In most cases, the client will complete their own fact finder and hand it to the adviser. It is common for the client to include items in the assets section of the fact finder that are not really assets, at least from the viewpoint of the client’s financial plan.
The most common such asset is undoubtedly cars. Now, we learned long ago about the emotional connection clients feel to their cars. We understand that sensitivity needs to be shown here. But, unless the car is a collectible of some sort and can thus be expected to increase in value into the future, it is not really a financial asset for the purposes of the financial planning process.
For most people, their car represents more typically a ‘sunk cost.’ While it is true that the car could be sold, reasonably easily, and some cash be realised, unless the client has given up driving, they will probably need to use that cash to purchase another car. In this way, the amount of wealth ‘stored’ in the car cannot really be used for any other purpose.
Exceptions can apply: if a client has a car worth $100,000 (if they sold it – not when they bought it!), and they are happy to accept your advice that they should sell that car and buy something worth $30,000, then the car might be listed as an asset in the assets and liabilities section of the SOA (we are still a bit dubious). But care needs to be taken here: most clients who spend too much cars overstate the resale value of that car. You would, wouldn’t you? To do otherwise would be like spending $200 on opera tickets and then admitting that you don’t speak Italian).
The same goes for other personal assets, such as furniture and flat screen TVs. Unless the client is prepared to sell the item and look at a blank wall instead (that is, not replace it), the item is not a financial asset in any real sense of that term.
The problem with including such items is that their presence in the assets column can skew the net asset position. Consider a 24 y/o client who lists the following assets and liabilities:
|Car||$30,000||Credit Card 1||$11,000|
|Electronic Audio-Visual System||$24,000||Store Card (Harvey Norman)||$24,000|
|Cash||$1,000||Store Card (Myer)||$9,000|
The net asset figure is $26,000. Not great, but not awful. However, this client is in all sorts of strife with their debt. The parental loan can probably be ignored, but the other debts, totalling 44% and probably incurring interest at up to 20% can’t be: if these credit issuers take action the client will be unlikely to be able to sell their personal assets for anything like the amount shown. If the personal assets (and the parental loan) were not included, then the net asset figure is -$43,000.
This calls for an entirely different – and urgent – recommended strategy.