Sane, Sound & Sensible Financial Planning Advice

Getting it Right!

2011-03-03T16:07:00.000-08:00

In case you were looking for some light reading or a movie to watch over the weekend, I thought I’d share a few things with you on the topic of getting it right for clients when it comes to investing. It is all too easy to get distracted by the regulation mountain ahead and the requirements thereof or the buzzing noise of the markets, especially in uncertain times, when clients shift their focus onto short-term (or even longer term) returns and comparing them to whatever else appears to have done better at that time. It is important to get the focus on where we do add value and on the quality of our process and what it is designed to achieve.

Regulating Risk Profiling

FinaMetrica recently released a response to the UK financial services authority’s (FSA) published views on the investment advising process. This looks to be the first time any regulator has provided a clear and coherent set of rules for investment advisers and highlighting the importance of understanding client’s risk tolerance, something we have been doing with a definite degree of success I believe. As regulators across the globe increasingly follow similar pathways this lead is likely to followed in other countries including NZ.

Here are links to the FSA paper and the FinaMetrica response.

Fear & Greed

In terms of understanding client’s response to risk, I attended seminar this week hosted by Morningstar. Don Phillips, Morningstar’s Global Managing Director spoke about some research that they have been doing into the “investor experience” when investing in managed funds, which tells an interesting story. Morningstar have compared the time-weighted (total fund) returns over a long period of time with the money-weighted (average investor) return. The latter was weighted based on the average fund flows in and out. Because of the fear and greed cycle and the chaser mentality, investors often miss out on a significant benefit of long term buy and hold fund ownership. Interestingly, the gap in returns is greater with the more volatile single sector or specialist types of funds as these are the speculative ones that investors tend to play with and often get the timing wrong. The well balanced multi-sector funds tend to have a smaller gap as investors seem to be able to stick with a less volatile process thanks to the benefit of diversification (and possibly some advice along the way??) Don said that the adviser’s role in this process was to make sure that they got the risk tolerance right for clients, and then put in place an appropriate investment strategy and coach and guide clients along the way to stick with it. He said adviser are not adding value in tinkering with the investment and the tactical asset allocations, but rather based on whether or not they amplify or moderate the fear & greed cycle. He said advisers are psychiatrists who are often paid in basis points... To do this effectively, they need to know the clients risk tolerance and understand their goals. If a client knows that they are on track to achieving their goals, they are less likely to panic.

Interestingly the same charts for the default Kiwisaver funds show that the reverse was often true and investors had a better average return than the total fund return. This is because they have stuck with the process and thanks to regular saving and government top-ups, they have been dollar cost averaging into the funds throughout the downturn and subsequent recovery.

“Get to know Mr Market” – Warren Buffett

One of our advisers told me about a BBC documentary that he had watched recently about Warren Buffett and the keys to his success. The the hour-long doco is on YouTube broken into 10 minute slices. Take the time to watch it, it is an interesting insight into someone who has done his level best to avoid the fear and greed cycle and invest to make money over the long term. His key secret to success? Know Mr Market, that irrational being who sells when things are cheap and buys when they are dear, and trade off his stupidity. Don’t get distracted by the noises he makes. Here is the link to the playlist http://www.youtube.com/view_play_list?p=E6FA4757B56CD842

The above is all evidence of a distinct shift in the view of the advice space and where the real value is to be added. Some are well on track to understanding many of these messages and putting a lot of the ‘good stuff’ into practice. At NZFP we hope to keep honing our philosophy, processes and reporting to do more of the same.

Have a great weekend!

Craig

#Kiwicount - Make or Break - GO ALL WHITES!

2010-06-23T20:20:00.000-07:00

Hey Kiwicounters

2am on Friday the 25th of June NZ faces Paraguay in their last game in this round. If they win, we are through to the next round. Something not many would have dreamed possible a few weeks ago!! Win, lose or draw, we can be nothing but proud of the lads.

It is now definitely time to stand up and be counted for the All Whites. I hope you have Whited-out your profiles? Let's keep the #Kiwicount tally growing and the white noise roaring online throughout the night and the game tomorrow.

