Ellerfield Financial Planning Joins Walker Capital Private Wealth

We are pleased to announce that Ellerfield Financial Planning Joins the Walker Capital Private Wealth Group.

Having been one of IOOF’s largest Financial Planners, the Ellerfield team brings not only a great deal of experience but adds great depth to our collective. As such, it is only fitting that Ellerfield Financial Planning will serve as our Queensland State Representative as we look to further expansions within the state.

After vetting a number of Advisers and Adviser Groups for the role, it was Ellerfield Financial Planning’s experience, commitment to client interests and emphasis on ethics that highly resonated with us.

Ellerfield Financial Planning comprises a large team of dedicated Advisers and support staff and is owned and operated by Scott McKeown as CEO and Principal Adviser. Scott brings a unique and sophisticated perspective to Financial Advice having come from a strong 15-year career at Australia’s largest Financial Services Group. Scott expects a high standard from his team and that is reflected in the calibre of his staff and the quality of his service to clients

Ellerfield Financial Planning is an integral strategic partner as we look to increase our service and expansion in financial planning services.

Meet the Ellerfield Financial Planning Team

With so much insecurity in the world these days, there are steps you can take to secure yourself and your loved ones in the event that any unforeseen circumstance bestows upon you.

From being forced into hotel quarantine on the way home from travels due to being a Covid-19 close contact, through to losing your employment due to changes in working arrangements, you never know how much you need insurance and financial stability until you need it.

But it’s not all doom and gloom, from saving for a home, an investment holiday, retirement or setting up your children for their future – a financial planner in Adelaide is your key to success.

What services do financial planners in Adelaide provide?

A financial planner is like a business planner – they provide a roadmap for your future, achieved at achieving the goals and objectives you set for yourself. Unlike accountants, that we see each year to submit our tax returns, financial planners look forward, they plan and provide advice on the best financial products and services to best meet your specific financial position.

In recent times, financial planner is different to what they were only a few years ago, as they are not required to be post-graduate qualified, as well as required to complete yearly ‘compulsory professional development’ (CPD). This was brought about due to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

This has not only removed the unscrupulous operators that gave the industry a bad name, but also requires a higher standard of service, transparency, accountability, and rights for clients.

Why should I see a financial planner in Adelaide?

As previously mentioned, a financial planner has the expertise and is qualified to provide you advice on a wide range of products – these include superannuation (managed or self-managed), insurances – such as income protection, life insurance etc, estate planning, planning for retirement, savings, investment instruments and more.

If you are in Adelaide and are thinking that your life circumstances are due to change in any way, then booking a financial planning appointment should be high on your to-do list.

Get your finances sorted with an Adelaide-based financial planner

From setting up savings accounts and insurance in case of a ‘rainy day’, while also setting up Self-Managed Superannuation Funds (SMSF’s), investment accounts and investment plans based on current and future earning capacity to provide you and your family with the financial security you crave, so you can focus on the important things.

Seeing a financial planner in Adelaide should be something that you do regularly, no matter what your earning capacity nor your current financial situation. They are experts at looking at where you are now, where you want to do and will recommend the products and strategies to get you there.

Why not take the guesswork out of your finances, and call a financial planner in Adelaide today, book an appointment and see what a difference a plan can make to your future.

As the nation’s capital comes back to life post the COVID-19 Pandemic, there has never been a more important time to speak with a financial planner.

As the pandemic taught many of us, we must always be prepared to ‘expect for the unexpected. For many people, the pandemic offered huge opportunities. Opportunities in property, the share market, in their personal and professional lives. Meanwhile, for others, it resulted in losses. Losses of businesses, homes, and family units.

The former, those who had opportunities, had the financial stability, and means to take or make opportunities – and that is what financial planners in Canberra are trained and able to do.

Thinking that financial planners are not really something on your radar?

Financial planning has copped a bad wrap in recent years, in large part thanks to the large banks and institutions operating in ways that the industry should not.

With the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry changing all that, financial planners who are not qualified, are no longer in the profession, financial planners who have done the wrong thing, are no longer in the profession and those that are left – are required to offer the very highest quality products and services to you as customers.

How does financial planning work?

Unlike you accountants visit, which for most people is once or twice around tax time, a financial plan is something that you and your planner work on, cultivate and iterate as your circumstances change.

From being single with an income, through to a couple with two incomes, a family, and then maybe single again, or just two of you leading towards retirement – your Canberra financial planner is there for you every step of the way.

Setting up the goals and objectives is the first point, but these are based on your current and future earning capacity, how many years you must work, how much you can invest and importantly…how much risk can you and your family tolerate.

From here, your financial planner will present a set of products and services that provide a solution within your specific parameters and that ensure that if anything happens to cause a deviation in that plan – either positive such as a bonus, better paying job or receiving some inheritance – or negative – such as loss of job, injury or even death – that your plan and financial security of you and your loved ones are secure.

Need to find a financial planning specialist in Canberra to help plan your future?

The key is a consistent and continuous approach to your financial planning. Residents of Canberra understand the importance of having available funds, and it’s not simply for the wealthy.

Financial Planning is for anyone who wants to sleep easy at night knowing that they have money, investments and insurance that will keep them and their families safe and comfortable now and into the future.

Speak to a Financial Planner today in Canberra to find out the next steps of your financial journey – it’s never too late (or too early) to start.

Explore professionals near you that can provide the financial planning you need for a successful future.

When embarking on your financial journey, it is always beneficial to find a financial planner near me or you or whomever the plan is being designed.

Financial Planning is one of the most important steps people across Australia – the world for that matter – take to ensure they are financially fit in the face of any unexpected changes to their current scenario.

Just like a personal trainer works on that stubborn waistline and to build muscle, strength and resilience, a Financial Planner works with their clients to trim the debt, build a strong investment portfolio, enable plans for ‘extras’ – such as holidays or maybe that boat or car you have always admired – while also working within the financial capabilities of their client.

It was once imperative that your financial planner was located nearby – just like your personal trainer – so you could ensure you made your ‘face-to-face’ appointment, sat down in front of them and went through all your financials. And this for many clients – most in fact – is still very important, as this will be some of the most important decisions you will presumably make in your lifetime.

However, thanks to technology such as Microsoft Teams, Zoom and Google Meet, your financial planner is always nearby!

Why is it important to find a financial planner near me?

Although this technology is widely used – especially post COVID-19 – it needs to be remembered that your financial plan is indeed one of the most important people ‘should’ do, but often negate.

When things are vitally important and have long-lasting implications – such as finance, health, and legal matters – they are best conducted in person. There is a certain level of personal information that needs to be provided, not to mention physical paperwork, and, of course, those ever-important ‘non-verbal’ communication channels such as body language – that is a vital part of a financial planner’s assessment of your personal financial position.

Your Financial Planner – unlike your bank – assess your situation not only on the numbers in front of them but a wide array of extenuating circumstances, your age, your occupation, your future earning capacity, your personal goals and on you as a person.

Why is this so important? Because there are so many elements that we keep hidden - sometimes purposefully, others not – this can include things we are embarrassed about, such as debt levels, risk tolerance or other things that are vitally important in the financial planning process.

What is so important about a financial planner for me?

Like a captain on the ship, a financial planner provides all the tools, all the systems and processes to its crew to steer the ship to where it needs to go. Although your ultimate financial success or freedom is up to you, and you alone – your financial planner is there with you, every step of the way to ensure you stay on track and pivot your plan should you deviate off course.

Finding a financial planner near me, you, your siblings, your parents or whoever is looking for a more financially secure life than they currently have is the first step, the rest is up to you and your planner to map out and go forward and achieve.

Never has financial planning been more important to Australians. As the country emerges from the washout of the COVID-19 pandemic, what is clear to most is that the ways we used to do things, plan things, invest in things is gone.

As the ‘new normal’ emerges, we need to put plans in place to ensure we and our loved ones are better prepared and protected, but also that we take the opportunities in front of us, that to most, are hiding in plain sight.

Why is Personal Financial Planning in Australia so important?

Sure, there are stories in the media – that take up a larger share of voice than they should – about the overnight success stories, Instagram influencers that make millions and enjoy all the trimmings of being rich and famous. But for the rest of us, the other 99%, we need to work.

Personal finances are so important; as individuals, we need to be more objective. We need to treat our finances like a business, and like any business, we need a plan. Why is this so important? You could go through life, getting paid, saving for a house, maybe achieving it, then living until you retire – and then what?

What about life? Life in Australia offers us so much more than working to the bone and just getting by. And even if you are on an average income, by setting a financial plan in place, you can start taking control of your financial future today.

How to start your financial planning journey in Australia?

Thanks to the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, all industry participants – including financial planners – are held to a higher standard, and must be better educated and more accountable for the advice they offer.

In addition, they can’t simply advise clients to take the most profitable products – for themselves – which was standard practice for many planners in the past.

As such, even if you have little to no knowledge of where to start, thanks to the royal commission, you can start with the knowledge that you will be selecting an advisor that has your best interests first.

From here, you need to find a financial planner that your feel comfortable with, as this is not a short-term relationship, it is one that ideally will last a lifetime. Not to mention, when financial planning in Australia, you need to provide a lot of information, some of your most sensitive information in fact, so there needs to be an established trust.

From your personal debt levels, income levels, and family details, through to your will & last testimony, your financial planner will know more about you than many, and the more information they are provided, the better your process and outcomes will be.

Financial planning isn’t just for the wealthy, it isn’t designed to make you wealthy – although it can – it is designed to provide you with a plan to become financially stable, secure and provide freedoms that should you try to simply go it alone unless you are one of the 99% mentioned above, often will never come.

Speak to Walker Capital today about how their financial planners can assist in realising those freedoms sooner.

“The greatest wine in the world is the wine you like best”. When it comes to personal choices, living in a country such as Australia, we are granted the liberty and luxury of being able to freely make them, and hold different views and choices to that of others, our governments, business, our parents, on just about anything.

When it comes to the question of who are the best Financial Planners in Australia, it comes down to the simple fact – who are the best financial planners for you?

There may be the best performing financial advisors in Australia, who generate millions of dollars every year, but are they really the best Financial Planner for you?

Subjective & Objective Results

Financial Planners are charged with charting a roadmap and guiding you and your family through your personal financial journey. There are many factors including your risk tolerance, access to capital, income level, capacity to earn and time horizons, that must be taken into consideration.

Many of these are objective and can be measured quantifiably and Financial Planners are trained on how to best identify these, categories and recommend the best strategies for your personal situation.

However, this is only part of the process of finding the best financial planner in Australia for you, the other is the planner themselves.

Financial Planning is a very personal service, your planner will ask questions and expect honest and truthful answers – and bank statements – for some things you would only dare talk about with your closest. Not only that, but Financial Planning is also a lifelong journey, and your planner should be around in your life for many years to come, so you need to get along.

Now, we are not recommended that you should be inviting them over for Christmas lunch, however, you most certainly should be able to trust even like your planners, so that you can communicate freely, regularly, and honestly.

How does this make them the Best Financial Planner in Australia?

Along with great skill and access to financial instruments that will make you money, your financial planner needs to be personable, empathetic, and understanding. Remember, they are not there to judge, no matter how dire your financial situation may currently be.

They are there to help you P.O.L.C or plan, organise, lead and control – all the attributes the best financial planners in Australia do daily. They plan for you and your family, organise your accounts, your investments, insurances, and budgets, lead but offering opportunities and products to suit your needs as they change, then control your portfolio (under your instruction) to ensure you maximise your outcomes.

Remember that everyone in Australia is different, we all have different needs, wants, and demands, we all have different jobs, skills, and life ambitions, so the best Financial Planner in Australia for you is the one you like best.

Speak to Walker Capital today for a meet and greet with our financial planners, review of their performance and review of how your financial journey can take its next steps forward.

A certified Financial Planner is considered the standard in excellence for financial planners not only in Australia but around the world. They must meet not only the postgraduate expectations of the Australian industry, but a wide range of additional education, training, and ethical standards in the practice of financial planning.[1]

“Financial planning is about developing strategies to help you manage your financial affairs and meet your life goals – and the first step is to make sure you have access to the right advice. Working with a professional financial planner can give you confidence and peace of mind that your financial future is secure.”[2]

So, why is it so important to have a certified Financial Planner?

You wouldn’t go to an unqualified doctor, as they are charged with your health. A Financial Planner should be no different, as they are charged with taking care of your ‘financial health’. And as we from a very young age understand, your financial capacity dictates what we do, where we live, how we live, where we holiday, when we retire, and so much more.

As such, a Certified Financial Planner is the only professionals that can provide you with personal financial advice, product advice based on your personal situation.

Why am I confused about what is considered financial advice?

The answer to that is relatively simple, despite financial planning is very complicated. That is due to people & organisations trying to sell to you. They sell you bank accounts, credit cards, short term loans, buy-now-pay-later services (Zip Pay & Afterpay) you name it, they sell it.

The people that sell these are not providing financial advice, they are salespeople. They are not (largely) qualified or certified financial planners that are looking to provide services to better your personal financial position. They are trying to hit sales quotas, rank you on internal scorecards.

Financial Planners are experts that can provide you advice on what products suit you from a range of suppliers in relation to investments, insurance, debt reduction and more. They can review investment funds, ETF’s, shares and other financial instruments from a range of suppliers and provide their, impartial advice on which way to go.

Meanwhile, the list provided previously is there to sell you a loan, product, or service for which you “qualify for” rather than something that has been tailored for your personal needs.

Should I get a Certified Financial Planner?

Simple answer, yes. A Certified Financial Planner will work with you and your personal finances now and into the future to provide a more stable, more financially free life for you and your family. They do this through employing debt reduction techniques, savings maximising techniques, introducing you to financial instruments geared to make you money over the short, medium, and long terms based on your risk tolerance, all the while working to a plan that is within your personal means.

Next time when you are dreaming about a boat, a holiday, or a new house, why not sit down with a financial planner and work out how you can have your cake and eat it too.

Speak to the certified financial planning team at Walker Capital and realise your next step to financial freedom.

[1] https://www.cfp.net/

[2] https://fpa.com.au/

As the world heads into 2022, there is never a better time to see a financial planner. As many new years resolutions of you and the people around you have something to do with finance, why not do something constructive and real about it – not simply hollow words that work out as much as your new gym membership!

Finding a top financial planner nearby should be at the top of almost everyone’s Christmas list, as financial freedom is the gift that will keep giving – literally.

A Financial Planner is not going to solve all your financial problems, dreams and aspirations in one go, but what they are going to be able to do, is give you a reality check on where you are really at, how much debt you have, how much in assets you have and what a plan looks like to get you from where you are now, to where you want to go.

What are the benefits of a financial planner?

We are often good at plugging the holes as they start letting in water rather than fixing the boat itself. This is not different to a qualified, certified top financial planner.

Starting from the top, alleviate and reduce your debt levels and ensure you have insurance to cover you and your family in case of an accident, loss of job and sadly – but importantly – loss of life.

With these key elements in place, the review of your superannuation and retirement plan, how much do you have not, how much do you need to be comfortable, when do you want to retire? All pertinent questions that need urgent attention, not a couple of years before you retire – but now when you are young enough to make changes.

Then when you have this organised, let’s talk about investing, to create wealth and make your money work while you are sleeping – quite literally. If you have ever wondered how people are doing well and look like they are not stressed, it’s because in many cases, they have a financial planner taking care of their medium- and long-term investments – ensuring they have money available and access to funds when they need it.

And finally, what about some discretionary items? Maybe a boat for summer? Why not do it within a dedicated plan with your planner – don’t just jump on the next bow-rider the salesperson offers a low-interest rate to you on.

Top Financial Planners can make a lifetime of difference.

As you can see, your financial planner is not simply there to sell you products, they are there to design you a roadmap for long term stability while also providing the fulfilment of your short-term ambitions.

Remember, not everything is realistic, and your top financial planner will tell you as much – but there is only one way to realise this – that is by visiting a top financial planner near you today!

Speak to a Walker Capital Financial Planner today about how to map your financial future and start enjoying your money sooner.

Nirlep Kalra founded Intelliplan in 2012 and acts as its Principal and provides a personal Financial Planning ideology to a diversified Client Sector. Planning, implementing and monitoring progressive and robust financial strategies whilst nurturing existing B2C and B2B relationships, and cultivating new ones.

Nirlep provides a very unique service in that he adopts an extremely client-centric approach to financial advice – believing that having a select few clients, instead of many, allows for a more thorough and effective advice framework.

What are the most important aspects/values you look for when selecting a Dealer Group?

Cultural Fit. For me, it all comes down to trust. Financial Advice is a high stakes industry - not only do we face greater mounting regulatory pressure but also reputational risk along with it.  

Obviously, we want to know our Licensee will still be around in the future but moreover, each Licensee instils its own brand which can ultimately leave an impression on my clients. 

I look at the people not just behind the licence but also the staff within the company - do they have any  ASIC breaches? Any claims against key staff? This begins to paint some sort of picture as to the integrity of the Group.

