Another good week in compliance

[ April 10, 2015 ]

Nothing to complain about this week

I am delighted to say that in the ten days or so since I last put pen to paper we have not had to disagree significantly with any SOAs, and the quality has generally been very good. Well done. I look at every contentious SOA and I regard most of them as being quite good advice, very appropriate to the client and in each client’s best interests. I am quite pleased with what I am reading. Many of the contentious SOAs focus on SMSF gearing.  In summary, I am personally in favor of SMSF gearing, provided the object investment is appropriate, the client genuinely understands the concept of gearing and that gearing levers losses as well as gains, has a reasonably high income and has a time frame greater than ten years for shares and twenty years for property. If you can demonstrate this, and record it appropriately in your SOA, we will usually agree that gearing is appropriate. Feel free to send in a summary before you start to write your SOA. Pre-approval saves every one time and trouble. Always remember:

  1. house contents, cars and boats are not to be listed in assets. They just are not worth much, no matter how much they originally cost. Leave them out of the SOA;
  2. fifty plus year old physical workers never have stable or long incomes;
  3. $40,000 a year is not a high income. $60,000 a year is average for a fifty year old male, so you really have to be over about $80,000 before you can start to consider a client to have a high income;
  4. the adviser’s assertion that the client has a long term time frame, say more than ten years, does not on its own demonstrate that the client should not be investing conservatively and should be more growth orientated. You still have to explain why a reasonable financial planner would be of this view, specifically relying on the client’s age, income (height, stability and length), education, occupation, training, and prior investment experience. Set your thoughts out in detail in your SOA and explain why the facts support your recommendations;
  5. apartments just aren’t good investments. If you do not believe me Google “over supply apartments 2015”. Perth, Brisbane, Melbourne and Sydney are all over-supplied, by any measure. Exceptions can be made: small number of apartments in the building and views that cannot be built out may be exceptions;
  6. nothing off the plan, ever; and (vii) nothing where you are paid by a developer or marketer, ever. No exceptions.

How to make a good thing better?

Too many SOAs focus on switching clients out of existing products into new products. There is nothing wrong with saying you have reviewed the client’s existing super and/or insurance arrangements and that you believe they are in the client’s best interests, are appropriate to the client and should be retained. And in many cases there will be much that is right about this approach. Clients react well to advice like this. It proves you do not have a conflicted agenda, and helps establish you as the client’s adviser. Don’t worry about switching products. Instead focus on other matters. For example low hanging fruit includes:

  1. can you advise on estate planning? I do not mean writing a wishy-washy paragraph about needing to see a solicitor. I mean can you really advise the client on estate planning, and can you arrange fresh wills and related documents via a solicitor, for a fee;
  2. can you get the client a lower interest rate on their home loan? You don’t have to broker a new loan for them, just comment on whether it’s a good rate or not, and if its not recommend they negotiate with their existing bank for a better rate. If needed coach them through the process. Changing banks is a last resort due to the cost and hassle;
  3. is your client spending too much? Take them through a household budget process to show where they can save cash, and then recommend that the saved cash be used, for example, to: a. compensate for a salary sacrifice strategy; b. pay off the non-deductible home loan faster than otherwise; c. pay for a new kitchen; or d. pay for a great year end holiday
  4. is your client earning enough? Is their income safe and secure? Can they negotiate a pay increase with their employer? Can they improve their qualifications and skill base to maximize future marketability/protect against the risk of early redundancy?
  5. if your client has trouble saving, can you arrange an automated saving strategy via their employer’s payroll office (possibly using an interest offset account)?
  6. can your client borrow against their home to get negatively geared property or share strategy up and running? Can you help them identify and negotiate the purchase of the ne rental property?
  7. for married couples both working, can the younger spouse transfer super contributions to an older spouse to bring forward the end of the preservation period and the start of the tax free investment period?
  8. should you client buy or start a small business?
  9. is your client interested in renovating or extending their home?
  10. is your client interested in up-grading, or downsizing, their home?
  11. should your client be migrating investments towards a SMSF as age 60 approaches?
  12. should your client be thinking about a reverse mortgage in their pension years?
  13. should your client be thinking about old age pension strategies (relevant for most clients from about age 60 on):
  14. should your client be salary sacrificing into super, rather than paying off the home loan, with the idea of using the extra super benefits to eventually pay off the home loan: that’s tax benefitted debt reduction, and its very effective, particularly for older clients getting close to age 65;
  15. should you be offering a free consultation to your client’s children, who may just be starting in the workforce? This is a great way to get a new client on board and build the value of your practice;
  16. can your clients get better tax treatment on their car costs? Saving an unnecessary tax bill is a great way to create goodwill with your client;
  17. can you help an older client phase out of the workforce;
  18. can you help a client sell a business for a tax free capital gain? Or can you help them develop their business to maximize profits and future tax free capital gains?or (xix) is there some other way you can help them achieve their financial goals?

In summary, we are seeing too great an emphasis on switching financial products and too little emphasis on implementing real financial planning strategies. The key to creating a profitable fee for service practice is to, first, provide the services. The ideas listed here are just a start. The challenge is to identify strategies that will improve your clients’ financial outcomes and involve you in their affairs on a regular basis over the coming years and decades. Please feel free to contact me to share ideas on what can be done for a particular client. Think thirty years, not thirty days.

New financial planning manual for doctors

I have recently completed the first draft of a new E-Book called “Financial Planning for Doctors”. You can access this E-Book in the Resources section of Have a look at Chapter 4 in particular. This chapter includes eight detailed statements of advice for doctors at various stages of their careers. These are real statements of advice, and hopefully will give you a better understanding of what can be done to help a client get a better financial result. Keep an eye on this book because new materials and new chapters will be added on a weekly basis.

Seven tips for a successful share portfolio

You will appreciate that we strongly encourage you to recommend direct shares to your clients. A portfolio of say ten to fifteen blue chip shares, held via a low cost broker, with regular six monthly meetings to discuss progress and any necessary minor re-calibrations, followed up by a formal record of further advice, and with the client only handling the actual transactions, is a great practice building strategy. Good for the client and good for you. Much better than referring your client, and your expected future profits, to an institution. Remember: Dover does not allow individually managed accounts under any circumstances. They are not permitted under our AFSL, and that’s the way we like it. And we very much prefer advisers to not be able to access client accounts. I just cannot see why anyone would want, or need, that responsibility/risk. Its an accident waiting to happen. Peter Thompson brought this article to my attention, and I think it’s a well written piece that you should use a base for your share advice practice: Morningstar share article. I hope you are well and that all is well.

The Dover Group