Keep tweeting your support, inlcude the #Kiwicount hash tag and also take the opportunity to '@' message other followers who may not have jumped on board as yet. We need all the numbers we can get to send a wave of support.

We have a few more All White scarves to give away, so get creative with your tweets of support. Make them funny or inspirational, and hopefully others will enjoy them so much, they'll get retweeted heaps. We'll pick out some of the choice commentors and send you a scarf, which you can hopefully proudly wear as you watch the All Whites in round 2....

GO ALL WHITES!!

Craig

Kiwicounters sing out online - The FIFA World Cup is upon us

2010-06-10T19:14:00.000-07:00

We have seen the All Whites do us proud in each of the warm up games.

Tuesday, the 15th of June, is the first World Cup match against Slovakia.

Monday the 21st of June at 2.00am is the crunch match against Italy...

It has been fantastic to see the thousands of #Kiwicount support tweets for the All Whites, and we want to continue this support throughout the world cup.

Everybody knows any passionate football supporter must sing a chant, so we thought of putting this into reality on Twitter.

Each evening before a game starting at 7:00pm we want the Kiwicount choir to form and show our support. We are putting ourselves out on a limb here, so your participation would be appreciated :)

We thought it might be a good time to get you Kiwicounters to @ tweet each other a bit more too, so here's the plan for a chant and response. The next choir can start at 7:00pm on Sunday !!

To start a game cry, tweet out the following from the All Whites World Cup Song - Stand Up.

Cause it's a great time to live and... #Allwhites #kiwicount http://bit.ly/b3ZDKa @[pick a name] @[pick a name] @[pick a name] @[pick a name]

To which the people you @tweeted should reply

@[your name] It's time to stand up and be counted on... #Allwhites #kiwicount

Another line to use is

Start cry:

It's a long long road to carry on... #kiwicount Go All Whites!! http://bit.ly/b3ZDKa @[pick a name] @[pick a name] @[pick a name]

to which they reply

@[your name] I've got to Stand up and be counted on #kiwicount Go All Whites!!

You can do this before, during and after the games to keep the 'White' noise roaring online. All the while, the @Kiwicountbot will be keeping a tally of new participants to the count.

If you want to encourage new participants, then send them this tweet, which will refer them back to this page and explain how things work.

Kiwis stand up and be counted for the All Whites with #Kiwicount more info here http://bit.ly/b3ZDKa

Thanks for keeping this going and growing!

Craig

#Kiwicount Growing! Whittakers white choc up for grabs

2010-06-03T19:23:00.000-07:00

Hi All You Kiwicounters out there

Thanks for your terrific support so far. The All Whites and NZ Football are wrapped with the Kiwi spirit online, so let's keep the momentum going as they carry on down the road to the FIFA World Cup in South Africa.

@WhittakersNZ has very kindly donated 24 delicious slabs of their all white and very creamy 250g bars, not one of those teeny 200g varieties some others make:), as prizes to give away to you mad keen supporters out there!!

So here's the plan...
There are about 200 or so Kiwicounters counted so far, but there has to be hundreds more, so tell your friends and get them on board.
Send them the following tweet:
--
Standup and be counted for the All Whites with #Kiwicount and you could grab some @WhittakersNZ Choc too http://bit.ly/b3ZDKa
--

We'll draw 12 random numbers from the new Kiwicounters between now and Friday the 11th. We'll ask them who referred them and send BOTH of you a delicious slab! Easy as that!

The All Whites are into their final preparations in South Africa, so keep tweeting your support and follow your fellow Kiwicounters to build up your Kiwi Twitter network.

Cheers

Craig

Kiwicount Wordle

2010-05-27T19:11:00.000-07:00

I used wordle.net to create this cool picture of the Kiwicount posts

We Stood Up to Be Counted - Kiwicount

2010-05-26T16:26:00.000-07:00

This week hundreds of Kiwis from across the globe came together through the online social networking site Twitter to support the All Whites in their World Cup warm-up match against Australia.

Kiwicount has been a bit of a pet project for me and as General Manager of New Zealand Financial Planning Company Ltd (NZFP), it was a great way to get my team involved. The process was simple, just tweet a supporting message using the phrase ‘#Kiwicount’ which encouraged other people in their network to send a supporting message. As a company we rallied support before the game and it was awesome to see the response. We had All Blacks to News Presenters to stay at home mums to CEOs all communicating one message – GO THE ALL WHITES!