From there I like to know what is important to the Licensee and find out whether we align our 1, 5 and 10-year plans. Some focus on growth, others on support etc - I typically steer away from Licensees running ‘CAR factories’ and tend to prefer Dealer Groups who invest heavily in support. 

Also, intimate size is important too - My advice model can be quite complex at times and I really cannot afford to be buried in red tape and left waiting for drawn-out periods for simple queries. When you are an individual Principal of business, like myself, the value of timely support and responses is priceless.

Open APL is essential for me also. My job is to plan, protect and grow my clients’ wealth - I need as much discretion as possible to adequately achieve this for them. Without an open APL, my clients could receive the same service from any other planner using the same product menu - I lose my point of difference and I lose my value-add. 

What attracted you to the Walker Capital Private Wealth offer?

I’ve worked with Walker Capital for a number of years, both professionally but also personally as a client. Their commitment to both performance and advice really resonated with me and felt my clients could really benefit from their consultative approach - especially with regards to open APL.

Heavy investment into compliance and support framework. 

Although new and small it was quite evident to me that they spare no costs when investing into the people and processes in their advice framework.

Their compliance team gives me a lot of confidence - If I ever have concerns or queries, I can be in contact with Marija directly. This really helps the efficiency of my business and is something you just don’t get at some of the bigger Groups.

Resources and support – in my initial licensing discussions with Michael Walker he really impressed me with how empathetic he was to my business’ success. Whether I wanted to scale up or scale down he was quick to make resources available to me and even a budget for acquisitions. 

I felt Michael Walker could be more of a business partner than just the Licensee which can be a real asset for those looking to scale up.

How can Walker Capital Private Wealth best support its Advisors into the future?

Timely and thorough communication from regulatory requirements. In an industry such as ours, it is important for clear and concise communication of both the Licensee and Advisor obligations in relation to any new evolving advice standards. 

Walker Capital Private Wealth has been very good with this – in particular with the new FDS requirements.

 I’m hoping they can maintain this level of communication as the group grows.

As people from the southern states flock to the beautiful Sunshine State, the people of Brisbane need to ensure their assets are protected and in the best place to capitalise on the market growth.

From skyrocketing property prices, through to real estate investment trusts (REIT) geared to capitalise on the current growth, are your personal finances to maximise your returns in your retirement?

Financial planning is your roadmap to success

Ever wondered why some people are retiring comfortably up on the Sunshine Coast, Fraser Coast or Gold Coast beaches? Financial planning has more than likely quite a lot to do with it.

Seeking professional financial planning advice sooner rather than later can literally save you tens of thousands, if not hundreds of thousands during your retirement, not to mention providing more money to enjoy now – fun in the Brisbane sun!

Why see a professional planner now? Why not when I am closer to retirement?

It is a myth that a financial planner is something that you need when you are coming up to retirement. In fact, a Brisbane financial planner can provide you with the necessary advice, roadmap and goal setting that could open your eyes to so much more.

Thinking of an investment property? Maybe an annual holiday overseas with the family? What about a jet ski to punch over to Straddie? Well, rather than buying these on credit, or leveraging assets just because your bank manager says it’s a good idea, why not have an expert take a look?

A financial planner looks not only at the now, but the future, and everything in between. You wouldn’t get in the car without knowing where you were going, and your financial map is no different. Like your GPS, a financial planner in Brisbane can provide you with several ways to get to your destination, different risk levels, varying investment options, not to mention regular passive income streams to top up your annual salary!

Wouldn’t it be nice to have an extra $1000, $10,000, or even $50,000 a year? A financial planner can show you how.

But don’t be fooled, a financial planner will also give you the hard truth about your financial situation, your credit score, your debt levels, and your retirement plans.

How does a financial planner work?

The great thing about most financial planners around Brisbane, is they come to you. They meet and discuss your personal finances. This includes insurance, superannuation, investments, mortgages, credit cards & debt levels, wills & estate planning just to name a few areas.

They will also work through your earning capacity, your life situation (married, children, single etc), the number of years you have left to realistically work in your job at full capacity – and then build out that roadmap, just for you.

Then on a regular basis, your financial planner can come to your Brisbane home, or one of the great cafés around the River City, and discuss your progress, make changes if necessary but all in line with meeting the goals and expectations you set out in your initial meeting.

Financial planning is not just for wealthy people, it is a profession that aims to create wealth for its clients. Not simply financial wealth, but the wealth of the shared experiences that you and your family can enjoy but knowing your (and your family) financial future is in safe hands.

As the most isolated capital city in the world, Perth residents have long enjoyed the fruits of the mining boom, the picturesque beaches and a lifestyle that is arguably the envy of much of Australia. However, Perth has also experienced the economic highs, and desperate lows due to its reliance on what it pulls out of the ground, with fluctuating house prices, cost of living, not to mention job securing often tied to Global Iron Ore and other precious mineral pricing.

In the 2017 ABC Documentary, Betting on the House, it was evident to viewers how unguided, inexperienced investment in the property market brought many people in WA to their knees.

With similar market hallmarks in the Western Australian’s mining industry – in part due to the trade war with China and the downward pressure on iron ore pricing & jobs – it’s timely to consider could a GFC-like effect impact the WA market?

Prepare for the unexpected

Financial Planners in Perth understand the risks of FIFO workers, the rewards and the opportunities that are out there for investors that put their money in the right place.

A financial planner can provide a path to success for your personal finances, regardless of if you earn a lot now, later or lose your job through industry cutbacks.

In a market such as Perth that has already seen the highs and lows, pooling your investments in one asset class such as shares or property has proved to be extremely dangerous – and for your long-term financial security, a Perth financial planner is key to getting this right for you.

Regardless of how old you are, have you got a will? Have your thought about how much you would need to retire? Have you through about purchasing a boat? Or have you seen a little apartment you liked in Broome that would be a great holiday rental, as well as a place for you to get away from the world? A financial planner based in Perth is the ideal piece of the puzzle for those looking to ensure their financial future is in good hands.

I understand money, why should I see a financial planner?

What happens if the mining ends? If you work in hospitality or tourism and run into issues, could you survive if it couldn’t get back up on its feet? What if you lost your job? Could you pay your mortgage?

A financial planner is not a ‘dooms-day prepper’, but a planner for all scenarios you might face in your future. They look at your life, objectively, working through what levels of debt you have, what income you make, how many years you could work and how much you need to retire.

But it’s not all about squirrelling away all your money and having no fun. What about a small boat to enjoy Rottnest Island? Why not. But too many people make the mistake of putting them on credit, not planning, saving and buying when the time is right.

If you want to be comfortable in retirement, get debt-free, and own your financial future – not be a slave to the big banks and their interest payments – then a financial planner in Perth is your next best step.

Melbourne is enduring extraordinary stressful and trying times at the moment. At the time of writing this article, Melbourne residents have endured over 250 days of lockdown. COVID-19 has caused entire industry sectors to be shut down or slowed down for over 12-months, parents having to home school, work, exercise and socialise within 4-walls, all the while the pressures of the home finances, mortgages, savings, and personal debt are never far from the thoughts of the people of Melbourne.

In Melbourne, like a lot of Australia, particularly those in lockdown, “many are seeing their incomes shrinking thanks to the loss of hours, rising unemployment and COVID-19 restrictions,”. Industry insiders state that there is alignment between high leverage, mortgage stress and high rates of COVID-19 infections.[1]

With all this in mind, spending time and money on financial planning in Melbourne may not be high on the agenda of many people, but it should be!

Why is it so important for Melbourne residents to financially plan?

We could have never anticipated the effect the pandemic would have had on our lives, let alone our personal finances.

Some people have done very well through the diversification of their earnings, housing price increases and access to purchasing shares at the bottom of the pandemic.

But there are many that have not endured the pandemic with so much positivity, with people losing work, and defaulting on their mortgage or loan payments as their livelihoods slip away due to lockdowns and pandemic flow-on effects.

Irrespective of your current position, a financial planner can help during these uncertain times.

From the reduction of personal debt, refinancing of mortgages, Self-Managed Superannuation Fund (SMSF) management, and access to investment funds and IPO’s, your financial planner has their finger on the pulse of all things financial – and they, like a personal trainer, are there to assist you in achieving your personal goals.

From your initial meeting, regardless of you own a property in Melbourne or not, they can and should show you how to manage your budget to get into the housing market, protecting your investment.

Financial planners help to keep you moving with the markets

Although no Financial Planner in Melbourne has a crystal ball, they most certainly are equipped with the skills, tools and expertise to advise and assist their clients to move with the markets – even in a pandemic.

This includes ensuring you have a diversified investment portfolio, that your insurances are all up to date, even looking into ‘income protection insurance so you can be sure your Melbourne property won’t be taken from you if you lose your job.

Moving with agility and the correct information allows you to stick to your financial plan or roadmap even if something as large as a pandemic, or as small as missed credit card payment causes you to financially deviate. Your financial planning regular reviews and ongoing updates ensure your long term financial security.

With so many unknowns in Melbourne right now, and so many people with stress from debt, mortgages and potentially lack of work and opportunities, a financial planner can ensure that you are not one of those – or if you are already there, that you have a path in front of you to effectively get back on-top once again.

Based in Melbourne and need some sound financial advice? Speak to a qualified financial planner today and get the surety you and your family need.

[1] https://www.afr.com/property/residential/half-of-mortgage-stressed-households-have-borrowed-to-the-hilt-20210929-p58vmd

There has never been a more important time for the people of Sydney to get a financial planner. The COVID-19 pandemic has left the people and businesses of Sydney in a precarious position at best – with a roadmap to a new normal. But what is the roadmap for your financial normal?

NSW accounted for the largest share of postcodes where households have overstretched their finances, in large part due to the soaring house prices, with “the average new loans in Sydney are often eight times income”. ^[1]

This leaves you and your family extremely exposed with more than two in five (42 per cent) households were experiencing mortgage stress in August – up by 42 basis points from the previous months.

In a US study, 35 per cent of all respondents experiencing relationship stress said money was the primary cause of friction[2], is this something that you want to have in your life with everything that the last few years have thrown?

How can a financial planner help secure your future?

By employing a financial planner, whether you are planning to stay living and working in Sydney for 1-week or for your entire life, a financial planner can help you create your roadmap to financial freedom.

Just like the roadmaps out of COVID lockdown, a financial plan will provide quantifiable benchmarks that need to be achieved by you, it will keep you accountable for your actions, but also not set up unrealistic expectations, roadblocks or provide unrealistic plans for your finances.

With so much mortgage stress in Sydney, not to mention the pressure on household expenditure, a small interest rate rise will likely send many people to a place they don’t want to be – and quite simply can’t afford to be. Even a small interest rate increase could result in individuals needing to remove children from private school, relocate to regional areas, or even cause separations in marriages.

A Sydney-based financial planner can sit down with you and your partner to assess your current financial position, earning capacity, how much tolerance to risk you have, your earning horizon (how long you must work) and set a range of realistic goals.

Thinking of buying a house? Why not - but not at eight times your earning capacity! Why not rent in Sydney and purchase a house in a growth region of Australia, rent it out and set up a long-term passive income stream and capital investment?

Why should I see a Sydney financial planner?

If it isn’t clear enough already, financial planning is about developing strategies to help you manage your financial affairs and meet your life goals – and the first step is to make sure you have access to the right advice.

Working with a professional financial planner can give you confidence and peace of mind that your financial future is secure”.[3]

Irrespective of the time you have left to work, your bank balance (or lack thereof), your marital status or your access to capital now – a financial planner can assist you to plan and ensure a positive future.

You wouldn’t get in the car without having a realistic map of where you are going? Nor should you move through life without a realistic roadmap of where you are financially now, and into the future.

Don’t end up like those two in five (42 per cent) households were experiencing mortgage stress or getting a home loan 8-times your earning capacity, which could come crashing down if the Australian housing market or interest rates see any form or adjustment.

Speak to a qualified, expert financial planner today, and live your Sydney dream now and into the future with the knowledge that you have set yourself up with a plan. Because in personal finance, a failure to plan is a plan to fail.

[1] https://www.afr.com/property/residential/half-of-mortgage-stressed-households-have-borrowed-to-the-hilt-20210929-p58vmd

[2] https://www.cnbc.com/2015/02/04/money-is-the-leading-cause-of-stress-in-relationships.html

[3] https://fpa.com.au/

In Australia, thanks to the mandatory employer superannuation contribution, we are all much better off in retirement. However, with the average balance of men 45 – 54 having $196,400 and the average woman in the same age bracket having $129,199[1], that hardly sounds enough to pay off your mortgage and live comfortably, does it?

Financial planners are not just there to plan for your retirement, but for a whole raft of situations in which we find ourselves moving through in life. From planning a holiday, planning to buy a property, invest in shares, plan for private school education, maybe even look to invest some inheritance to make it count in your future – and this is just a start.

With a high level of experience and a minimum post-graduate education in financial planning, financial planners are experts in how to reduce your household debt levels, increase your wealth and to set you up now for the future.

Financial planners – simplifying finance

A financial planner’s role is to become a mentor of sorts, to sit down with you from your initial consultation, set your objectives now, and into the future based on your current (and future) financial and personal circumstances.

A good financial planner becomes more than a service provider, they come along your life journey with you and provide advice as life changes.

Ever wondered why some people retire early? Why can they afford a family holiday each year and work the same job as you do? They plan their finances.

Aren’t financial planners for rich people?

No way! Financial planners are for everyone, and the money they charge is a tiny fraction of the savings and income they will generate for you and your family over the journey.

Sure, many wealthy people – in fact most – would have financial planners and advisors helping them achieve their financial goals.

But is doesn’t matter if you are on $25,000, $250,000 or $2.5 million per year, your financial planning needs to start somewhere.

What are the steps of getting into a financial planner?

Financial planners provide a full suite of services and advice from the initial planning stages, to assistance with the execution of wills.

However, it’s important that you come into a meeting with your financial planner of an idea of what you earn, how much your ‘realistic’ earning capacity is in the future, an idea of when you may wish to retire and a clear idea of how much you have in the way of assets, liabilities, and superannuation.

From here, the financial planners will work to set out a plan, set financial objectives and start setting you up for your financial future.

Failure to plan is a plan to fail, can you and your family afford to live on what you have now? What happens if you must retire early? Thinking you want a bigger house or a family in a few years’ time? Want a jet ski? A financial planner can help you get there sooner.

[1] https://qsuper.qld.gov.au/super/how-much-super-should-i-have

There are many positive benefits of employing the services of a financial planner. Although some people may think they are only for the people ‘with money’, this statement couldn’t be further from the truth – and why? Well, let’s start with a question.  

What is the present value of $1000 today? Simple right? It’s $1000. Although this makes sense…it’s not correct.

As any good financial planner will tell you the present value (PV) of any sum of money is the sum of all its future cash flows or future value (FV). No, this is not technical, financial trickery – you might need a financial planner to assist with getting your head around this concept.

Planning for your future

Financial planning looks not at what you have now but what you realistically can achieve in the future to make you and your family financially secure and comfortable, then works its way backwards from there.

Getting back to our question, a financial planner sees not $1000, but sees the sum of all the future cash flows that $1000 could generate if invested correctly for you over a defined period. Would you like $1000 now or $3000 in the future? Financial planning helps you achieve this.

What do financial planners do?

Accounting for the Financial Planning Association of Australia, a financial planner will be able to help you understand your financial situation, develop a strategy, and give you guidance on things such as funding your children’s education, helping with budgeting and tax planning, having enough money to live comfortably in your retirement, as well as with things such as debt management, insurance, estate planning and so on.^[1]

In terms of the benefits you seek, maybe you are looking to pay off your home loan quicker, pay down debt, plan for private school education, build an investment portfolio or plan for your retirement – this is all done through a set of steps.

What are the steps in a financial planning process?

There are three key steps to financial planning that every manager will work with you to achieve on an ongoing basis. These steps include the planning stage, the execution step, and the feedback step.

In the planning stage, your financial planner with work to understand your financial needs, review your income, your assets, and liabilities as well as your time horizon and risk tolerance. In this stage, your financial planner will set objectives, so benchmarks that you both want to achieve. Such as have $100,000 in investments outside my Superannuation by the time I am 50.

Based on this, the manager will then look to the execution stage. This stage focuses on implementation strategies to either pay down debt or have that $100,000 work for you to grow. This growth could be through a wide range of recommended investment instruments such as bonds, bills, funds, ETFs, shares and even term deposits depending on your individual circumstances.

Then finally, the feedback step, which is a regular review of your financial plan, your financial situation, and the performance of your investment portfolio. With potential adjustments to your financial planning strategy should that be required to hit your objectives set in the planning stage of the financial planning process.

Financial planning is not something that is exclusive, on the contrary, the people that can ultimately benefit from it the most is every one of us. Planning your financial future is essentially setting yourself up now, to not put that $1000 into your pocket, but to invest into something that ensures the future and retirement you deserve.

