see real benefits in seeing a knowledgeable fee-for-service financial advisor to set up a one-off tax effective savings structure that will guide you through the mid-thirties through till retirement. Or, it may be wise to get help for specific situations e.g., Self Managed Superannuation strategies.

Where I don’t see value is the too common situation where people front up to the financial planners on the doorstep of retirement with their life savings. There is the potential for an avalanche of fees – as well as the up front costs, each recommended product will have its own management fees.

Alternatives

Naturally, Slack Investor looks to reduce fees where possible. If you don’t want to go it alone along the “full monty” self-education route, there are some cheaper alternatives to the traditional financial advice model emerging. These Robo-Advice structures show promise for some aspects of the financial advisor’s job – How to steadily accumulate wealth and then, how to turn this wealth into an income to support your retirement. It’s new, it’s exciting it’s … Robo, it’s coming next month.

November 2018 – End of Month Update … and Hayne … You my Man!

Slack Investor remains IN for US, UK Index Funds. The jury is still out for Australian index shares.

Nervousness has crept into all markets as uncertainty on world trade (Thanks Donald!), Brexit, future US rate rises, and stock valuations prevail. The FTSE 100 is down 2.1% and S&P 500 is up 1.8% for the month.

The Australian ASX 200 is down a further 2.8% to 5667 and has slipped below its designated monthly stop loss of 5724. This is usually an automatic sell for the ASX 200 index. However, Slack Investor is hesitant to trade against momentum and the orange buffoon (President Trump) and President Xi from China have just come to a “Partial Truce” on their trade war for 90 days at the G20 summit. This “temporary certainty” will be good for world stocks and a bounce in most stock markets will probably happen on Monday 3 December – ASX 200 you have had a temporary reprieve!

All Index pages and charts  have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Hayne Train Eases into the Station

Slack Investor Hero Royal Commisioner Kenneth Hayne – modified from SMH

Established Slack Investor Hero Royal Commissioner Kenneth Hayne wraps up his enquiry into the finance sector after 8 grueling months and 770 000 documents. and concludes his epic and momentous gathering of evidence. His interim report has suggested big changes to a flabby and rorting finance industry.

 

Rowena Orr QC- Modified from Source SMH

Through persistent effort, a new Slack Investor rolled gold Hero has also emerged. Senior counsel assisting the commission, Rowena Orr QC has covered herself with glory from the Royal Commission fray (With a special mention to her alternate senior counsel Michael Hodge, QC).

Through persistent effort and an understated forensic style , Ms Orr has been responsible for grilling a parade of witnesses to reveal a shabby record of commissions, bribery, unfair payments, improper board oversight and rorts that have brought shame to the Australian Finance Industry.

… marshalling her facts patiently, leaving people in the witness box with nowhere to run from her logic, where they don’t know they’ve been filleted until they leave the room –  from The Guardian

For example, When Ms Orr cross interviewed the Chief risk officer of ANZ’s digital and wealth arms, Kylie Rixon, about the raft of bad advice given to customers by bank financial advisors.

“One in every 20 pieces of advice given to customers failed to meet the requirement that the advice was likely to be in the best interest of the client?” Ms Orr asked.

“For the sample selected, yes that’s correct,” Ms Rixon said.

Later, Ms Orr asked: “What’s sampled in an audit is meant to be representative of what’s happening across the business?”

“Yes, that’s true,” Ms Rixon replied. – from abc News

Power to your Ms Orr. With hearings finalized, Commissioner Hayne and his team withdraw temporarily from the limelight to write their report. Slack Investor looks forward to their recommendations.