The first ‘Kiwicount’ was held over a month ago and our intention was to foster collaboration of kiwis on Twitter. The following week the All Whites launched their World Cup anthem “The Feelers song ‘Stand Up’. With the lyrics ‘Stand up and be counted’ we thought another Kiwicount would be a perfect way to show support for the All Whites en route to the World Cup.”

The team at NZFP aims to continue supporting the All Whites on this journey. The ideal method for those wishing to support the team from the comfort of their desk you are encouraged to do so.

The All Whites have a number of warm-up games still to play, so keep #Kiwicount tweeting to show your support and hopefully we can see the numbers grow!

The next games are 29 May against Serbia, we take on Slovenia on the 4th June and the last warm-up is on the 9th June against Football-mad Chile!

#Kiwicount - Stand up and be counted for the All Whites

2010-05-18T21:13:00.000-07:00

The #Kiwicount is back!!! Our goal this time is to connect up Kiwis and show our support for the All Whites in the lead up to the 2010 FIFA World Cup.

As many of you requested - and thanks to the collaborative support of Nathan Kennedy (www.twitter.com/nathanknz) - there will be an automated number counter for people who participate using the #Kiwicount tag. When you use the tag from Monday, you will be sent a tweet with your unique #Kiwicount number and you will be able to visit the @Kiwicountbot page to see the tally of supporters grow.

Remember to follow www.twitter.com/Kiwicount to be part of this online Kiwi Twitter community too.

The All Whites’ World Cup anthem is the great Feelers’ hit “Stand Up”. The Lyrics “Stand up and be counted on” is a call to action for New Zealanders to show their support. Stan Walker has re-released the song in support of the All Whites campaign. You can view the video by clicking here and also download the song from iTunes as a show of support. More views and downloads will boost it in the top 20 chart ranking.

As a proud Kiwi-owned business, our aim is to get in behind the All Whites on Twitter, so join us and show your #Kiwicount spirit.

Monday the 24th of May is the first warm-up game against the Australians, so we have our own ideal warm-up opportunity to Stand up for our team.

At mid-day using the #Kiwicount searchable tag we want to start Tweeting our support. It would be great if you also followed NZ Football http://twitter.com/NZ_Football on Twitter and included some @NZ_Football comments to them in your Tweets too.

Here are a few examples:

@NZ_Football Go the All Whites tonight #Kiwicount http://bit.ly/b3ZDKa

Looking forward to supporting our All Whites tonight against Australia #Kiwicount http://bit.ly/b3ZDKa

I am standing up and being counted to support the All Whites and @NZ_Football #Kiwicount http://bit.ly/b3ZDKa

Include the bit.ly link which will direct others to this page to see how the process works.

We hope to have some All Whites scarves (and possibly some other spot prizes ) to give away to a few random #Kiwicount numbers next week so you can keep warm and show your support at the same time.

Once again, the success of this support campaign is up to you Kiwicounters, so share the message and re-tweet the good ones to share the fun and keep the momentum going throughout the 2010 FIFA World Cup.

See you online on Monday at 12

Craig

Who knew there were so many Kiwis on Twitter - #Kiwicount

2010-04-15T15:58:00.000-07:00

What we saw today was the #Kiwicount 1.0. The randomness of Twitter really took control. A big thanks to everyone who took part and it is great to see so many active Kiwi tweeters out there. We thought a collaborative event on Twitter would be fun, but had no idea how much activity there would be in those first thirty minutes :)

We still have some wine to give away. I think the best way to do that is to put everyone who tweeted the #kiwicount and follows the new www.twitter.com/kiwicount into a draw and pick some lucky winners. Its been a random day, so let’s keep random. We will be back to do #Kiwicount 2.0, so watch this hashtag. We’ll apply some more No. 8-wire mentality and next time we will be better prepared.

So keep tweeting #kiwicount and we will pick the lucky winners early next week. If you join the @kiwicount twitter page it will make it easier for people to find and follow you!!