[1] https://fpa.com.au/what-is-financial-planning/choose-cfp-professional/

So what did we learn from the recent Cryptocurrency market bubble?

Nothing – in short.

Nothing we did not already know...

The first thing to understand is that cryptocurrency is not the first bubble market and won’t be the last.

History repeats itself. As long as there are market participants engaging in the free trade of an asset – financial bubbles will inevitably ensue – some fortunes made with many more lost

A brief history of some notable financial bubbles is below…

• Tulipmania 1636-37[1]
• South Sea Bubble 1700s[2]
• Railwaymania 1840s[3]
• Japanese Asset Price Bubble (1986-1991)*

Japan’s bubble was characterized by a rapid acceleration of real estate prices (and subsequently stock prices) and an overheated economy. All of this was fuelled by a Bank of Japan monetary policy error, lowering interest rates and allowing uncontrolled money supply and credit expansion. The euphoria phase was characterized by Japanese citizens, traditionally great deposit savers, shifting money from savings accounts into the capital market.[4]

*Eerie similarities between the Japanese Asset Price bubble and the current US and Australian Economy – I will examine this more closely in my next article on Modern Monetary Theory

• Dot-Com Bubble 1995-2001
• Cryptocurrency Bubble 2018 & 2021

Here are the 5 stages of financial bubbles every investor should familiarise themselves whether they knowingly or unknowingly decide to participate in the next one:

Stage 1. Displacement

An event or innovation occurs that sharply changes expectations. This phase is typically grounded in reality and good intentions.

The idea for distributed digital scarcity-based cryptocurrency was genesised in the 1990s by Chinese computer engineer Wei Dei. This idea was refined and some say mastered on 18 august 2008 by Satoshi Nakamoto with the mining of this bitcoin block.

The genesis block of bitcoin ledger read: The Times Jan/03/2009 Chancellor on brink of second bailout for banks

The time-stamped quotation of the Times headline and an ode to the quintessence of bitcoin – a decentralised alternative to the current central banking system.

A well-intended sentiment which in time would only grow in popularity over the next decade.

Stage 2. Boom

Prices rise slowly at first, following a displacement, but then gain momentum as more and more participants enter the market, setting the stage for the boom phase. During this phase, the asset in question attracts widespread media coverage. Fear of missing out on what could be a once-in-a-lifetime opportunity spurs more speculation, drawing an increasing number of investors and traders into the fold.

Stage 3. Euphoria

Valuations reach extreme levels during this phase as new valuation measures and metrics are touted to justify the relentless rise, and the "greater fool" theory—the idea that no matter how prices go, there will always be a market of buyers willing to pay more—plays out everywhere.

Common for investors to disregard investment strategies and submit to the hype where high valuations are perceived as asset success which is a misnomer.

Many crypto investors telling themselves in 2021 “this time it’s different”…

Stage 4. Profit-Taking

The smart money begins heeding the warning signs and is selling positions to take profits.

Stage 5. Panic

Reality sets in, investors panic, and prices reverse course and descend faster than they increased.

Why do bubbles happen…

I could take this opportunity to dump an excessive amount of academic research as to why financial bubbles occur- referring to the different types of behavioural and cognitive biases which drive them.

However, I would much rather impart a concise explanation of market bubbles from Warren Buffet followed by some practical steps on how an everyday investor can survive the next one…

"People start being interested in something because it's going up, not because they understand it or anything else. But the guy next door, who they know is dumber than they are, is getting rich and they aren't," he said. "And their spouse is saying can't you figure it out too? It is so contagious. So that's a permanent part of the system."[5] -Warren Buffett October 1, 2008…

Key Lessons to Learn from the Crypto Bubble:

1. Risk-weighted Asset Allocation

The foundation to successful investments is diversification – not just across asset classes but across risk profiles also.

Conservative investments such as property, bonds, Bluechip stocks, should always make the majority of anyone’s portfolio.

Even our managed investments – like our Swing Strategy – which is although high-performing, should only be a 10% allocation of the client’s portfolio due to its assertiveness.

Even I could not ignore the potential for high return in the cryptocurrencies earlier this year – and when many of my clients discussed it as a potential investment I simply told them ‘no more than 1% allocation of your portfolio or only as much as you’re a prepared to lose’.

2. Avoid Getting-even-itis!

Loss aversions are the tendency of investors to NOT cut losses short, and instead, hold on to losing investments until they can be sold at the break-even price paid for it. This happens because realizing a loss is painful, while it’s easy to feel good about selling something a gain. [6]

An observed continuation of loss aversions is the tendency to increase in an attempt to get even with the market.

There is a temptation for investors who were scorned by the recent crypto crash to chase their losses and take start making wild speculative investments in an attempt to recover their lost monies.

It is vital the investor avoid getting-even-it is making an immediate transition or return to more sustainable investing.

To find out more about Walker Capital’s Managed Investment please schedule a time with one of our staff.

[1] https://www.history.com/news/tulip-mania-financial-crash-holland

[2] https://www.historic-uk.com/HistoryUK/HistoryofEngland/South-Sea-Bubble/

[3] https://www.focus-economics.com/blog/railway-mania-the-largest-speculative-bubble-you-never-heard-of

[4] https://www.investopedia.com/articles/personal-finance/062315/five-largest-asset-bubbles-history.asp

[5] https://www.cnbc.com/id/26982338

[6] https://www.nngroup.com/articles/prospect-theory/

When the price of something goes up and up, not because of its intrinsic value, but because people who buy it merely do so with the expectation to be able to sell it again at a profit – what is known as The Greater Fool Theory[1] – that is to say its price is solely determined by speculation and confidence… it never ends well.

When this Greater Fool Theory effect is coupled with a mass infection of confirmation bias – that is investors convince themselves intrinsic value is much higher than it is – financial bubbles tend to follow.

Bitcoin continued to sell off this week down to $35,688 USD currently which is nearly 50% less than its all-time high of $64,863.10 only 6 weeks ago.

We hold the belief it will get a lot lower in the weeks and months to come and here’s why…

The main criticism of cryptocurrency – other than price discovery – is its inadequateness to serve the 3 main purposes of currency

3 properties of currency:

1. Store of Value

Maintains its value over time[2]

The speculative forces which underpin cryptocurrency make it probably the most unstable asset we have ever seen. To be an effective store of value a currency’s volatility must be such that it does not cause significant deviations in its purchasing power.

…Strike #1 for BTC

2. Unit of Account

A standard unit of numerical measurement of the market value of goods, services & other transactions.[3]

Cryptos do provide a standard unit of measurement, offering exchange rates for USD and other cryptos – however, due to the instability of their prices, it makes the practicality of trading goods and services with cryptocurrency impossible.

Strike #1 and a half

3. Medium of exchange

Can be used to intermediate the exchange of goods or services[4]

I do not doubt that blockchain technology has its place to be an effective utility in the future. However, as a currency, it will never replace any of our current reserve currencies until it better serves the aforementioned properties.

So, as we can see the inhibiting factor preventing cryptocurrencies, like bitcoin, from being adopted as world reserve currency stems predominantly from its excessive volatility.

The following needs to take place to suppress crypto volatility:

Targeted Price Range

Let’s use BTC as an example as it pertains to trade: The largest participants in the currency markets are countries and large MNC’s who deal in cross border trade which create a need to exchange one currency for another.

For a company or country to exchange in BTC for their goods or even their own currency, they would need to have confidence in the stability of the BTC to use it as a medium of exchange.

In order to stabilise BTC the supply of BTC will need to be controlled by a central body so that the central body could increase and decrease the supply as needed to stabilise price within a targeted range and give market participants confidence to use BTC as a medium exchange (same can be said as a store of value)

Regulation:

Furthermore, the central body regulating the supply of BTC will need to be an independent body that must not only ensure the price stability of BTC but also must make inflationary considerations when adjusting the supply of BTC.

As oversupplying BTC to the market could lead to inflationary pressures…

Who said Decentralised was a good thing for a currency?

Essentially, BTC rode the curtails of an anti-establishment movement which started with many being disenfranchised and discontent with the accommodating nature with which the central banks bailed out the greedy commercial and investments bank during the GFC.

The genesis block of bitcoin ledger written by Satoshi Nakamoto read: The Times Jan/03/2009 Chancellor on brink of second bailout for banks

The time-stamped quotation of the Times headline and an ode to the quintessence of bitcoin – a decentralised alternative to the current central banking system.

What Satoshi failed to realise is that currency must be centralised so that its supply can be regulated and its price stable for it to be effective.

So, Bitcoin deluders can shout ‘Power to the People’ all they want whilst preaching the benefits of decentralisation but the reality is that decentralisation is the antithesis of an effective currency.

Blockchain – not currency

Blockchain technology and smart contracts are truly innovative as a type of business improvement software. Collaborative technology, such as blockchain, promises the ability to improve the business processes that occur between companies, radically lowering the “cost of trust.”[5]

PwC conducted an explorative dissertation on all its potential uses – found here

Blockchain is the technology which allowed allows cryptocurrencies – like BTC – to exist.

The idea for distributed digital scarcity-based cryptocurrency was genesised in the 1990s by Chinese computer engineer Wei Dei. This idea was refined and some say mastered on 18 august 2008 by Satoshi Nakamoto with the mining of this bitcoin block.

Bitcoin hijacked a good technology with real practical uses in an effort to create money from nothing…and people bought it mistaking increasing price as an indication of successful asset performance.

[1] https://www.investopedia.com/terms/g/greaterfooltheory.asp

[2] http://money.visualcapitalist.com/infographic-the-properties-of-money/

[3] http://money.visualcapitalist.com/infographic-the-properties-of-money/

[4] http://money.visualcapitalist.com/infographic-the-properties-of-money/

[5} https://www.pwc.com/us/en/industries/financial-services/fintech/bitcoin-blockchain-cryptocurrency.html

Like many investors out there, you have decided to ‘start out in alternative investments’. You understand your risk tolerance and you have your objectives in place – if not, you obviously didn’t read the last section, please do!

Now it's time to work through how to get started. As we have mentioned more than a dozen times in this book, it is vital that you get advice first. Speaking to an expert in alternative investments is key to your success, when starting out in the world of alternative investments.

You may think that investing in a managed fund is the best path for you, or maybe a piece of artwork. But which fund? Which piece of artwork? Why?

This is where the experts come into action. They can provide you with factual data on the performance of their funds, of their investments, of what your money ‘could have looked like’ had you invested with them 1, 3, 5, 10 years ago. Often this is very compelling, but always remember, that past performance is not an accurate predictor of future returns!

It must be noted though, that in the wake of the Royal Commission into the Financial Services Sector, new laws require a financial adviser to recommend an investment strategy that best suits the client so the expert should be able to speak about more than just their own strategy or an MDA, but a range of financial products to best identify what will suit your particular needs.

As an investor that is new to alternative investments, it is often easy to get caught up in how well funds have performed, but you need to ask why? What market conditions lead to this?

Although you might feel like a ‘dummy’ before you put your hard-earned money into a fund, you need to understand everything about how it works, you have every right to ask why, what, when, where and how as many times as you need until you feel comfortable.

Should you be investing in a fund or a scheme, there will always be a prospectus or information memorandum for you to review. Take it to your financial planner and/or accountant and ask them to review it, again ask as many questions as you can.

The key is not being caught up in all the ‘smoke and mirrors’ that sometimes-unscrupulous fund operators have. For example, from a sleepy little town in Northern New South Wales, Kingscliff came Gold Sky, voted the #1 fund in a prestigious Hong Kong awards for fund innovations.

The fund claimed to use ‘big data’, ‘social media’ and ‘quantitative analysis’ to deliver returns well beyond market averages. Backed by big named sports stars, and holding lavish events with industries heavyweights such as Mark Bouris guest speaking, everything looked like gold for this little fund.

Then, it all came crashing down as the SEC and ASIC started peeling back the layers of the onion, looking into the director, his fund’s management experience and of course the company balance sheet and realised it was nothing but a Ponzi scheme, leaving investors over $12 million out of pocket.

By definition, the “key elements of Ponzi scheme are as follows: (1) using new investor funds to pay prior investors; (2) representing that the investor returns are generated from a purported business venture; and (3) employing artificial devices to disguise the lack of economic substance or defer the recognition of economic loss”.

In short, where money is involved, unfortunately, there are in many cases a large number of unscrupulous operators, doing a lot of things that are not only bad business but also illegal.

Before you step into investing, be sure to get independent advice from more than one person including your accountant, your financial advisor, and your lawyer. But if you don’t have any of those, maybe consider looking into getting one, as you want to make sure you are always protected.

Now, having reviewed the multitude of investment opportunities, both in traditional and alternative investments, you should have a grasp of what each investment avenue can provide and where you potentially fit in.

Odds are, as this is a beginner’s guide, then you will be starting your journey into investing. If, however, you are reading this section of this e-book, then you have started your journey in the right way. Getting information and a basic understanding of the different types of investments - both alternative and traditional – is paramount before you start anything.

Once you have finished this book, sign up and attend a few seminars, take a workshop or two, even log in and start trading on a simulator – such as the ASX Game – which allows you to trade in live conditions, but with money that is not your own. Therefore you limit any losses entirely, but unfortunately, you don’t make any gains.

So, now to the million-dollar question, what type of investor are you? The key is to understand first what your objectives are? Are you looking for the thrill of trade, buying and selling quickly and taking risks, or are you looking to invest for the long term, maybe to support or fund your retirement?

Like you would a business plan, firstly, set yourself a series of key goals or objectives. These can include setting up a residual income stream in 5-10 years or turning $10,000 into $100,000 in ten years. Ensure you are being SMART or, Specific, Measurable, Achievable, Relevant and Timely.

For example, by 2025, I want to have a diversified portfolio of shares with a value of $60,000. So, even if you have to put in $12,000 per year, or $1,000 per month into your portfolio and you make no capital gains through the shares, this is achievable.

Once you have 5+ objectives in place, now it is time to understand your risk tolerance. Can you afford to lose everything you are putting in? If the answer is no, then shares, cash and property through the ‘traditional’ investment channels are right for you. Potentially being part of a managed fund, even investing in some art could be of benefit.

On the other hand, if you have come into some money – through inheritance or otherwise – maybe you own your own home, and you are looking to invest money and make a higher return – with little to no consequence to your livelihood or the roof over your head, then potentially looking at investing in a fund, ETFs or even CFDs could be an option.

We will always put a warning in place, that these alternative investment channels are used by experts, as when people with a little knowledge play in this space, they are often taken advantage of and can lose a lot more than you thought you were investing – as mentioned above.

So, the key is to get advice, seek experts to guide you. For example, many MDAs – such as the MDAs at Walker Capital – provide minimum investments of $10,000, and their returns – which you can see for yourself on our website – often buck the trends in the marketplace. It must be noted that the investment strategy used by Walker Capital as part of the MDA includes investing in highly risky and speculative products.

While investing is often seen as a long term strategy to future wealth and sustaining your lifestyle, there is no question that when you put your own money in, you become very interested in reading about company information, market movements and looking for the next play for your portfolio. Stay informed, read the financial papers, websites and blogs from ‘real’ authority figures – and NEVER invest more than you can afford to lose.

So, you could be a risk-averse investor, putting your money only into ‘blue-chip stocks’ such as BHP and the banks, while ensuring that you have your mortgage paid and your kids school fees paid. On the other side of the coin, you may have a high-risk tolerance, happy to risk $1,000, $10,000, $100,000 even $1,000,000 if the payoff is worth it.

The key is to set your objectives, set your limits, get expert advice and stick to your line – the moment you start deviating, getting carried away or ‘straying from your strategy’ this is where mistakes can be made and losses incurred.

Art

Investing in art has moved from the stuffy collections of the wealthy elite, into the mainstream as investors around the world seek to diversify their portfolios, hedge against risk and collect some beautiful talking pieces for their office or home walls along the way.

In 2019 the Art Basel UBS Art Market Report contended that the global art market was worth close to $US67 billion. Now to many investors, this may seem like something too good to miss out on, however, although the market value increased vs. 2018, the net gain over 10 years is 8.7 per cent, which is lower than the Australian rate of inflation! 

With over 40 million transactions in the global art market, there is an underlying assumption of ‘liquidity’ in the market, as could be assumed with the trading of shares, bonds or other financial instruments. However, this is not the case for all art, the market certainly is a ‘buyer beware’ scenario.

Like with other financial instruments, without prior experience or knowledge an investor wouldn’t simply walk in and buy any art piece off the shelf – unless they had the means to do so and like the work.

There are indeed intermediaries, galleries, and buyers’ agents providing services from simply the buying and selling of the works, through to providing services such as ‘buyers agents’ as you would find in real estate, who scout out particular works or artists. In addition, there are art investment specialists that work directly with clients to purchase high growth prospect works from rising or established artists.

It is often said that beauty is in the eye of the beholder, and no industry is this more apparent than the art world. What some people may see as an eyesore, could fetch astronomical prices at auction; it is simply about investing in the right works at the right time, and like any asset class, knowing the right time to move them.

