Top 10 tips for building your practice through share advice

[ January 30, 2013 ]

Financial planners are perfectly positioned to develop the knowledge to analyse direct shares and offer clients direct share advice

Who do you love the most? Your children or AMP? Your spouse or BT?

Then why let big institutions get the profit from providing services to your clients? Why not provide these services yourself and let your family enjoy the extra profit and goodwill?

The key to developing a post-FOFA fee for service financial planning practice is to actually provide the services yourself and not refer them to a third party. One great way to do this is to recommend direct shares and not recommend managed funds.

Financial planners are trained to analyse investments. There is no reason why a competent financial planner cannot develop the knowledge to analyse direct shares. They are just another investment.

  1. The Australian share market is heavily skewed to just a handful of large companies: if you are conversant with the top 50 Australian companies then you are conversant with most of the Australian share market.
    How well do you know the top 50 Australian managed funds? It’s easier to be across the top 50 Australian shares than it is to be across the top 50 Australian managed funds. The information is more available and more current. Expert reports are easy to access and don’t cost much. And there are no boring managed fund PD days.
  2. The company names mean something to your clients. BHP Billiton. Fosters. Telstra. Westpac. ANZ. NAB. Wesfarmers. Brambles. They resonate. They have meaning. They have familiarity. They connote stability, trust and reliability. Your clients know these companies. They have confidence in them. They know what they are invested in at any time. The digital age means your clients can track performance by the hour or even the minute.
  3. Your clients can form their own views and opinions with your guidance and assistance. Let your clients control the portfolio. Don’t micromanage it. Meet regularly, at least half-yearly, with reports on each company, and any tweaks that may be needed, and make sure your advice is followed up promptly with a short-form SOA.
  4. Don’t do managed discretionary accounts: they are an accident waiting to happen. Let your clients handle the specific transactions, don’t do it for them.
  5. Integrate your advice with a tax efficient SMSF strategy, and handle the compliance and back office functions for your client. This creates new revenue sources and extra goodwill.
  6. Perhaps consider a family trust, or even a private company: the company tax rules and the franking credit rules can combine to provide an even better tax planning result than a SMSF.
  7. Limit the portfolio to no more than 12 companies, to make sure you do not revert to the mean.
  8. There is no need for an expensive wrap service: E*Trade or CommSec provide all the service your clients need for just $19.95 a transaction (conditions apply). Your clients win again. Transparent and low costs go down well with clients.
  9. Invest, don’t trade. Recommend shares be held for ten years or more. That’s how long it takes for real value to be achieved and it protects you from unexpected market drops and complaints.
  10. Gain international exposure by including companies with overseas operations or significant export businesses. Gain industry exposure by concentrating on resource companies, or banks, or whatever suits your client best. Gain tax efficiency by selecting companies with high dividend yields and high franking credits.

Have fun in this interesting and rewarding space. And remember that if you don’t offer direct share advice to your clients someone else will.

The Dover Group