I hope you have had some fun and a bit of distraction on a Friday morning. With #Kiwicount, we certainly have made our mark on Twitter, and I am sure you clever Kiwis out there will find some really good ways to leverage off this opportunity and connect up with Kiwi Tweeters near you or those who share your interests.

Good old New Zealand, always willing to bat above its weight on the global scale!

If you have any comments on how we could improve this or suggestions for other cool ideas for #Kiwicount Tweeters please do let us know.

The Great #Kiwicount

2010-04-08T18:08:00.000-07:00

The #KiwiCount was an idea that came from our national meeting in Auckland at the start of the year. A number of our advisors enjoy connecting and communicating on the social media site Twitter. As a company who supports Kiwis' financial futures we thought a #KiwiCount up would be an enjoyable event to run and a great way for Kiwis to connect online.

How it works is quite simple. On Friday the 16th of April at 9:00am we start at 1 and we count UP! Just like we used to do on school bus trips:-)

All people need to do is search on twitter for the tag #KiwiCount to find the next number and then post something like this:

“I am number XX in the #KiwiCount you can take part too. More info at http://bit.ly/b3ZDKa”

To make things interesting we have bought a dozen bottles of NZ wine and have already picked out random numbers to give to our lucky Kiwi counters. So if you are that lucky number a bottle of wine will be coming your way (as long as you are over 18 and in NZ). We believe Twitter is all about collaboration so four of these bottles will go to the best Re-Tweets who share the #Kiwicount to their friends on Twitter.

So Kiwis let’s start counting. See you online on 16 April!

Craig

Social Media and why it is important to us

2010-03-30T18:38:00.000-07:00

Our company New Zealand Financial Planning has been around for over 20 years. Over this period we have worked with 1000's of Kiwis, with our sole purpose being to support their financial future. Our business has grown, mainly via word of mouth, and with this organic growth we have advisors right across New Zealand from Auckland to the deep South.

We see online business networking as the next logical step. With sites like Linkedin, Twitter and Facebook, our voice can be online and our business can touch and support many more New Zealanders. We want to meet you so we have some enjoyable events coming up in the online space for 2010 If you are on any of there following networks, please come and say ‘hi’.

Linkedin Company Profile here
Facebook Page here
And many of our consultants are individually on Twitter.

In todays economy it really is survival of the Financial Fittest – “Lets get Fit”

Have a Happy and Safe Easter

Craig & the NZFP team

5 Proofs of a Sound (Financial Planning) Business

2009-11-22T19:31:00.000-08:00

The key to a business’s long term success is often as simple as the regular return of customers to buy more of what you offer at a price that delivers you a profit. Whether are the barista on a coffee cart offering a free cappuccino for every 10 or a professional services business, returning clients are a major indicator of a successful business.

So what are the key ingredients of a winning proposition in the first place? The initial offer must first establish clients’ expectations and the delivery, at the very least, meet those expectations. The business must deliver a consistent client experience that clients’ value and are prepared to pay for.

A financial planner’s advice must follow a similar discipline if it is to have the consistent and regular income that is the key indicator of business success. This needs to be juxtaposed with those advisory business models that work in good times only and which are generally based on the unachievable promise of delivering better than average investment returns. When markets turn south so invariably does client satisfaction. Existing clients depart and new clients are rarely seen. The business loses momentum as the key component of the value proposition, better than normal investment performance fails to appear.

A financial planning business with high levels of client satisfaction and persistency are more valuable to all involved.

The value of any asset is the price today someone will pay for the expected future income it generates. A business with clients who generally leave after 3 years will be worth far less than one with a persistency of 6 years, all else being equal.

But, high client persistency is an important factor not only for the business owner but also for staff, clients and referrers. Businesses that do not have a reliable cash flow are less likely to be able to offer staff long term careers, are less likely to be available to clients when markets turn down and more likely to put referrers relationship with their referred clients at risk.

One of the better definitions of a good financial planner includes the prescription ‘one who consistently stops clients from making bad financial decisions’. A planner who is around to assist clients stay on track when the financial news is irretrievably bad and the strongest desire is to capitulate to cash is the planner most clients really need.