Transparency and markets are often an issue with art

It is no secret that there are forgeries and many cowboys trading art around the world, and not merely in a Jack Ryan or James Bond thriller. Artworks, especially those considered ‘fine art’ can be sold for millions, tens of millions, even hundreds of millions of dollars, so it is no wonder there are forgeries and fakes circulating out in the marketplace.

The art market as a whole is largely unregulated, leading to a wide range of issues in itself. In addition, the trade in fine art is unpredictable because it depends not just on supply and demand but also on the unmeasurable factor of taste.

Although this is starting to evolve and change, with many art registers and auction houses around the world implementing blockchain technology for the purpose of cataloguing and tracking the movement of art from galleries, through to storage to stamp out forgery.

Like all investments, for those who are entering the market for the first time, or potentially looking to step their investment up a level, seeking expert, certified & professional advice is always the best course of action. As previously mentioned, there is a wide range of experts around the world that specialise in particular art types or even investment art pieces.

These are pieces that are in high demand by private and corporate houses, that seek to lease the asset, providing ongoing and incremental returns, while the owner also enjoys the asset value appreciation. Through the right investment strategy, there are significant opportunities and ROI that can be realised, not only for a capital gain but also for portfolio hedging.

Antiquities

Like art, antiquities have grown significantly in appeal for portfolio diversification in the past few decades. However, before such time, antiquities have been the source of much conflicts, such as the crusades in which the knight’s templar plundered much of the middle east in the quest for the holy grail, said to be the cup that Christ passed around at the last supper.

All that aside, antiquities have a large potential capital appreciation, and many of us don’t even know what we may have in the cupboard. From dinner sets, glassware, pottery, vases, furniture that has been created by famous artists, or production houses – such as Royal Doulton – have huge potential for capital growth.

Wine                 

If you were lucky enough to get your hands on a bottle of 1951 Penfolds Grange Hermitage from your grandparent’s cellar from back in the day, you would be doing ok. Individual bottles of the 1951 vintage are still held by collectors; one sold at auction in 2004 for just over $50,000.

The global wine industry was valued at approximately USD 302.02 billion in 2017 and is expected to generate revenue of around USD, 423.59 billion by the end of 2023, growing at a CAGR of around 5.8% between 2017 and 2023.

Investment in wine most certainly is not a new idea, however with high levels of transparency, accountability and liquidity – unlike say cryptocurrencies – there are huge opportunities to be made at all levels of the spectrum. It should be remembered that we are not suggesting you head down and get a case of 2019 cleanskins from your local bottle shop as an investment.

The fact of the matter is “less than 1% of all wine produced worldwide may be considered investment grade, with the market traditionally preoccupied with the prestigious chateaux of Bordeaux. The finite quantities produced, ever-decreasing through consumption generally ensure predictable growth in the long-term with a perfectly inverse supply curve”.

But in saying that, as new and emerging markets – such as the Chinese & South East Asian middle-class rise in numbers and appreciation of wines, the markets are certainly being challenged in terms of their supply/demand curve.

Like investing in stocks, art or maybe a fund, it is important to not just go it alone. Also remembering that just because you may like a particular wine, it doesn’t make it valuable. There are many wine shows around the capital cities and wine regions of Australia, as well as auction houses – such as Langton’s in Melbourne and Christie's Auction House in Sydney – that run specific wine investment courses, auctions and of course events.

Not only could you make a good investment by attending such a course, but also you will learn a lot and have a great time while doing it.

Other alternative investments

These include Private Equity Infrastructure, Private Equity Real Estate and Private Equity Debt Funds; these are very selectively used and are most certainly not available to any investor off the street.

The investments outlined are highly complex financial instruments that are used by only ‘institutional investors and extremely wealthy individuals.

That being said, it is still very important as you move through your investment journey, especially that into alternative investment opportunities, to understand them – if even from a basic level. As such, we have provided a brief synopsis of each to give you an understanding.

Private Equity Infrastructure

Investing in Private Equity (PE) infrastructure is an investment in utilities, transport, social infrastructure: such as hospitals and schools and of course energy assets. Unlike ‘private equity’, PE Infrastructure is treated differently due to its low volatility and strong cash yield. In addition, infrastructure assets performance is often implicitly or explicitly linked to macro indicators such as inflation, GDP, population growth, and has a very low correlation with other asset classes.

So, why can’t I jump on this asset I hear you say? Well, often the buy-in for such an investment is in the Millions, even hundreds of. Not only that, but they are highly complex in their structure and done through the big end of town. So although it would be great to put your $10,000 savings into, unfortunately, this is not for you.

Private Equity Real Estate

Typically for private equity real estate, the minimum rate of investment is often starting from $250,000. This is often a barrier to many investors.

Private equity real estate is an asset class composed of pooled private and public investments in the property markets. Investing in this asset class involves the acquisition, financing, and ownership (either direct or indirect) of property or properties via a pooled vehicle.

Although very risky – due to the fluctuations in property prices, supply, demand and other both micro & macro-economic factors – the return on investment is not uncommon to realise 8%, 10% even 20% depending on the countries and regions you are investing in, and the types of real estate assets – i.e. hotel, commercial, mixed-use and residential developments.

Private Equity Debt Funds

Created, raised and managed by professional investment firms and managers, a private equity debt fund is used for making investments in various ‘debt’ securities according to one of the investment strategies associated with private equity. At inception, institutional investors make an unfunded commitment to the limited partnership, which is then drawn over the term of the fund.

Similar to other funds, there are passive and active funds, depending on their level of management, however, as a general rule, they offer less attractive returns for investors. “A debt fund may invest in short-term or long-term bonds, securitised products, money market instruments or floating rate debt. On average, the fee ratios on debt funds are lower than those attached to equity funds because the overall management costs are lower”.

Often seen as a contentious issue within the Australian domestic & political arena, a private equity buyout is “A situation in which the shares of a public company are bought in order to make it into a private company”.

Throughout Australia’s robust investment history, there have been a wide array of positive and negative news stories when it comes to ‘private equity buyouts. These include the saviour of some companies and the complete and utter failure of others.

There is a wide variety of rationale for private equity buyouts, for both investors and shareholders alike. Private Equity allows the company to be taken out, presumably by a more skilled operator and then essentially take their business underground. Meaning that they can restructure, reorganise and remarket themselves as a ‘new and improved’ business.

How are private equity buyouts funded and how can you invest in them?

Often seen as ‘corporate raiders’ Private Equity Buyouts are undertaken usually through funds, that as previously discussed are created for the purpose of purchasing, getting, restricting and spinning off – selling the whole or the best parts – of the company in the short to medium term.

Other Private Equity Buyouts are done through a fund, but with the long-term play at hand, looking to buy, build and grow the assets, with fund unit holders realising their returns from the successful implementation of this strategy.

So, like an investment in a managed fund, a private equity buyout fund will have a prospectus or information memorandum that is available for investors to review and apply to invest in should they meet the investment criteria.

With these sorts of investments, they can often be risky depending on the nature of the business and the financial and operational state it is currently operating under. As such, they are usually restricted to institutional and sophisticated investors – such as your industry superannuation fund or Gina Rinehart.

An example of these sorts of Private Equity Buyouts are those undertaken by Quadrant Private Equity in Australia, who have a range of funds and portfolios with an asset mix to diversify the risk and provide the best possible returns for shareholders.

Why are Private Equity Buyouts so important to Australian business?

In 2019, “Pacific Equity Partners’ data on the number of deals greater than $200 million suggests activity was relatively stable, with 17 deals done in 2019, up from a five-year average of 15 deals”. “While as a whole, in 2018 private equity registered $28 billion for 72 buyouts, rising 85.2 per cent from the year before with $15.1 billion covering 67 deals”.

As can be seen, the sheer volume and value of these transitions are huge for the business owners and investors of Australia. In addition, being part of a buyout fund is equally important.

In Australia, we have a long list of high-profile casualties, the most recent of which are well-known retailers such as Harris Scarfe and Dick Smith Electronics. However, often, Private Equity Buyouts have significant upsides, and it isn’t just brands or companies in trouble that are being acquired, with the 2019 buyout of Arnott’s Biscuits being purchased for $3.2billion AUD!

What do Private Equity Firms do with companies once they have acquired them?

There are several key reasons private equity firms purchase companies, or they acquire large stakes within companies.

Purchasing distressed assets to build back up is a key reason for a private equity firm’s existence. That is, where the original management has either mismanaged or doesn’t have the skills or capabilities to take the business through the transition it needs to take to become a great company with long term prospects.

As such often, there are ‘fire sales’ in which investors seek to exit the market in a hurry to minimise their losses (through the share market), or are offered a price for their shares – often pennies on the dollar of what they originally paid – to sell their shares to the private equity firm.

The goal is then, for the private equity firms to bring in management consulting companies, administrates and install their own management teams to bring the company up from the brink of collapse – or even long term losses – to being a successful entity in their own right.

Purchasing companies to pull them apart and spin-off

One of the more aggressive strategies is that of private equity firms valuing particular assets or departments within companies, which are able to be cut out of the business and sold off.

Similar to a car wrecking yard - in which the value of the individual parts of a car are sold off, far outweigh the value of the car sold as a whole – the companies are acquired, consultants are brought in to strategically manage the process, and the company is literally carved up and sold off for profit.

This can be most successful when companies have a range of core and secondary offerings, such as an airline that may have a frequent flyer program, the airline operations, the ground staff, catering and more divisions, that can essentially be picked apart and sold off as individual entities.

Strategic purchases companies to gain a competitive advantage

Many companies rely on their supply chain to operate an effective business model. Often, be it a physical asset such as a railroad, port or manufacturing facility; or a technical asset such as Intellectual property, technology or employee skills, a competitor or upstream/downstream company within the supply chain will often look to acquire companies through private equity deals.

For example, a drinks company may be looking to sure up its supply chain and purchase a bottle making company and a small logistics company, to ensure it always has supplies available.

An example of this is Hancock Prospecting purchasing Atlas mining company in 2018, which held a strategic port that Hancock required for its mining expansion and movement of iron ore. As such, shareholders were offered a ‘buyout offer’ at a premium to the current share offering. This then required a minimum acceptance rate by shareholders, and Hancock was able to gain the strategic asset.

Activism investing

One other rationale for private equity buyouts is that of Activism investment. There are a wide number of activism investment firms and funds that seek to purchase outright or portions of companies that they feel require a new set of values.

This is most apparent in the banking sector, mining companies and anything essentially that has an adverse effect on people, the environment or is considered at the ‘behest’ of the community. It should be noted that these funds and companies often ‘bet against’ these companies, such as buying derivatives against them, to push the price down, but there are many instances where the private equity route is perused, and the company is purchased as a whole.

Although currencies can often be considered a ‘traditional investment’, Cryptocurrencies certainly don’t fall within this category. This is largely due to the fact they are volatile, they move against the market in many instances, and they are largely speculative.

Although this was not their original intention, which was to become an online currency through the use of blockchain technology, it was taken over by the money markets, a FOMO or fear of missing out ensued, derivatives were created, and the whole thing tumbled, so let’s take a look.

Cryptocurrencies such as Bitcoin, Ripple, Ethereum, Tron and literally hundreds more have been gracing the pages of the tech investment market updates and getting the motors running of many savvy investors around the globe.

Believed by many as the future of money, cryptocurrency has emerged over the past 10 years across the globe as a way to not only engage in eCommerce, but purchase items such as clothes, cars, houses, even meals at KFC!

What are cryptocurrencies?

Essentially cryptocurrencies are a form of electronic money. The money doesn’t physically exist but are held in the form of a ‘digital token’ created from code using an encrypted string of data blocks, known as a blockchain.

Bought and exchanged on exchange platforms using money, they can then be traded in marketplaces similar to trading shares online. Some popular exchanges include the Australian platform CoinSpot and other popular global platforms such as CoinBase, LinkCoin and Cex.io.

Of all the coins, the most popular and the largest in terms of market capitalisation is Bitcoin. In existence since 2009, its creation is shrouded in a great deal of secrecy and mystery.

Created by Satoshi Nakamoto, who posted the article Bitcoin: A Peer-To-Peer Electronic Cash System on a mailing list discussion on cryptocurrency in 2008, the cryptocurrency was created to cut out the middleman in transactions – such as banks. The cryptocurrency does this using blockchain technology, which makes the transaction not only safe, but if you don’t have the exact ten-digit code required – you can’t get your money back.

In 2010, the first cryptocurrency trade took place with an investor deciding to sell their Bitcoin for the first time – swapping 10,000 of them for two pizzas. If the buyer had hung onto those Bitcoins until December 2017 they would be worth more than $56,336,600 Australian dollars!

Since the early days of Bitcoin, the market has grown to include new currencies and global awareness of the features (ie. advantages and benefits of owning your own piece of digital currency) has grown. Interestingly, one of the core benefits of cryptocurrency is that you don't need to own a whole coin, just a part of one to be in on the action.

The rise and fall of Bitcoin

Bitcoin is the largest of all the coins and valued at $5633.66 per coin as of the 17th of March 2019, in a market that is valued at $97,196,079,818.08 Australian dollars!

The market took a massive turn in 2017 as the mainstream jumped at the chance to make some money and the rising tide of FOMO (fear of missing out) with the cryptocurrency starting the year at $1381.40 per coin on the 2nd of January 2017, hitting its peak at $26,802 on the 17th of December 2017!

People couldn’t believe their luck, as people were turning into overnight millionaires, but this was assuming that they had all the required codes to sell their coins and that they sold when the time was right.

With many expert investors such as Warren Buffet saying that Bitcoin was 'probably rat poison squared', there were many sceptics that couldn’t believe the prices were sustainable – and they were right!

By February 2018, the price had crashed down to $10,188.99 per coin hitting its lowest point on the 10th of December 2018 of $4646.25.

So, what happened?

There were a number of straws that broke Bitcoin’s back. Firstly, a number of countries banned trading – such as South Korea – many of who had a massive love of the cryptocurrency up until that point. This was due to serious concerns about regulation, tax implications and the fact the money could be traded with virtually no oversight.

Secondly, the price rise in 2017 was driven by a bubble, as more and more people heard about the cryptocurrency and jumped on in a case of fear of missing out (FOMO), thus the rules of demand & supply came to fruition, more people wanted the cryptocurrency and people holding them wanted more of them.

Finally, the Chicago Board Options Exchange and Chicago Mercantile Exchanges listed Bitcoin Futures, which allowed sophisticated speculators to short the coin on a large scale – effectively crashing the price.

There are other currencies aren’t there?

Absolutely, there are hundreds if not thousands of cryptocurrencies – 2112 according to Coinmarketcap.com as of March 17 2019 - which should have all been operating as their own markets shouldn’t they?

Although the cryptocurrency market was not supposed to be a derivative market, it most certainly became one. Not only thanks to the shorting of the cryptocurrency that was occurring on the Chicago exchanges, but also when Bitcoin crashed, it took the entire market with it.

By the end of the first quarter of 2018, the entire cryptocurrency market fell by 54 per cent, with losses in the market topping $500 billion!

Currency or speculative instrument?

There are a number of shortcomings of cryptocurrency, firstly they were set up as an ‘alternative currency’, and in the initial outset, early adopters were using it to purchase anything from pizzas to islands (at the market peak).

As a currency, it failed. Bitcoin has morphed into an asset whose only purpose is speculation. Imagine walking into a store and purchasing a meal, only to find out it went from costing you $50 to $500 due to the movement in the price!

Block chain – where do they fit in?

Used by many cryptocurrencies and an original feature of the Bitcoin cryptocurrency, blockchain technology was an important innovation that has already changed and will undoubtedly change a range of industries and transactions in the future.

A blockchain is the structure of data that represents a financial ledger entry, or a record of a transaction. Each transaction is digitally signed to ensure its authenticity and to ensure no one tampers with it, so the ledger itself and the existing transactions within it are assumed to be of high integrity.

These digital ledger entries are distributed among a deployment or infrastructure serving the purpose of providing a consensus about the state of a transaction at any given second.

Blockchain provides a high level of security when it comes to the management of ledgers or databases of information. The whole idea was a ‘peer to peer’ system, rather than trading through a third party, such as a bank.

Other uses for blockchain technology could be to create a permanent, public, transparent ledger system for compiling data on sales, tracking digital use and payments to content creators, such as wireless users.

There have been applications across the ownership and trading of assets, such as artwork, whereby investors can purchase a ‘piece’ or percentage of the artwork and trade it on a platform as they choose utilising the blockchain technology.

So, what does the future of cryptocurrency hold?

Although the market has seen a performance that can only be described as a rollercoaster, the cryptocurrency market provides a high number of tradeable speculative instruments for account holders.

Companies such as Ripple with their XRP currency have contracts that are being explored by the likes of Santander and CIMB for future transactions and may even replace Swift payments for cross-border transactions which provides huge scope outside of the speculative instrument that many cryptocurrencies have become.

