Financial Planning Myths

You don't have to be rich to benefit from sound financial advice. That's just one of the myths we dispel surrounding financial planning.

There is an awful lot of confusion about what financial planning is and what it can do for you. Some people think that professional financial advice is for rich people only. Others believe it is something you don't have to start worrying about until around 10 years before you retire. And many suspect it is just an investment fund selling mechanism.

As a result, one or more of the four myths examined below could be preventing you from using a financial adviser, a mistake that could cost you hundreds of thousands of dollars in future prosperity and financial security.

Myth #1: Financial advisers are simply retirement planning specialists.

Like many myths, this one had a core of truth to it at one time. The financial planning industry was borne out of the push for self-funded retirement, which started about 20 years ago. In those days, people who were in a position to fund their own retirement were usually high earners or owners of assets, so the myth arose that financial planning was reserved for the wealthy.

It's also fair to say that many financial advisory companies specialise in advising pre-retirees - people who are at the peak of their earning powers, have already paid off a house, and often have a large amount of capital to invest. Some advisers actively discourage any other type of clients. They do this by charging high upfront fees, and quite often the advisers who staff these firms are in the pre-retirement age group themselves.

Moneytree Partners belongs to the minority of financial advisers who see their primary role as helping people - often younger people - to begin accumulating wealth, rather than helping older clients invest existing wealth for retirement. This group of innovators recognises that getting started is often the hardest part.

Many clients do come to us in their 50s, suddenly concerned about their looming retirement; but we think the people who can benefit from our services most are the GINAS. These are people generally under the age of 45 with a good income and no assets. These high-earning younger non-investors run the risk of working hard for all of their lives, with nothing to show for it; in some cases not even a home of their own. Our first step is often to simply to give these clients the self-knowledge and understanding that will lead to successful wealth accumulation - whether that client is 25 years old or 55 years old at the time.

Myth #2: ?A financial adviser can't help me unless I have a lot of money.?

One of the most persistent myths about professional financial advice is that you can't get any unless you are wealthy or own substantial assets.

In fact, we believe good financial planning does not start with how much you have, but rather with how much you would like to have. In just about every case, the first step is simply to help you set a goal which is achievable, understand your current financial situation, and then discuss various options that could help you get from where you are now to where you want to be.

Case history: prescription for a doctor.
A GP in his late 30s had already visited a financial adviser who told him that because he didn't have a lot of cash, he didn't know what to do with him. As a result, when a mutual friend referred him to a Moneytree Partners adviser, he told the adviser? I don't have any money in the bank, so I can't talk to you just yet?.

Our adviser explained to the doctor that part of his job was to work with clients during the pre-accumulation phase - the phase that makes it possible to begin investing. During this phase it is almost always possible to start saving or to leverage borrowing capacity in order to raise some seed capital.

With our help, this client set up a cash hub of savings and borrowed funds and purchased a rental property within nine months. (Part of the planning expertise was to use the investment process to reduce the doctor's income tax liability and direct him to the most cost and tax effective finance.)
This client is now firmly committed to a property based wealth accumulation plan and expects to purchase his second property within the next six months.

Myth #3: ?Financial advisers are basically just managed funds salespeople.?

To some extent this is true - but again, not across the board. If you think of financial advisers as ?investment mechanics? with a range of tools in their tool kit, managed funds should be just one of these tools. However, it is also true to say that a large portion of the planning community has a very narrow toolkit. This is especially true of financial advisers who have ties to one or more fund management groups, or who are restricted by their licensee to making recommendations from a carefully edited list of approved funds.

It is also true to say that there is a growing number of financial advisers who have a much broader toolkit. And the broader their toolkit, the wider the range of scenarios they can draw on to customise strategies for their clients.

We've found that the specific nature of the investment is not that important. As long as the underlying investment has been carefully chosen, time should do the rest.

As a potential client of a financial planning company, you are entitled to know what restrictions will be placed on your choice of investment categories (if any), and how wide your potential choice of investments will be. It is a question you should ask before you make your final decision.

Myth #4: ?A financial adviser will give me the same plan as everybody else.?

This simply isn't true. Financial planning is essentially personal and customised. The law recognises this by stating that the client's personal situation must be taken into account before giving financial advice. As a result, at least half the effort of financial planning is focused on you, rather than your money.

A good financial adviser will take time to understand your personal situation in terms of income, expenditure, risk tolerance and personal goals and then make use of this information to draw up a solution designed exclusively to meet your needs.

It may also reassure you to know that not just anyone can become a financial adviser. About 25 years ago, you could do a brief part-time course and call yourself a financial adviser. Today's financial advisers are a lot better educated than that.

All Moneytree Partners advisers have either completed or are studying their Master of Commerce degrees with a Financial Planning major.

On the other hand, while a framed certificate on the wall may be an essential qualification, it is only the first hurdle in selecting a financial adviser. The only way to do that successfully is to rely on your own judgement. Research and interview at least two to three potential advisers and judge for yourself how flexible they are in the range of solutions they offer, and whether or not they are prepared to invest time in you, no matter how much or how little you have in the bank right now.

Financial advising is a long-term relationship - it has a beginning, a middle and an end, with much fine-tuning in between. That's why it pays to ignore the myths and put your faith in someone who has faith in you.