Planning businesses that have a proven methodology for getting close to their clients, establish clear performance expectations and meet those expectations will continue to grow their businesses in trying times. They will do so at the expense of those that rely on investment outperformance as their primary offer. Talking with many of FinaMetrica’s successful planning clients in Australia, New Zealand, the UK and the USA it’s possible to divine a common set of planning characteristics. Suffice to say those that do not display a client centric focus will struggle in the lower trust environment that exists today.

A five step process that ensures products and services match clients’ needs.

Good financial planning businesses build their professionalism, protect themselves and ensure their businesses meet best practice by rigorously seeking to apply five proofs to their financial planning process. They must:

1. Prove they ‘know their client’, their current situation, aspirations, risk tolerances and risk capacities.

2. Prove they have explored the range of alternative plans and strategies with the client.

3. Prove they ‘know the products’ that they have selected to meet the client’s needs.

4. Prove that they have explained the risks in the plan and the product to the client.

5. Prove they received the client’s properly informed commitment to accept those risks in pursuit of their goals.

1. Prove you ‘know the client’, their circumstances, needs, aspirations, risk tolerances and risk capacities.

You need to have a good understanding of client assets and liabilities. You need to have a good understanding of present and future cash flows including inheritances and material future payments and expenses. You should be able to illustrate this to clients via a spreadsheet and preferably, to aid understanding, graphically.

Critically important is the client’s risk capacity. You must determine how much your client and partner could afford to lose without messing up their present and future life plans. This usually means stress testing the client’s balance sheet and then reviewing future spending to assess when the client will run out of money.

You need to have a robust understanding of your clients’ financial risk tolerance so that you can assist them take that into account in their financial plan. [A useful definition of risk tolerance is the level of risk an individual would accept in their financial affairs if goal achievement was not an issue].

This approach is quite contrary to typical risk profiling or ‘portfolio picker’ quizzes which are often no more than three to 10 questions designed to meet ‘regulatory’ obligations with a minimum of fuss and generate an investment recommendation. The quiz outcome conflates risk needed, risk tolerance, risk capacity and risk knowledge via an opaque algorithm into a score which has the same credibility as astrology. More often than not couples are assessed as one merging any differences they have into one without any opportunity for planner and client exploration. The score then converts to an investor description such as “you are a conservative investor who appreciates capital growth and a steady and reliable income’ and suggests a portfolio mix to do so. Consequently the ‘advice’ ignores personal circumstances, lifestyle needs, longevity and emotional needs.

Because this is so obviously nonsense many planners just undertake such quizzes simply to make their files look tidy. They then choose to ignore the outcome altogether. The whole empty exercise becomes merely lip service. This almost invariably leads to planner centric advice where the risk tolerance of the planner is projected on to the client. Good planners usually get this right but inexperienced or poorly trained ones often get this horribly wrong. The current dissatisfaction of many clients with their portfolios is testimony to this failure

2. Prove you have explored the range of alternative plans and strategies with the client. There are usually up to four fundamental tradeoffs to test:-

Work longer, harder, differently or perhaps set up a business. The goal is to improve cash flow.

Adjust your spending and savings habits (including converting personal-use assets such as the family home to investment assets). The goal is to allocate spending between now and the future on a rational basis.

Self-insure or transfer risk to a third-party insurance company. The goal is to decide whether to run the risk of a catastrophic event impeding the goals the client might have for his / her family or mitigate them through appropriate insurance cover. If there are business assets for instance, it is important to have views of the market value both as a willing seller to a willing buyer in a non distressed market as well as a distressed seller to a grudging buyer in a stressed market. This is necessary to allow a sensible assessment of any under insurance to be calculated..

Decide on the level of financial risk that the family is prepared to accept in pursuit of its goals. Generally risk is translated through to the amount and type of risky assets such as shares and property held compared to safe assets such as cash in the bank. Some may choose to hold more non risky assets even though they might have less chance of achieving their future goals.

This is an iterative process, most clients have neither unlimited time and nor unlimited money and therefore the planning process usually becomes the establishment of a series of life goals, their prioritization and the activities and timetable to their achievement.