The perception of traditional financial institutions around cryptocurrency is changing. Moving forward, stakeholders can expect to see an increased inflow of funds from Wall Street into the crypto market as crypto funds, ETFs, and other investment vehicles debut. However, the inflow of Wall Street will also require increased transparency, accountability, and regulation.

It needs to be remembered that although cryptocurrency has experienced massive spikes and drops in price, it is also in its ‘early adoption’ phase. As such, there may be market volatility such as what was experienced in 2017/2018 until mass-market momentum steps in.

The market for cryptocurrency has come a long way and fast, and now institutional investors, global corporations and governments are looking at how they can utilise, incorporate and regulate the cryptocurrencies themselves, as well as the technology that underpins them.

Although cryptocurrency may have failed in its initial attempt to create an ‘alternative peer-to-peer’ currency, it has instead created a speculative instrument and is far from being dead and gone.

Cryptocurrencies have the hallmarks of being excellent trading instruments for people who want to take the time to learn and trade the market, but their future could be a highly lucrative, albeit highly speculative path.

In today's ever-present and ever-expanding financial markets, there are many forms of trading undertaken by individuals and institutions to gain an advantageous position or financial outcome.

One of those forms of trading is known as proprietary trading, or "prop trading," which occurs when a trading desk at a financial institution, brokerage firm, investment bank, hedge fund or other liquidity source uses the firm's capital and balance sheet to conduct self-promoting financial transactions.

How is propriety trading different to regular trading?

Unlike regular traders at your financial institution, brokerage firm, investment bank, hedge fund or an associated institution, the propriety-trading desk is run independently to that which the client’s institution serves, and is set up to benefit the institution first and foremost.

Traders traditionally make their money through a range of fees from clients, primarily a ‘brokerage fee’ which is for the service of the institution facilitating the trade on behalf of the client. The second is what is known as the “spread”.

In stock trading, this is the difference between the current bid and ask prices for a stock (the bid/ask or bid/offer spread). In futures trading, this is the price difference between delivery months for the same commodity or asset. In bond trading, it is the difference between yields of bonds with similar quality and different maturities, or of different quality and the same maturity. In underwriting, it is the difference between what the issuer receives from the underwriter and what the underwriter receives from the public (underwriting spread).

Therefore, as the above definition from the Financial Times suggests, it is the difference between whatever financial instrument costs to acquire for the broker or institution and what they on-sell it to the client for.

Proprietary trading differs in that it uses the internal, institutional cash to profit from opportunities in the marketplace, without clients being involved.

Are there any benefits to clients of institutions who conduct proprietary trading?

Although proprietary or “prop” trading is primarily focused on the institution itself and profiteering from the skills and expertise of the proprietary trading desk traders, it also has several key underlying benefits for the retail clients of the firms that undertake proprietary trading.

However, it must be noted before we move too far forward into the benefits of proprietary trading, that it is seen as a risky form of trading, albeit one of the most profitable operations of a commercial or investment bank. During the financial crisis of 2008, prop traders and hedge funds were among the firms that were scrutinized for causing the crisis in the first place.

When it comes to the specific benefits for the clients of the institutions that engage in proprietary trading, there are a number of key qualities in favour of this style of trading which are outlined below:

Firstly, the institution can increase its liquidity due to the fact that 100% of the profits made through proprietary trading are kept in-house, not distributed to clients. Increasing liquidity allows the company to grow, employ more and better systems, analysts and traders while also the services offered to retail customers.

Secondly, the institution can stockpile a pool or inventory of securities & other financial assets. This assists clients as an inventory allows the institution to offer an unexpected advantage to clients.

Thirdly, it helps these institutions prepare for down or illiquid markets when it becomes harder to purchase or sell securities on the open market, thus making them available for their clients to access – not the general market.

Proprietary trading allows a financial institution to become an influential market maker by providing liquidity on specific security or group of securities.

In reality, the client benefits are that the banks and institutions that conduct proprietary trading in theory should be more liquid, and have access to assets in potential markets which don’t favour their client’s position. This means that the trader can be in a state to assist them buy or sell the asset as they require, not to mention being a market ‘maker’ or influencer’ which could further assist their client’s position.

It is no secret that proprietary trading has the primary goal of making money for its institution.

Understanding the Volcker Rule

It is hard to go into too much detail about proprietary trading without first discussing the Volcker Rule. Created in the aftermath of the 2008 Global Financial Crisis and named after former US Federal Reserve Chairman Paul Volcker, the Volcker Rule disallows short-term proprietary trading of securities, derivatives, commodity futures and options on these instruments for banks’ accounts under the premise that these activities do not benefit banks’ customers.

In other words, banks cannot use their own funds to make these types of investments to increase their profits. The purpose is to discourage banks from taking too much risk.

Although the Volcker Rule in relation to proprietary trading specifically is a US Federal law and not applicable within Australia, it sets the tone for regulation of the industry in not only the wake of the GFC, in which over $14 trillion was wiped from the global economy.

On a global level, it was realised that banks in many countries, not only the USA were not managing their levels of risk. In response, the Basel Committee on Banking Supervision revised its international framework of regulatory standards to improve the resilience of the global financial system. The revised framework increased capital requirements and introduced minimum liquidity standards.

In Australia, the 2014 Financial System Inquiry made a number of recommendations to strengthen the Australian financial system. In addition, APRA implemented a range of changes to the amount of capital and liquidity that a bank needed to hold. As a result the total capital ratio of the Australian banking system has risen to 3¾ percentage points since the start of 2008, and according to the RBA in June 2017 stood at 14¼ per cent.

By doing this, the changes meant that the banks are in a stronger position to weather any financial storm that may occur. Coupled with the Australian bank response to the 2018 Royal Commission into the Banking and Insurance sectors has now seen increases in liquidity but contractions in the retail finance offerings that receive approval in terms – particularly in terms of residential and small business loans.

For example, an analysis of more than 30,000 mortgages from online broker Lendi has found approval times have more than doubled for investors over the past 18 months while the wait time for owner-occupiers has increased by more than 50 per cent as the banks demand more information from borrowers.

The future of the sector has changed dramatically and is set for more change, largely in the name of protecting consumer’s interests.

A final word on propriety trading

Propriety trading is a highly profitable and internal way for firms to increase their market cap. Through trading in stocks, bonds, commodities, currencies, derivatives using a firm’s money rather than trading on behalf of clients, allows businesses to make profits for itself, providing financial firms with a strong financial advantage.

When trading with client’s money, in a fund or as part of a managed investment scheme, although the risks are minimised, in large part the profits (and losses) are enjoyed by the client, while the firm who has done the majority of the work, research and applied their expertise only enjoy their fee (eg. charged as commission or brokerage or as a spread margin) charged to the client.

Propriety trading allows firms to wave the fees, not apply the spread to the trade, whilst benefitting from all the in-house knowledge, skills and expertise to profiteer from and add to the bottom line.

There are the risks that institutions around the world, where the Volcker rule does not apply, will not apply sufficient rules and regulations around propriety trading which could, in theory – and in practice – collapse companies and economies around the world should they not be managed efficiently.

From the credit default swaps of the 2008 financial crisis, through to mortgage-backed securities of today, there is a range of financial instruments – especially derivatives - that promote a winner takes all mentality that banks simply should avoid to stave off a future global financial crisis.

Proprietary trading does not affect retail investors – unless for example the proprietary trading division causes the firm to file for bankruptcy as a result of incurring large losses - as it is the firm investing its own money. Only in the case of unethical behaviour in which a firm takes a position against that of a fund under their management – for reasons not as a hedge for a fund itself – or bets against the position taken by the fund should an investor be affected.

As an investor, it is important to understand about proprietary trading and its purpose, however, unless you are involved in fund management yourself, as a retail investor you will have little contact with the features, advantages and benefits of proprietary trading.

A managed discretionary account (MDA) is a facility – other than a registered managed investment scheme (registered scheme) or an interest in a registered scheme – in which an MDA client entrusts management of their portfolio of assets to an MDA provider.

Pursuant to ASIC Instrument (Managed Discretionary Account Services) Instrument 2016/968 an:

MDA provider means a person who holds an Australian financial services licence that authorises:

(a) dealing by way of issue in either or both of:

(i) interests in managed investment schemes that are limited to a right to receive MDA services; and

     (ii) miscellaneous financial investment products that are limited to a right to receive MDA services; and

(b) dealing in all the financial products that may be acquired with client portfolio assets under the MDA contract; and

(c) except where an external MDA adviser has contracted directly with each retail client to whom the MDA provider provides MDA services to provide financial product advice relating to the ASIC Corporations (Managed Discretionary Account Services) Instrument 2016/968 Part 1—Preliminary investment program—providing personal advice to people as retail clients in relation to the MDA; and

(d) except where an external MDA custodian has contracted directly with each retail client to whom the MDA provider provides MDA services to hold each client portfolio asset that is a financial product or a beneficial interest in a financial product—providing custodial or depository services, in relation to those client portfolio assets.

Managed Discretionary Accounts are essentially a portfolio management service in which investors provide funds to an investment manager to manage your portfolio in line with an agreed Investment Program and the client retains beneficial ownership of the assets.

By setting up a Managed Discretionary Account, you are able to remove the constant back and forward between you and the manager when it comes to the buying, selling or applying for investment in a wide range of investment products. So essentially, you are giving your money – or some of it – to someone else to look after.

The key benefits of a Managed Discretionary Account are that you are gaining access to a professional investment manager with extensive access to research and expert stock selection, which ultimately includes their active management of your account on a daily basis, responding proactively to market changes.

In addition, your Managed Discretionary Account can have a high degree of flexibility and tailoring to your specific investment strategy and or needs, including your risk tolerance rather than your money being merely thrown into a fund along with all the other investors pooled money.

In this way, Managed Discretionary Accounts are different from managed funds and provide greater transparency – through portals and individual correspondence - as to what the investors’ money is doing and when.

Who regulates Managed Discretionary Accounts?

With the spotlight placed firmly upon the financial services industry in the wake of the 2018 Royal Commission into the misconduct in banking, superannuation and the financial services industry, there is little doubt that investors are more aware of the need for accountability and transparency in their dealings with advisors in the sector.

Managed by ASIC under the Regulatory Guide 179: Managed Discretionary Accounts, there are strict rules and regulations that govern the setting up and running of these accounts for retail clients.

Therefore, providers of MDA Services must hold an Australian Financial Services (AFS) Licence with specific authorisations which allow them to issue MDA Services to clients. As a result of holding an AFS Licence they are governed by ASIC under the Corporations Act 2001.

Under an MDA Service you will receive personal advice from your financial adviser, who must hold the professional qualifications (or will be working towards holding the professional qualifications during the transitional period) as prescribed by The Financial Adviser Standards and Ethics Authority (FASEA) and meet, at all times whilst dealing with you, the principles and core values set under the Financial Planners and Adviser Code of Ethics.

Why use a Managed Discretionary Account?

The underlying benefit of Managed Discretionary Accounts is flexibility and transparency.

According to financial adviser and co-founder of Plenary Wealth Julian Nowland, “Using managed accounts has allowed us to switch the client communication on investments from being an admin and paperwork focus into a marketing and education strategy”.

Nowland continues, “instead of requesting information from clients to fill out forms or getting permission to buy this and sell that, we can focus on education, keeping clients updated on changes being made to the MDA, why it has happened and how that relates back to client’s lifestyle outcomes.”

By reducing the amount of paperwork and the authority to execute buys, sells and applications for financial instruments within the agreed guidelines, managers are provided with far more flexibility to act and capitalise upon opportunities as they arise – often in a time-critical manner.

If the account was ‘non-discretionary’, the advisor would require a range of authority from the client and paperwork to be completed by the client to transact the trade. This also assumes that the client was available at any given moment to speak with the advisor.

As such, Managed Discretionary Accounts are ideal for people who are busy or people that don’t have the time or skills to be involved in the ‘active portfolio management’, but rather prefer a balanced approach to their investment strategy having a long-term view.

In addition, should the client be travelling or on a different time zone, Managed Discretionary Accounts can provide solutions, which allows them to be essentially passive to their portfolio management, while their advisor makes their money work for them.

With usually a minimum $250,000 minimum investment requirement, they are suited to the sophisticated investor and those who meet the investment requirement.

What to look out for in a Managed Discretionary Account Manager?

When looking to invest money into a Managed Discretionary Account, there is a range of elements that you should always look for when assessing the viability of a manager for your account. Firstly, you want a manager who has knowledge around not just securities, but also a wide range of derivatives, managed investments, foreign exchange, margin lending and alternative investment strategies.

Having a Managed Discretionary Account manager who is well versed in a wide variety of investment options will provide you with the most holistic portfolio options and opportunities, which is always a benefit for any portfolio. In addition to this, ensure that your chosen financial advisor is on the Moneysmart Financial Advisors register and that they hold (or are working towards holding) the professional qualifications prescribed by FASEA.

Why are Managed Discretionary Accounts growing in popularity?

Like many industries, the financial services industry is being held to account for often out-dated practices due to technology driving innovation in the sector. As such, this technology is seen not only to increase efficiencies but also in transparency and accountability.

Growth in Managed Discretionary Accounts has been driven by several factors, including:

• An attempt to achieve greater practice efficiency among advisers
• A desire by advisers to deliver better, more precise client outcomes
• Technology developments that have enabled the systematic, model-based management of many portfolios
• A strategic trend for advice businesses to move towards wealth management, with different pricing models

Through Managed Discretionary Accounts, investors are able to be more connected to their investments thanks to technology and have more visibility and accountability, while the account managers have the authority and flexibility to act as the opportunities arise to maximise the growth potential of the portfolio.

Unlike many funds, in a Managed Discretionary Account, the investments and cash are all held in your name, on your HIN rather than on the managers or the fund itself. As the owner of the Managed Discretionary Account, you can always log in to review the exact composition and value of the portfolio at any time through online platforms, providing the ultimate in transparency.

In addition, Managed Discretionary Accounts are far simpler to manage come tax time, as all the investments are held by you, without other people moving in and out of the fund, potentially impacting your capital gains tax each financial year.

However, as with any financial service or investment, there are risks that need to be assessed and managed in line with your personal investment strategy, risk tolerance and desired outcomes.

The size, make-up and strategy you employ in your Managed Discretionary Accounts, like all investments, will be subject to market volatility, company, sector and industry risks. When dealing with overseas markets or currency, it should always be assumed that foreign exchange risks would apply and have a bearing on the gains/losses.

When using leveraged products, such as CFDs (contracts for difference) or leveraged loans or positions to amplify the position that the Managed Discretionary Account manager may employ or wish to hold, it should be noted that your position may require additional capital that exceeds the amount available in the fund, should the investment go against your position. Participation in leveraged products should be the part of your investment strategy which is taken with caution.

With all of the potential benefits that Managed Discretionary Accounts offer to investors, there are risks, but like any good hedge, they can be managed with due diligence and ensuring that your account manager is suitability qualified and experienced to meet the needs of your investment goals.

An ETF or exchange traded fund is a type of investment fund that can be bought and sold on a securities exchange market. They are often known as ‘passive investments’ and generally track in line with the value of the market or index they are tracking.

There are a range of reasons or rationales as to why people take out ETFs, from diversification of their portfolios, through to passive management and the low cost of management. Depending on an investor’s individual and personal investment goals and strategies, their reasons may vary.

A look inside an ETF

ETFs are funds in which investors can place money, which then uses those funds to purchase securities and, in turn, issues additional shares of the fund. When investors wish to redeem their mutual fund shares, they are returned to the mutual fund company in exchange for cash. Creating an ETF, however, does not involve cash.

As outlined by CommSec, ETFs trade at a unit price close to the net asset value of the underlying portfolio and each ETF has a unique ASX code, just like ordinary shares.

Features of ETFs:

• As ETFs have an open-ended structure, you can enter and exit an ETF as you choose (subject to liquidity).
• ETFs are a basket of securities created by issuers or fund managers
• Each ETF generally looks to replicate the returns of a specific index/benchmark
• Each ETF is allocated an ASX code and lists on the Australian Securities Exchange as one entity
• You trade and settle ETFs like ordinary shares, with a minimum investment of $500

Examples of ETFs are Vanguard Australian Shares Index (VAS), which is comprised of Australia’s 300 largest companies, seeking to provide a fund that mirrors the performance of the S&P/ASX 300. Another is the BetaShares U.S dollar ETF, which tracks the USD relative to the AUD.

ETFs vary in terms of the type of market, asset class or currency that they follow, but in real terms, they are created to track the performance providing hedging opportunities for investors.

Why do people invest in ETFs?

Diversification is the key reason people invest in ETFs. ETFs allow investment in a range of companies that wouldn’t be viable for an individual investor to achieve on their own, however, through the fund and the economies of scale it brings.

The second reason people invest in ETFs is for passive investing. Passive investing costs less than active investing, because you do not require a fund manager to buy and sell your portfolio’s assets, as you are relying on the long-term strategy of market growth. Passive strategies can outperform active strategies on the savings of the transaction & brokerage fees alone.

Thirdly, ETFs are simple to buy and sell. When the ASX or exchange that your specific ETF is listed upon opens, you can trade through an investment firm or online broker at any time at the market price.

When it comes to owning ETFs, the costs are low. As the performance is tracking with the market, you are not paying a broker or manager to actively manage your portfolio, thus reducing your costs.

Finally, the transparency & accountability of the ETFs is such that they are required for the most part to publish a list of their holdings on a daily basis. As an investor to the fund – or a potential investor – you can review their weighting in the fund on particular assets so you can ensure that your investment objectives are being aligned with by investing in the particular fund. Should you see a deviation of any type to your strategy or objectives, then you can sell out at the market price.

ETFs – An Example

When looking at a particular fund, we will turn to the example of Vanguard Australian Shares Index ETF (VAS). As per their fact sheet, the fund seeks to track the return of the S&P/ASX 300 Index before taking into account fees, expenses and tax.

As at January 31^st 2020, with a total fund size of $18,937.1 million in 298 holdings, the fund is heavily weighted in some of Australia’s most well known ASX listed companies including Commonwealth Bank, BHP, Westpac, CSL and ANZ Bank.

The sector allocation, as with the ASX300, is geared at 31.8% financials, 18.6% materials, 8.5% health care and 8.1% industrials as the top 5 largest segments, which stands to reason considering the state of the Australian economy.

In terms of allocation of the holding details by percentage and by company, all of the top ten companies span from 8.2% (CBA) down to 2.19% (Telstra), with anything outside the top ten (which in the case of the VAS fund lands at the Transurban Group) is invested at a rate lower that 2%.

This is representative of the Australian economy as a whole and ensures that as the nature of the fund is to track the performance of the ASX, the weighting in the fund should reflect that.

What are the risks with an ETF?

There is a lot to be gained from lower risk, solid, long term investment strategies for many investors. However, like all investments, there are risks with as many investors becoming increasingly concerned about how investments will fare when faced with an economic downturn, recession or even worse, another GFC.

But the fact is, that “investors who engage in mindless ETF strategies, believing diversification will save them, could face horrendous losses if markets tumble”.

The ETFs market is worth $60.24 billion in Australia, according to ETF Securities. There is a risk that investors become too reliant on ETFs and a market crash could send a large percentage of investors’ funds down, without alternative hedging mechanisms (such as a CFDs) in place to properly protect their portfolios.

While market risk is by far the largest concern as investors take a ‘passive mindset’ and ETFs providers start trying to out manoeuvre one another by offering no-fee options and options in ‘non-traditional markets’ such as crypto currencies, risk averse investors are being exposed to more risk than they once enjoyed, as issues scramble to cut costs.

As the number of investors looking to get into ETFs in Australia is set to expand, so are the number of funds that are set up. Although under the heavily regulated market of the ASX, there are still inherent risks of unscrupulous operators or funds that are operating in risky and underperforming sectors, not to mention the spread of performance by industry operators within the same sectors could weigh heavily on ETF investments.

Like cryptocurrency in 2017, ETFs are the ‘hot thing’ in financial markets – truth be told, many ‘traditional investors’ stayed well clear of cryptocurrency trading during that time and ETFs have an inherent risk of a similar occurrence.

As investors flock to take advantage of the ‘new ETF vehicles’ they may find they have limits on their liquidity, and if the money rushes out, the valuations could be harmed for existing investors.

Summary of ETFs

Like all financial products, ETFs have risk and should always be taken on only after you as the investor or your financial planner/broker has done the due diligence on the particular fund you are looking to become involved in.

Like any investment, should the fund begin to deviate from your investment strategy, you should review the appropriateness of the option for your portfolio, rather than staying in because “that is the way the market is going”.

As a long-term strategy, ETFs provide an opportunity for a certain percentage of your investment portfolio to effectively track with the chosen market, exchange, currency or commodity market that suits your investment needs, as provides a passive investment option.

For many investors, this provides security in the knowledge that even if their short-term strategy fails; their ETFs will be there to back them up. However, in the event of a market crash, recession or even a global financial crisis, not even ETFs are immune – and investments although passive, must always be informed and proactive when it comes to their investment portfolios.

When people outside the financial world hear the words “hedge fund” many are immediately taken back to the 1987 classic movie ‘Wall Street’ and Gordon Gekko, or Bobby Axelrod in the HBO series ‘Billion’ including big money, fast cars and a winner takes all mentality.

A hedge fund is an alternative investment vehicle available only to sophisticated investors, such as institutions and individuals with significant assets.

While many hedge funds exist to invest in traditional securities, such as stocks, bonds, commodities and real estate, they are best known for using more sophisticated (and risky) investments and techniques.

What is a hedge fund?

As with all funds, a hedge fund is a pool of money used to invest in ‘alternative assets or strategies’, including the use of derivatives, alternative investments and leverage in both domestic and international markets.

There are many different types of hedge funds that all operate differently depending on their risk tolerance, the fund’s particular strategy, what assets are being invested in & where they are located, the investment tools used and the fund manager’s skills.

It is important to outline several key terms that will pop up in this and other associated articles, those of sophisticated investors and alternative assets.

Only wholesale investors are typically able to invest in hedge funds due to their complex and often risky nature. As at the writing of this book (Jan 2020), by definition, a sophisticated investor is “an investor who has had a gross annual income of $250,000 or more in each of the previous two years or has net assets of at least $2.5 million, as prescribed by the Corporations Regulations 2001 (reg 6D.2.03 and reg 7.1.28)”.

How does a hedge fund work?

Like all funds, a hedge fund is set up to ‘pool’ capital from investors and create a larger pot of money so the fund can gain economies of scale when looking to take a position.

The fund is created by the institution and the fund manager to meet certain goals or to incorporate a certain strategy. These goals surround the type of assets the fund will focus on, their risk, their location and a range of other factors.

Hedge funds are often leveraged, meaning the fund borrows money in an attempt to magnify the returns and capitalise upon market movement, knowledge on insights with a larger position than otherwise available from investor funds alone.

Hedge funds have the ability to make or break companies, industries with some of them having as much (or more) available capital than many countries! For example, the largest hedge fund manager in the world – Bridgewater Associates manages $150 billion in invested capital for around 350 of the largest and most sophisticated investors around the world.

How do hedge funds make their money?

Hedge fund managers don’t just run their funds out of the goodness of their hearts; they are in it – like the investors – to make money. Viewers of the TV program Billions, will be more than familiar with the term “2 and 20”.

“2 and 20” refers to the fees that the fund manager receives for service. That gives the manager 2% of the asset invested and 20% of the profit every year. Regardless of whether the fund makes a profit or not, the 2% is payable, while the 20% is only on the profits generated by the fund. Although this may seem rather high, due to the fact hedge funds often have very aggressive investment goals, and are very lucrative in producing strong profits.

What types of hedge funds are there?

There are nine (9) key hedge funds that investors should be aware of if they are considering investing in a hedge fund as part of their portfolio.

Long-Short Funds:

As the name suggests, the manager holds both long and short positions to capitalise on stocks they feel will over and underperform and to capitalise upon this market movement.

There are two main types of long-short funds:

Market neutral funds are used to hedge against market movement, as they have the same level of exposure to bullish (long) and bearish (short) positions in the market, making them as the name suggests.

Convertible arbitrage funds, purchase ‘convertible securities’ such as bonds in a company and short sell its common stock. 

An example of such a fund is offered by Invesco in the Australian market.

Event-Driven Funds: 

Event-driven strategies are equity-oriented strategies involving investments, long or short, in the securities of companies undergoing significant change such as spin-offs, mergers, liquidations, bankruptcies and other corporate events. Examples of these funds are those such as Blackrock.

These funds offer huge profit-making potential for funds that can predict the potential outcome that the event has not only on the company, but the market as a whole – regardless of being a long or short position. Often this is where hedge funds get a bad reputation for betting against companies and essentially sending them to ruin to make a profit.

Macro Funds: 

Macro funds are those such as Bridgewater Associates that invest based on economic trends, such as inflation and FX rates, as well as gross domestic product readings.

As the name suggests, it is looking at the large ‘macro’ trends rather than at an industry, company or market specifically.

Distressed Securities Funds: 

Hedge funds such as Oaktree Capital look at distressed securities that are primarily debt securities, which originate from companies that are in the process of reorganisation or liquidation under local bankruptcy law or companies engaged in other extraordinary transactions, such as balance sheet restructurings.

Trading in distressed securities can be inefficient, due to the fact the company is being forced to sell.

These funds often look to either pump the company for sale, or dismantle it and sell off the individual assets should they hold higher market value than the price they are able to negotiate to often desperate company shareholders and executives that will often take ‘pennies on the dollar’.

Emerging Market Funds: 

As the name suggests, these hedge funds look to capitalise on markets or portfolios of companies in emerging markets that offer untapped growth opportunities.

In terms of location, these are often in markets across China, India, Indonesia and even developed economies such as Australia & the USA who have markets that are emerging or moving. Examples of these funds are that held by Fidelity International.

Long Only Funds: 

These hedge funds look at high-quality funds that can be considered ‘undervalued’ and having a positive outlook for the future company, market or industry development.

The fund takes a long-term position to purchase and hold the stocks in generally 25 to 35 companies in the hope the capital growth is realised. Examples of these funds are the Australian based L1 Capital Investment Fund.

Short Only Funds: 

On the opposite side of the coin, short only hedge funds – although rare – look to provide exposure to declining markets such as that offered by Tradewind Capital – this is essentially betting that the market or value of a company will go down, not up.

These are often created by activist investors, who are looking to create a negative impact on a reprehensible business model, such as those run by Bill Ackman who tackled companies such as Herbalife in the USA.

Fixed Income Arbitrage Funds: 

These hedge funds look to capitalise upon mortgage-backed securities (MBS), government bonds, corporate bonds, municipal bonds and even more complex financial instruments such as credit default swaps (CDS) which ultimately caused some of the mass losses (and gains for some) when the property market crashed leading to the 2008 GFC and was the subject of the movie, The Big Short.

When there are signs of mispricing in the same or similar issues, fixed-income arbitrage hedge funds take a combination of leveraged long and short positions to profit when the market pricing is correct.

Aberdeen Standard has such fixed-income funds available within the Australian market.

Merger Arbitrage Funds: 

These hedge funds seek to create ‘risk-free profits’ by purchasing & selling simultaneously the shares of two merging companies to create a profit in the discrepancy in share price and the price being offered by the acquiring parties of the companies.

Timing is everything with these merger arbitrage funds, however, they can yield significant results. Silver-Pepper investments have such a fund available to sophisticated hedge fund investors.

Hedge funds are incredibly high stakes, high reward, high-risk instruments that are not for your average mum & dad investor – unlike an Exchange Traded Fund (ETF). They are geared towards sophisticated investors who have access to large amounts of capital or assets and are looking to either profit, hedge or influence markets.

Should a hedge fund be included as part of your personal investment strategy, it is always best to get independent, expert advice before committing to a fund and ensure that your due diligence and research is complete and accurate, as losses can occur on a much larger scale due to the size of the required outlay.

There are many types of ‘funds’ that exist within Australia; however, unless you are positioned within the financial services industry, or you are a wholesale client by definition of the Corporations Act 2001, chapter 7 (for example, at the time this book was written, you had an annual salary exceeding $250,000 in two consecutive years or net assets exceeding $2.5 million) you are more than likely to not have too much knowledge around the managed funds available.

By definition, a managed fund is a type of ‘managed investment scheme’ in which your investment or money is pooled together along with others. With a fund created, the fund manager then buys and sells shares or other assets on behalf of the funds.

Every working Australian, must by law set aside money during their working life to support their retirement. This system is known as Superannuation. With your superannuation, the Australian superannuation guaranteed rate of 9.5%, which will rise to 12% by 2025 is paid into your superannuation fund by your employer. A superannuation fund is similar to a managed fund in that the funds are pooled and managed by an Investment Manager, however a superannuation fund is specifically created to ensure your financial security in retirement for those who are members of the superannuation fund.

As a holder of superannuation, you can log into your super account and see how much you have, what investment mix your portfolio is set up to achieve, what assets your money is invested in and how the performance is tracking.

There are several differences between a superannuation fund and a managed fund, some of which are:

• you are a member of a superannuation fund whilst you are an investor that holds units in a managed fund;
• your investment increases periodically whilst you are working as your employer makes super contributions to your superannuation fund; and
• by law unless you have ‘exceptional circumstances’ you can’t access your super until you are 65 or have permanently retired from 55 to 60 years old, depending on a range of circumstances.

A managed fund works slightly differently

A managed fund pools multiple investors’ money into a fund, which is professionally managed by specialist investment managers. You can buy into the fund by purchasing units or shares. The unit’s value is calculated daily, and changes as the market value of the assets in the fund rises and falls.

Each managed fund has a specific investment objective, typically focused on different asset classes and a specific investment management philosophy to provide a defined risk/return outcome.

Investing in a managed fund is not mandatory like superannuation but it essentially operates in the same way.

Unlike with your super, as an investor in a managed fund, you are usually paid income or 'distributions' periodically. The value of your investment will rise or fall with the value of the underlying assets.

What are managed funds used for?

As with many funds and financial instruments for that matter, one of the major uses for managed funds is diversification. This is done through managed funds by spreading the risk of the investments with different types of shares or levels in different asset classes, including stocks, bonds, commodities, currencies, ETFs - you name it.

With the managed fund pooling the resources from a range of investors to realise economies of scale, it can then amplify their positions through not only adding additional investors to the pool but also taking a margin loan out against the funds in the position – should the risk tolerance of the fund allow it to.

When investing in a managed fund, you are paying a percentage and fees to expert fund managers, who are responsible for the performance of the fund, picking the financial instruments being traded and managing investors’ money in a responsible and effective way.

With access to analysts, market data, insights and research that is far beyond the time and scope available to individual investors, the decisions made within the managed funds should always be backed by research.

Another benefit of managed funds is compound returns or reinvested products and distributions being allocated back into your fund. This allows any future performance of your investment to be now based on a larger amount – thus compounding – rather than pulling the profits from the managed fund.

This form of investing in funds is what is commonly termed as ‘passive investing’. That is to say, as an investor, you are putting your money and its future performance to work through giving it to someone else to manage.

By doing this, you absolve yourself of the responsibility of the day-to-day checking, trading, research and updating, while your fund manager who has access to a wealth of time-critical data, teams of analysts and decades of market experience takes the wheel and drives your money harder.

What type of managed funds exists on the market today?

Although there are six (6) main types of managed funds on the market today, there are many more varieties of funds, providing a spectrum of assets allocated based on the risk profiles, desired outcomes and what the money is being invested to achieve.

• Active Funds, as the name suggests, work to outperform the index that it is tracking through active management of the managed fund account.
• Index Funds, also known as ETFs or exchange-traded funds, aim to provide investors with performance in line with the particular index that it is tracking – whereas the active funds are looking to outperform the market.
• Single Sector Funds, work within a particular asset class, such as SME’s or FinTech and the performance of players within that space.
• Multi-Sector Funds have a diversified approach across a wide range of asset classes all with varying risk levels attached.
• Income Funds are geared towards a defensive holding strategy, income generation but minimising risk at the same time. These funds are often sought out when market volatility strikes markets, industries or economies.
• Growth Funds are long-term investments focusing on capital growth, rather than income-based. As such, they are typically geared towards shares in growth companies and sectors to capitalise upon their long-term positions or outlooks.

Depending on your personal investment strategy and financial goals, you may opt to invest in one or a combination of funds to ensure your risk is spread, and you are achieving the desired outcomes.

Should you be looking to hedge your investment portfolio with a safe bet looking to invest in income funds may be the strategy to employ, meanwhile, should you be looking at the ‘long game’ in terms of investing money for 5+ years, then a growth fund or even an index fund could be an ideal avenue for investment.

While index funds – as well as active funds – also offer investors access to invest in a range of financial assets in emerging markets or specific industries, so they also offer significant short-term opportunities as well.

The key is under careful & experienced management; a managed fund offers significant advantages for almost all retail investors.

What type of fees can you expect on a managed fund?

On a managed fund, the fee structures can vary depending on the structure of the fund, the financial instruments that are being traded as well as the potential risks involved with the fund, not to mention the fund managers themselves, their background, past performance etc.

However as quoted from the Sydney Morning Herald, “based on an initial investment of $50,000, the average investment management fee paid by individual small investors for multi-sector balanced managed funds is just under 1 per cent but can be as high as 2.5 per cent. Average "retail" fees – those paid by individual investors - on multi-sector "growth" funds are 1.16 per cent and 1.18 per cent on multi-sector "aggressive" funds”.

What are the next steps when looking into a managed fund?

If you are considering a managed fund as part of your portfolio, as with all financial products, it is always important to speak to an independent expert before doing so to ensure that the funds meet with your investment strategy and particular risk tolerance.