3. Prove you ‘know the products’ that you have selected to meet the client’s needs.

Once you have decided on the strategy and relevant products you need to understand those products so you can argue that they appropriately meet your clients’ needs.

You may use a research house to assist you make those decisions but you, the planner, are responsible for the final decision. The key issue, revealed by the current global melt down, is to understand how the product or service will behave when the markets crash. Many products work well in good times but have a history of failing in bad times. A good understanding of economic history is needed when stress testing products. Remembering of course that is the offer seems too good to be true, it probably is.

4. Prove that you have explained the risks in the plan and the product to the client.

As well as illustrating the more probable outcomes you need to explore the worst possible cases. You must be able to illustrate ‘Black Swan’ or unexpected events and explore clients’ risk capacities. You must be able to show the consistency of the financial plan with the client’s risk tolerance. You must have a clear policy of performance expectation setting and ongoing management.

5. Prove you received the clients properly informed commitment to accept those risks in pursuit of their goals.

Having illustrated the clients’ balance sheet over time and having taken into account ‘Black Swan’ events and the clients’ financial capacity to cope you need explicit instructions to proceed and that the clients have given their ‘properly informed commitment’ to the plan and they accept the risks in any investments that are fundamental to the plan.

Persistency of intent proves integrity of the financial planning process.

Planning businesses that have a reliable methodology for representing their clients, establish clear expectations and meet those expectations will continue to grow their businesses in these trying times at the expense of those that rely on investment outperformance as their primary offer. Clients and those that refer clients to a planning business need to understand that the planning business needs to be there in both the good times and the bad. Emphasis on investment returns only is a likely indicator that they will not be there for the troubles. Evidence of a robust planning process , supported by evidence of a high level of client persistency should give great comfort to anyone dealing with those businesses.

Financial Adviser Regulation will not protect New Zealanders from poor advice

2009-01-15T18:04:00.000-08:00

Just prior to the changing of the guard in Parliament, the then commerce minister, Lianne Dalziel seemed to be in an awful rush to get her Financial Adviser Bill enacted. Sadly she was successful, and we now have a piece of legislation that has very little substance to it, and has scope to grow into a huge administrative and legislative beast if we are not careful. Even more serious is the fact that it will probably do very little to improve the lot of the very people it was supposed to protect, the investor or client.

Following hot on the heels of the finance company collapses and Blue Chip debacle, the credit crunch put further pressure on many investors and made them question the advice they where being given, some with due reason. It seems that there was a perceived problem with the advice, but actually a greater problem with the regulation of the investment providers. Because the regulators often do not understand what true financial planning is, they try and box it in the “sells a product” category, and thus make the legislation around knowing and representing “the product”.

I agree that there needs to be some level of regulation that recognises the need for skilled advisers, disclosure of costs and incentives and clarity of roles. However, I think poorly thought out regulation will only hamper business and give investors a false sense of security in thinking that they can “trust” someone because they are regulated. The reality is that the dodgy advisers will still seek out the loop holes in the rules to flog the next best scheme. The more detailed and prescriptive the regulation is, the more it will impede the honest businesses, and the easier it will be to circumnavigate. What we need is a broad reaching guiding principle that all advice is measured against.

In reality, the appropriateness of advice boils down to the motive behind giving the advice more than the skill used in determining it. The true test is, “Is the advice in the best interest of the client?” In the UK, they have started a TCF or “Treating Customers Fairly” initiative for financial service providers and I believe regulation along these lines WILL protect the people it is designed to.

Why assessing your risk profile can save your bacon

2008-10-21T16:30:00.000-07:00

I learned to embrace risk, as long as it was well thought out and, in a worst-case scenario, I’d still land on my feet. – Eli Broad

There are no risk-free investments. Every investment involves an element of risk in that there are no guarantees that the conditions under which you make the investment will not change or you will make the money you think you will. The golden rule is generally, the higher the risk, the higher the rate of return.

The only thing that a good financial adviser can really guarantee in helping you negotiate the gap between risk and return is change – your needs will change, investment products will change, market conditions change, taxes change, governments change etc. To mitigate the risks represented in change, the best investment professionals, some of them responsible for funds that exceed New Zealand’s entire balance of payments, have a code of best practice and a set of tools. One of the most important tools from a client’s perspective is an investment risk profile or a risk tolerance test, an objective assessment of the investments you are most comfortable making based on your experience, values, attitudes and needs.