Many fund managers have a minimum investment of between $5,000 and $250,000 for retail investors, making them out of reach for smaller investors. However, with ETFs or exchange-traded funds that are listed on the ASX, there are other options should you be looking to dip your toe in the managed fund water sooner.

Remembering that online stockbrokers – such as IG, CommSec or CMC Markets Stockbroking - typically charge anywhere between $10 and $20 brokerage for a $100 trade, which even at the low end of the brokerage scale, this means that with every $100 worth of shares you should expect to pay at least $10 in brokerage, as a rule of thumb.

Like with all investments, you need to consider your personal investment goals, your tolerance to risk and the amount you are looking to invest and for how long. These decisions will have a bearing on which fund you may end up looking to invest in, and also the managed fund provider you go to work with.

As with all financial decisions, as an investment, it is prudent to research and seek professional advice before making any finite decisions.

Managed funds are not exclusive to sophisticated investors or high net worth individuals. They offer significant advantages to investors who wish to spread their investment and risk across a range of shares of financial assets, rather just in one particular company or asset class.

Although there are many hedging and risk benefits to this approach, there are still risks involved, and these should be assessed before investing in any hedge fund.

When many of the most well-regarded brands and businesses were coming through the ranks, they had to do it the ‘old fashioned way’, go to the banks – or the bank of mum and dad – take a loan, and grow ‘organically’. Take Phil Knight, for example, the CEO and Founder of a little-known brand – Nike.

He had an almost monthly battle with his little bank branch, on how much he could borrow, how much ‘equity’ or how liquid his business was, and essentially, they controlled his growth trajectory for many years. In fact, the Nike you know today may have never come to fruition had it not been through the tenacity of Mr Knight.

Today, businesses are supercharged by venture capital, in fact most of the companies you use every day – Facebook, Google, Twitter were just that. “Venture capital is a form of private equity and a type of financing that investors provide to start-up companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks and any other financial institutions”.

As can be expected, within venture capital, there are a number of key stages:

• "seed stage" venture investors help get a company off the ground; think $0-$1MM of revenues.
• "early stage" venture investors focus on taking a company that has successfully proven its concept and help them to accelerate their sales and marketing efforts; think $1-$10MM of revenues.
• "growth stage" venture investors basically pour kerosene on top of a company that is already "on fire"; think $10-$50MM of revenues.

Venture capital is almost solely responsible for the rise of the ‘start-up’ revolution. Gone are the days of needing a massive amount of cash to get your business idea off the ground. You need a compelling idea, a pitch deck and a good work ethic, and VC can do the rest.

Venture capital in a way can be providing the seed funding for a friend’s new online business, or providing second round (early stage) funding to your siblings café – it isn’t just about the big end of town.

If you were a VC funder in companies such as Facebook or Alibaba, you would not be reading this book; you would be on an island somewhere. However, with as many as 75% of VC backed companies failing to return dividends to their investors, there is a risk in any investment through VC.

Venture capital is something that requires not only the capital but also the time, patience and risk tolerance if you were to look to invest in it. As a new investor, Venture capital is not recommended, however, you could indeed invest in a fund that engages in venture capital.

Again, although there are many success stories when it comes to venture capital, it has most certainly made many people very wealthy, you should always seek advice before delving into an area with such high expectations, and such high total loss rates.

According to Walter Davis of Invesco, alternative strategies are those investments in anything other than publicly traded, long-only equities & fixed income.

These include:

• An investment that encourages shorting, global macro, market neutral and long/short equity strategies
• Investing in any asset class other than stocks or bonds
• Investment in illiquid or privately traded assets such as private equity, venture capital and private credit.

However, for the purpose of clear definition in the Australian market, we should include property investment in the pool of traditional investing, due to the high level of homeownership and investment in Australia, which was at 65% in 2016.

What do alternative investments offer?

Alternative investments offer opportunities in global markets by providing 24 hour/7 days per week trading platforms – such as CFDs - while also having the opportunity for leverage, meaning you only need to pay a fraction (the spread) of the total trade to execute the trade.

They allow savvy investors to bet against the market, to make trades on movements before they happen, and reap the rewards should they come to fruition. However, the risks of alternative investments are greater than simply the loss of the amount invested (the spread), as the total trade and any losses need to be repaid for any unsuspecting investors.

Meanwhile, investment in alternative asset classes such as art & collectables provides diversification and capital growth opportunities, as well as the potential for incremental revenue from leasing or loan arrangements to private or corporate clients through brokers.

With any investment, there are risks and potential losses that may insure and should be considered before commencing any alternative investment strategy. Alternative investments offer just that, an alternative.

To effectively leverage the opportunity, speaking with a managed investment fund, will allow investors to pool their funds and the scheme to be operated by an expert in alternative investment strategies – making the ROI potential even greater than if you go it alone.

Tangible Investments

Tangible investments or those that are physical in nature, different to that of shares, securities or currencies as the name suggests, due to the fact they are tangible.

Tangible assets exist outside of an account balance, financial statement or exchange market. Put another way, tangible assets have a physical form and natural value. It's likely that you have already invested in physical assets in some way – you may have bought a house or car, collected a piece of art, kept a family heirloom, or bought gold or silver jewellery.

Many people prefer investing in tangible assets as they can physically hold them, see them, touch them, but this is in ‘most cases’, as with many tangible assets, you are buying them in containers, or as part of a shipment with the intention of selling them for a higher price in the future.

Commodities

Commodities are those assets such as coffee, gold, metals, grain, and fuel that can be produced in a raw form then bought and sold on the open market. They are often either raw materials or primary industries such as mining and agriculture and can include live trade markets, such as cattle and sheep.

There are several ways in which investors can delve into investment in commodities. Firstly is to invest in the physical asset, such as metal, grain, fuel barrels and more. They can then look into investing in the same asset class, but investing in ‘futures’ in those assets. This methodology is often used by a business looking to ‘hedge the price’ they pay on assets they use a lot of. For example, transport companies and airlines often purchase futures in the fuel process to hedge against adverse movements in commodity pricing.

“Investors can also invest through the use of futures contracts or exchange-traded products (ETPs) that directly track a specific commodity index. These are highly volatile and complex investments that are generally recommended for sophisticated investors only”.

Real Estate

Often one of the largest investments most people will ever make in their lifetime, real estate has for decades been the cornerstone of the ‘great Australian dream’. However with Australian housing prices, especially those in the major capital cities, skyrocketing, then crashing, then jumping up again, they have moved from a ‘safe house’ to almost a speculative instrument in some markets.

Real estate investment is much more than the investment in the family home. There are huge benefits both in terms of income and tax when you invest in other property such as an investment house or apartment, commercial real estate or even factories and warehousing.

Although real estate investing is a tangible investment, there are also investment opportunities within the real estate sector in which you as an investor don’t own the whole asset, but parts of it. This can be done in several ways, two of which are micro-investing and investing in a real estate fund.

Similar to the company Brick-X, micro-investing has become popular in the time of the millennial, as more and more people feel they are ‘priced out of the real estate market’ and can’t comply with the ever-increasing and ever-changing banking hurdles to get a home loan.

The second example of ‘alternative investments’ in real estate is funds, also known as development funds. These are often used by property developers to fund the purchase, design, development and marketing of properties so that they themselves do not need to foot the bill – or the risk of such an investment – entirely.

Infrastructure

Investing in infrastructure is one of the more ‘complex’ tangible investment vehicles, especially in comparison to purchasing a house or apartment. However, before you think you can invest some cash and pay for road work outside your home, then rename your street – think again.

“Infrastructure is one of the fastest-growing asset classes globally, with target infrastructure allocations increasing significantly over recent years. AMP Capital expects portfolio allocations to infrastructure assets to rise further in coming years as the benefits of investing in infrastructure are increasingly recognised.”

Investment in this asset class is done through a fund, as typically governments themselves fund – or are supposed to fund – large-scale development in the infrastructure needed around the country, or the world for that matter.

However, when the government runs short of money, or are looking to allocate those much-needed funds to other projects, institutions using investors’ money offer significant returns through infrastructure funds.

Alternative Investments

As an investor, it is paramount that you diversify your portfolio for a wide range of reasons. Most of all, it is to hedge your risk against volatility in any one company or asset type.

Extreme volatility has been felt across traditional investment avenues with 2018 viewed by many as the worst year since the GFC. Australia’s largest housing markets in Sydney (-10.4%) and Melbourne (-9.1%) dropping significantly since the highs of mid-2012.

The global financial markets are in turmoil with trade wars, potential impeachment of sitting US President Donald Trump, not to mention industry disruption, innovation and fluctuating commodity prices across the globe placing a feeling of uncertainty upon investor's portfolios.

Investing in alternatives to not only hedge but to prosper is becoming an attractive option to many investors due to such instability across assets that were considered well, as safe as houses.  

From investment in art and collectables, which across the globe accounts for an estimated US$1.62 trillion in art and collectible wealth held by UHNWIs in 2016, and an estimated US$2.7 trillion by 2026, wealth managers seem to realise both the financial and emotional value attached to art and collectibles.

With traditional investment paradigms offering ownership of an asset or shares in a company being moved aside, as investors see the value in purchasing certificates – such as through blockchain, betting for or against market movements through leverage (such as CFDs and FX trading) and looking outside the traditional ways of investing for new opportunities.

Share markets enable businesses, governments and organisations to raise capital, which can allow companies to expand their operations, invest in new infrastructure and ideally grow. In return for this capital, investors receive a ‘piece of the company’ by way of shares – which can be lucrative should the company be successful.

In addition, if a company decides it wants to raise money and have its shares traded on a stock exchange, it will sell shares to investors in what is known as an initial public offering (IPO)[7]. An IPO allows the company to become listed, raise capital or ‘payout’ the original owners or shareholders for their hard work in getting the company to its current stage, and continue its journey from there.

The share market has risks and is exposed to volatility and individuals, companies, institutions and governments can all realise large capital losses should the market turn against them or they make an informed investment.

The best advice is to seek advice, undertake education and speak to professional advisors before entering your journey on the share market.

[7] https://www.commsec.com.au/education/learn/investing-basics/how-does-the-stock-market-work.html

Financial markets can be an extremely unforgiving place, you cannot ‘undo’ a buy or sell, likewise just because you don’t understand or know about something, doesn’t mean you don’t have to pay out your position – with this in mind, education & knowledge is vital.

People may or may not understand all instruments at their disposal and may invest in positions that are leveraged – such as CFD’s, which only require a small percentage of the actual position or outlay to make the trade – which could cost you a lot of money.

There are a number of excellent share market books, such as ‘Starting out in shares – The ASX Way’ that can provide a basic understanding. While most share trading platforms have their own training platforms – such as the IG Academy – which have a wide range of information, interactive exercises, quizzes and videos to help you learn how to trade using their platforms and what everything means.

Meanwhile, the ASX sharemarket game provides an informative and interactive game for the general public and schools to proactively learn the basics, and start trading shares through a portfolio of ‘fake money’ but trading on real shares, in a like-real market.

This share market game provides individuals with not only the opportunity to win some great prizes but also formulate investment strategies to encourage education including learning how to watch market movements, execute trades and how to become financially literate on the share market – all before a registered user even steps foot in the investment ring.

The prices of individual shares on the share market are subjected to a wide range of factors that can affect the prices. The market and its performance are tracked using a number of measures, known as indexes.

These indexes such as the All Ordinaries – which tracks the top 500 companies listed on the ASX – provide a gauge on how the overall performance of markets, or particular segments – such as the emerging company index (XEC).

The prices on the share market can rise and fall for a wide range of reasons, outlined below:

• Company-specific – such as profit announcements, corporate restructures or new opportunities
• Market-specific – such as the announcement of the government cracking down on sugar in soft drinks and its effect on Coca-Cola Amatil’s (CCA) core market of carbonated soft drinks
• Industry-specific – The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
• Macro-economic - such as the Chinese-US trade war

All of these specific reasons or changes can positively or negatively take their toll on the share price on the share market.

Other factors include demand & supply (how much is available to buy and how many people want to buy a particular share), interest rates (availability to money), election cycles, geopolitical risks, even activism investing, which is often led by large hedge funds in taking a position against a company they see as behaving badly to crush their share price.

Thanks to the introduction of technology, trading shares, which was once facilitated by brokers running all over the place at the ‘trading floor’ of the stock exchange, most transactions are facilitated electronically.

Participants in the stock market range from individuals, known as retail investors, to big institutional investors, such as fund managers, insurance companies, banks and pension funds.

Odds are that if you don’t have any shares but are currently employed in Australia – even if you are employed part-time as a student – you will have a superannuation account. That account is effectively a managed fund, and the way a managed fund works is that all your money is pooled with other peoples and the fund manager buys & sells shares, bonds, currencies, property, invests in other funds all to increase the value of the fund, and your super. Apart from property, most of those transactions are facilitated on share markets – such as the ASX.

Similar to most markets, when an investor (or buyer) finds a share that they would like to purchase, they select a three-letter code – such as VRL for Village Roadshow Limited or ANZ for ANZ Bank – enter the number of shares they want and the price they wish to pay, then place the order.

The trading platforms allow for buyers to either select the price as ‘market price’ in which case the share is simply purchased at the ‘going rate’. Alternatively, the share trading platforms allow you to stipulate a price you are willing to pay per share and waits until that price comes available before activating the trade.

Once the order is placed, and buyers and sellers are matched, the shares are purchased utilising the CHESS system, and money changes hands, while shares are transferred from the sellers account to the buyers’ account.

It is important to note that the amount of shares you want doesn’t need to perfectly match up with an amount another person (buyer) is looking to buy. If you want more or less, the trading systems allow for packages of shares to be split up and disseminated as required between one or multiple buyers in the market.

There are several reasons people invest in the share market, however, the primary reason is to generate wealth. This can be achieved in a number of ways on the share market, through either the potential capital growth of the share price purchased, through dividends paid by the company to each shareholder for each share held as a percentage of the profit generated and sometimes a combination of both.

In Australia, shares can be bought and sold on the Australian Stock Exchange (ASX) through online trading platforms – such as CommSec, IG Markets or CMC Markets Stockbroking – once a CHESS number has been set up with the ASX.

The CHESS number or Clearing Houses Electronic Sub-Register System is part of an integrated system that settles trades made and exchanges the title or legal ownership of those financial products for money. The CHESS transfers the title or legal ownership of the shares while simultaneously facilitating the transfer of money for those shares between participants via their respective banks.[6]

By investing in shares on the ASX you are buying part ownership of an ASX-listed company – usually, minimum investments can start from as little as $500 – you can enjoy and be a part of their performance for your personal gain (or loss).

If the company performs well, as a ‘shareholder’, you can enjoy capital growth of your ‘asset’ in the form of a share price increase, as well as dividends paid out of the profits generated – that is not being reinvested in the company for future growth opportunities.

Meanwhile, if the share price movement is backwards, unfortunately so does your investment. As a ‘part-owner’ of the company, you have to work with the good, bad and sometimes ugly of being a company owner.

[6] https://www.asx.com.au/documents/research/chess_brochure.pdf

Traditional investments are most certainly those which appeal to a more ‘traditional’, ‘risk adverse’ investor base. This is in large part due to their liquidity as previously mentioned. Should the asset class start moving in a way that is beyond the investor’s risk tolerance, or they quite simply need cash, the traditional investments are the safer option.

According to the World Economic Forum, there are three main traditional investment types, these being cash, government & corporate bonds and shares.

Cash

Although not as prevalent as it once was, cash has always been considered king! From a very early age in Australia – and around the world for that matter – school children are taught the importance of money, saving and squirrelling money away in bank accounts for everyday savings, emergencies and of course one day the most expensive asset most people will ever own, a house.

In recent times with the rise of international business, eCommerce and cryptocurrencies, the ‘cash landscape’ has certainly changed.

During times of recession or economic hardship, cash and its ability to purchase goods and services is often diminished, with examples during especially the times of the world wars last century, where people walked in with wheelbarrows of cash to buy loaves of bread!

That being said, cash has the ability to buy goods, services, other investment vehicles as well as accumulate interest – albeit meagre – in bank accounts.

Government and corporate bonds

Government and corporate bonds have for centuries been safe forms of traditional investments.

From the government ‘war bonds’ that were used by nations to fund the efforts of the first and second World War, through to bonds to fund future expansions or financial requirements without diluting shareholder equity.

A bond is “an official paper given by the government or a company to show that you have lent them money that they will pay back to you at a particular interest rate”[4]. As the name suggests, government bonds come from the government of a particular nation usually created to fund infrastructure spending or economic development, which generates revenues which can then fund the payback of the bond with interest.

Australian corporate bonds can typically earn you a return of around 5.2% compared to bank deposits or term deposits returning less than 3.2%[5]. While Australian government bonds can be anywhere from 1.5% to 5.7% depending on their particulars, including but not limited to, their investment period and the time in which they were raised i.e.: recession or financial instability. 