The worst investment decisions usually occur at times of high emotion. As much as possible an investment risk profile should strip away emotion to leave you with a dependable guide to the degree of risk you could entertain in investments that would most suit your circumstances and ultimate goals.

Different methods are used to develop an investment risk profile, but essentially it involves taking an objective look at your attitude to money and tolerance for financial volatility using proven methods of defining and analyzing risk. You’ll be asked questions like: what mix of investments do you find most appealing? Would you prefer investments that are all low-risk/low return, all high risk/high return or a mix of inbetween? How much personal insurance do you carry? Have you ever weathered a financial loss? Have you ever borrowed to invest?

You’ll also be presented with scenarios like the following:

You are considering placing one quarter of your funds into a single investment. This investment is expected to earn about twice the term deposit rate. However unlike a term deposit, this investment is not protected against loss of the money invested. How low would the chance of a loss have to be for you to make the investments?
- zero ie., no chance of loss.
- very low chance of loss
- moderately low chance of loss
- 50% chance of loss.

In helping you realize just how much risk you are prepared to take in making an investment in view of your needs and goals, it provides a guide that can be used to determine the range of investments your portfolio should contain, and indicates how you are likely to respond to possible short term market lows and highs. Going through the exercise also provides valuable armour for investors hungry for incredible returns by outlining the impact such investments can have given higher risk generally equates to greater uncertainty in investment markets.

Who do you get advice from?

2008-09-15T19:29:00.000-07:00

In a recent newspaper article the writer used three different titles to describe people giving investment advice: investment adviser, financial planner and financial adviser. In the current market place it is confusing for prospective investors, but whilst members of the public can be excused for thinking that they are all one and the same, a well known financial journalist should know better and emphasise the differences between them in the best interests of his readers.

An investment adviser is a person who gives investment advice. No special qualifications or skills are required for this other than to be successful the investment advisor mist be persuasive in getting others to accept that advice. Naturally some investment advice is better than others. Advice from family, friends or the next door neighbour is probably worth what you pay for it, whereas such advice from a stock broker may be more valuable (unless it was to buy Feltex shares when they floated on the NZSX)

A financial planner, in particular if they are a practicing CFPCM (Certified Financial Planner) and a member of the IFA (Institute of Financial Advisers) should consider a wider range of issues than an investment adviser. Essentially what they should assist their client with is ‘process’ rather than ‘performance’. For a financial planner investment performance is only part of the big picture, as the objective is to assist their client to enjoy an agreed lifestyle in retirement and not to ‘run out of money before they run out of life’. Savings strategies, controlling expenditure and wealth protection feature much more highly than investment performance. A ‘holistic’ financial planner will also consider lifestyle objectives such as travel, assisting family, as well as taxation, risk management and succession planning issues.

The term financial adviser is more generic as it can cover the activities of not only investments advisers and financial planners but also mortgage brokers and insurance agents.

In the same article he discussed ‘dollar cost averaging’ as if it was some revelation unknown to those of us who advise the public.

I’m pleased to inform him that many of us recommend a staged approach to investment to those who have a lump sum to invest, particularly in times of investment market volatility.

The specific advice is naturally tailored to the needs of the client and takes into consideration such matters as their age, risk profile and expenditure requirements. The aim is to ensure as foresaid that they can enjoy the lifestyle of their choice and not run out of money before they run out of life.

As for commissions versus fees, whilst my preference is for fees, it matters little as long as full disclosure is made to the client as to how the advisor is remunerated. The law is clear on this issue and woe betide the adviser who receives a secret commission at the expense of their client.

Truly independent financial advice is that given independent of bias from any financial institution – bank, insurance company or finance house, with the clients’ needs and circumstances most in mind. It is equally sought after by clients and advisers alike, and has just about attained the same status as the elusive “holy grail”. New disclosure laws make it a lot easier for prospective clients to ascertain adviser bias to incentives on particular product ranges but it is still very much a case of “buyer beware” and a need to do your homework.