Shares

In broad terms, a share market, like any market, is a place where buyers and sellers are brought together to buy, sell, trade and invest in financial instruments, while also being a place where companies can facilitate the issuance of shares, initial public offerings and raising capital.  

Such financial activities are conducted through institutionalised formal exchanges or over-the-counter (OTC) marketplaces that operate under a defined set of regulations. There can be multiple stock trading venues in a country or a region which allow transactions in stocks and other forms of securities.  

In Australia, the exchange is called the Australian Stock Exchange or ASX, there is only one primary market in Australia, however, in markets like the USA, there can be (and are) a number of exchanges set up such as the New York Stock Exchange (NYSE), Nasdaq, BATS and the Chicago Board Operations Exchange (CBOE).

The CBOE was responsible in part for the Cryptocurrency crash when it offered derivative options to bet against the market back in early 2018.

[4] https://dictionary.cambridge.org/dictionary/english/bond

[5] https://www.bondexchange.com.au/

How much you invest, what you invest in, for how long and at which risk level is all up to your personal & financial situation. You should never invest more than you can afford to part with, as you never know what is around the corner. This is not an effort to be a ‘doomsday alarmist’, it is just a fact of prudent investing.

Take the global financial crisis for example, as previously mentioned, alternative investments – such as the Credit Default Swaps (CDS) that were created by Dr Michael J Burry as an ‘alternative investment’, to bet against what 90% of the advisors in the markets were doing. And it came to fruition.

As such, mum and dad investors that couldn’t afford it were suddenly homeless, left without any retirement savings and having to go back into a job market, where there were no jobs.

Investing has peaks and troughs, and you need to be able to ride through them to get to your investment goals.

In short, if you are an investor that is just starting out, has little disposable income and savings, then educating yourself in shares and savings accounts is a far more responsible path than investing in a property investment fund, hedge fund or CFD. However, a managed fund may be a way forward, but it is all dependent on your liquidity, age, investment expertise and of course goals.

All of this and more will become clearer as we unpack each of the investment types, their features, advantages, benefits and of course pitfalls.

Why does one walk into a restaurant and order the same thing they had last time, fly with the same airline or by a particular brand of toothpaste? Familiarity, loyalty and an understanding of the performance or ‘potential performance’ of the product or service offering.

Investors behave no differently, except for one key factor. As the GFC proved, nothing was immune to market distribution, innovation or collapse. Sure, equity markets can gain back losses over time, real estate markets can rebuild, but considering how much more is at stake with an investment, rather than the performance of toothpaste, there is a lot more to be considered.

One of the key differentiators between traditional markets and alternative investment markets is the ‘access’ at which investors have to each of the investment categories discussed. For example, with a tax file number (TFN) and a bank account, most major banks have an online trading platform that they are all too happy to guide new investors through getting their CHESS number (Clearing House Electronic Sub-register System), upload funds and start making trades.

Whereas to access a hedge fund or debt facility fund, there are minimum hurdle rates that one must be able to often prove and have their accountant sign off on in order to invest the funds. For example, a term that will be used often throughout this document is that of the ‘sophisticated investor’.

Within Australia – and most equivalent capital markets for that matter – by definition a sophisticated investor must be able to invest a minimum $250,000 into a fund or investment scheme, while also holding $2.5 million in assets. This would make them highly ‘liquid’ as individuals, and in many ways in the top 10-15% of all Australians.

Although there are other ‘funds’ available for investment on the ASX (Australian Stock Exchange) for as little as $250 minimum investment, traditional investments were the only ones within the grasp of many investors from all over the world.

With the world experiencing “historically low-interest rates and the enduring effect of quantitative easing are making markets expensive, investors continue to turn to alternative asset classes.

Furthermore, changes in how we work and live, prompted by new technology, innovative business models, geopolitical shifts and emerging lifestyle choices, could render many real assets obsolete while creating opportunities elsewhere.”[3]

The key differences between traditional and alternative investments are outlined below.

Liquidity

Traditional investments are often more attractive to new investors or those with a low-risk tolerance, due to the fact they are highly liquid. In other words, they can be sold or moved on very quickly for cash. Meanwhile, alternative investments often ‘tie up cash’ for set periods of time – as set out in the prospectus documents or information memorandums – or are harder to move on for investors.

This is often due to the more specialised nature or requirements of the funds by the fund or asset managers of alternative investments, vs. managers of traditional assets, which can be easily bought and sold on the ASX or through traditional market vehicles.

Information and Support

Traditional investors are often very guarded about their ‘trade secrets’ or ‘tricks of the trade’ in how they made their money. Whereas alternative investment managers often provide too much information for the average investor to comprehend. This includes training courses, information memorandums, feasibility studies, investment seminars and more.

The level of involvement or support from managers is often specific to their asset class and business model, however alternative investments often provide far more transparency in their dealings with both new time and seasoned investors.

Return on Investment

Undoubtedly “the money shot” or the biggest difference between traditional and alternative investments is that of Return on Investment (ROI). Alternative investments as a ‘general rule’ provide significantly higher returns on investment than that provided by traditional investment classes.

This in large part is due to the associated ‘risk’ of alternative investments, however, it must also be noted that even in tough economic times, alternative investments often thrive. In fact, many alternative investments are created and geared to do just that. When traditional investments are suffering losses – such as during the 2008 Global Financial Crisis – alternative asset classes thrive.

Many alternative assets as mentioned are designed to do exactly that, such as hedging vehicles for investor’s asset portfolios. As they often require a smaller investment to realise significant returns should their conditions be met for a ‘payout’ scenario on the alternative.

With financial products, there are risks of losses, and should you or your fund manager take a leveraged position or trade in leveraged financial products (such as derivatives), your losses could exceed your initial investment.

[3] PWC (2018) “Rediscovering alternative assets in changing times”

As its name suggests, alternative investments are those investments that are outside of what may be considered as ‘traditional’ or asset classes, or ‘bricks and mortar investments’.

According to the World Economic Forum, “alternative investment assets are those which are not part of traditional asset classes such as cash, stocks, or bonds that retail investors are most familiar with. Such a definition would encompass investing in mainstream assets such as real estate or commodities or luxury goods such as art or wine”[1].

Alternative investments encompass a wide range of asset classes, including private equity real estate and private equity infrastructure funds, secondary funds, and private debt funds. In particular the three asset classes: private equity buyouts, hedge funds, and venture capital have historically played the most important role in the evolution of the industry and have accounted for the vast majority of the capital allocated to alternatives.[2]

With such a definition in place, one could consider an alternative investment to be almost anything outside of the traditional investment assets mentioned, however, as figure 1 outlines from the same source, they are anything but investing money into simply anything.

Figure 1: Overview of different types of investments

When placed into the five strategic investment segments as outlined in figure 1.1, there is clearly a core competitive advantage identifiable with ‘alternative asset classes’, rather than the ‘traditional, tangible and other investment classes as a whole.

That being said, it must always be remembered as an investor, based on your level of risk tolerance, your access to capital that can be readily spent on investing, not to mention your skills and market experience, different asset types would – including non-traditional asset classes – offer significant opportunities to investors under the right expert advice or guidance.

[1] World Economic Forum (2015), “Alternative Investments 2020, An introduction to Alternative investments”, July 2015 

[2] World Economic Forum (2015), “Alternative Investments 2020, An introduction to Alternative investments”, July 2015

Weigh the situation, then move – Sun Tzu

Your financial journey is now in your hands. This Walker Capital eBook has provided you with the details of the product, price, place, people and processes of financial planning – now it’s up to you to make it happen.

The next steps are to look inwards, review your current financial situation, download an excel spreadsheet template of a personal budget – if you don’t already have one – and start getting prepared to meet with a financial planner.

Speak to your friends, accountant, lawyer and see if there are any names that come up more than once. The key is don’t just to run to the biggest name in town, they will often have a standardised offering, non-flexible pricing and mediocre returns.

There are many financial planners out there, but the key is to find the one best suited to you, your family and your financial needs and risk tolerance – remember, you are the client, it is your call.

Walker Capital are an established financial investment, fund manager and financial services company based all around Australia.

With a dedicated financial planning network expanding exponentially, Walker Capital have independent advisors, with objective thinking. Being part of a national network means Walker Capital get access to the best investment opportunities across a wide range of classes.

Being a vertically integrated business there are internal & external opportunities that are available to clients, while also never creating a fund or a product without themselves investing or using it – a mark of faith in a product if there ever was one.

Your financial journey should be that of a learning, growing and rewarding experience, pick the financial planner who shares your vision, understands your goals and objectives and, most importantly, understands you.

Congratulations today is your day, your off to great places your off on your way – Dr. Seuss

Sometimes things go sideways, advice is provided that leads to money being lost either on a small scale or potentially a life altering scale.

For example, you may get advice to invest your savings into a fund, so you put your retirement nest egg or part of it into a short-term vehicle on your financial planner’s recommendation – and it goes bust, you lose the lot. This has happened in Australia, Storm Financial, then insurance provider HIH, which went under leaving many Australian’s not able to claim on their insurance, nor their assets insured at all.

So, it does happen, albeit not regularly so there are mechanisms for both large and small grievances you may have against your financial planner. Wanting to take your planner to court because they said, ‘you could make 20% on your investment’ and you only make 15% will be struck out before you even get there. However, where real losses are incurred, improprieties are perpetrated or you feel your planner has behaved unethically, then there is certainly recourse.

Working out a mutually beneficial solution with your planner

As with most situations, the first step is to air your grievance with your financial planner and see if there is a mutually beneficial outcome. If they have done everything, they can iterate your plan, worked to reinvest to make money back and you are on track, then we would recommend that you collaboratively work with them – rather than against them. However, if the matter is unable to be satisfactorily be resolved, then you have several other places to go.

Financial Planners Association

By working through planners that are registered with an industry body or association, they not only have to adhere to standards of ethics, development and expertise, but they also are subject to the rules and regulations of the respected body.

For example, should you have a grievance, you can speak with members of the association and lodge a complaint, enter into mediation, or potentially have them investigate your matter in an effort to seek a resolution. This will be a much cheaper option than bringing in lawyers and starting legal proceedings. However, if you are not getting a satisfactory outcome, then you can then escalate the matter to the Financial Services Ombudsman.

Financial Services Ombudsman

The Financial Services Ombudsman (FSO) is there to protect consumers rights, and to hold industry participants to account. Although taking your case to the FOS will be cheaper but can be more time consuming and there is a $280,000 cap on compensation.^[1] As such, you need to review at this stage – with a lawyer – what the implications of taking the practitioner to court are, if your claim + damages exceed the cap on compensation, then you may wish to proceed further and take them to court.

However, it should be noted, that often in this case, the legal fees eat significantly into any settlement that may be achieved, and if your financial planner or advisor goes bankrupt in the process, you may be left with very little.

The Australian Financial Complaints Authority provides live chat, online and phone access to people dedicated to assist you with your compliant, and work towards a resolution for you as a consumer of financial services.

[1] https://www.mauriceblackburn.com.au/blog/2016/july/11/bad-financial-advice-how-you-can-fight-back/

As we have clearly outlined throughout this Walker Capital eBook, the risks (and costs) of not working with a financial planner are far greater than that of working with one.

The missed opportunities, how as little as $100 per month into a managed account could one day give you a $280,000+ nest egg, or how much you could benefit from a self-managed superannuation fund (SMSF), changing your insurance providers or investing into a fund.

Like almost everything in life, there are most certainly risks being aware of with working with a financial planner.

Investment Losses

No one likes to lose, but that is a fact of the financial markets – which people call efficient for just that reason, some people win, and some people lose.

However, one of the risks of working with a financial planner, is just that. You invest your money into a portfolio, fund, property, shares or other alternative investment vehicle and it loses value.

Spare a thought for people who invested in cryptocurrencies like Bitcoin, put their SMSF money into it, when it seemed it could climb to astronomical heights – only for it to fall from over $86,179.29 to $45,780,98[1] as at the writing of this article.

That is a loss of over $40,000 in just a matter of months, or 46% of your total investment! Sure, some lucky people bought these coins for under $1 and are enjoying the spoils – but they are speculative. For more information on Alternative investments, please see the Walker Capital Alternative Investments eBook.

So, back to your potential risk of investment losses while working with a financial planner. As the client, you need to be very clear on how high your risk tolerance is, how much you want to diversify your portfolio and the types of investments you are prepared to make.

Irrespective of how safe a company may look, or how solid an investment may look, there are always externalities such as macro-environmental factors that are well outside your control – such as the GFC in 2008 and COVID-19 in 2019-2021 that may incur losses to your portfolio – so be warned.

Clinging to failed strategies

As Kenny Rodgers in the classic tune The Gambler said, “you need to know when to hold them, know when to fold them”. Although he was refereeing to cards in a card game – your investment portfolio in this respect is no different.

You and your financial planner need to have a candid conversation when it becomes apparent that failed strategies have been implemented and losses have been incurred by your portfolio.

Clinging to failed strategies is risky business, hoping they may turn around. For example, investment in property funds, in which the fund manager keeps saying “The development is coming, we are just waiting for some more capital”, despite your prospectus document stating the building should have been paying you annual returns for the past 2 years, and in fact, the building should have been constructed by now!

There are signs outside of simply losing money when it comes to your investments, where you should cut your losses and move one. And although a bitter pill to swallow, you as the client need to be strong and do so.

Life Event Risk

There are only three sure things in life, birth, death and taxes. As such, as an investor, trader, planner or simply a person wanting to set themselves up, you need to be prepared – life happens.

This is not always a negative risk to your portfolio, despite being at a great personal detriment, you may experience a financial windfall when a parent or loved one passes and this needs to be factored into your portfolio.

But you also may have started out your financial journey as a single working person, got married, had children and so on. As your life progressed, you may like one third of Australians get divorced, then remarried, and create a new family. So, in essence, life happens, and it is important to be prepared.

There are many risks with anything financial, but the greatest risk is to push through life, only thinking of the weekend, the here and now, then to get to the end of your working life with no nest egg, a mortgage and no passive investments to supplement your income when you wish to slow down.

Plan to succeed, and even if you encounter the above-mentioned risks, you and your financial planner have the skills, expertise and options to set a new plan in place and move forward.

[1] https://www.coindesk.com/price/bitcoin viewed at 1.28pm 30.06.2021

Unless you were sleeping under a rock and haven’t read any of the previous chapters of the Walker Capital eBook into Financial Planning, you would have heard about the into Misconduct in the Banking, Superannuation and Financial Services Sector.

The findings were damning, and the whole sector has gone through an overhaul to regain the trust of their customers – including in some cases paying back large sums of fees and fines that were changed indiscriminately and unlawfully.

According to KPMG, “this report will drive significant transformation in financial institutions including operating models, product design, customer interaction, governance, remuneration and risk management. Businesses impacted include banks, mortgage brokers, wealth managers, insurers, superannuation funds and financial advisors.

The Commission’s work has four clear observations:

• the connection between conduct and reward
• the asymmetry of power and information between financial services entities and their customers
• the effect of conflicts between duty and interest
• holding entities to account.”[1]

As a client of financial planning (financial service), you could be excused for wondering “How this may directly affect you?”.

For a specific review, the Australian Treasury released a table with the recommendations of the Royal Commission, and the effective response they issued to move forward – Restoring Trust in Australia’s Financial System.

In summary, though the Royal Commission provided the following changes to your financial planner, the Commissioner’s recommendations, while expected, bring significant disruption to and accelerate necessary changes to business models, specifically:

• Removing grandfathered conflicted remuneration
• The suggestion that life insurance commissions be reduced to zero
• Requiring annual consent to fees.
• Higher training requirements
• New reporting obligations and controls
• A significant uplift in internal compliance.
• A new disciplinary body to bring financial advisers into line with other professions. 
• Compulsory training and a new Code of Ethics
• Reporting compliance concerns.
• Organisations will have a responsibility to ensure rigorous recruitment and reference-checking processes for advisers seeking to operate under their licence.^[2]

These ten points are only the beginning of the changes in compliance, reporting, regulation, fee structures and services that directly affect your financial planners, the organisations they work for and the services they provide. As such, it provides you as a consumer of financial service far more clarity, more convenience and more safeguards to know that you are protected – as you should be.

As we have mentioned earlier, it is important to do your due diligence into your financial planner – or any professional services provider for that matter.

To get a feel for potential planners, review their website, ask for phone numbers of several clients to discuss their ongoing experience and get a feeling for whether the planner is a good fit. In addition, have your lawyer and accountant investigate your new adviser – just to get a feeling about them.

This is no different to an interview process that you may go through to get employment, and your financial planner is no different – they are being interviewed for a long-term position within your network of consultants.

Finally, you need to do some reading, get an understanding of what they need to provide, how they need to provide it and what they need to provide to you. The governments Restoring Trust in Australia’s Financial System is a great place to start, as are the FPA and AFA websites.

[1] https://home.kpmg/au/en/home/insights/2019/02/financial-services-royal-commission.html

[2] https://www.ey.com/en_au/financial-services/how-the-royal-commission-impacts-the-financial-services-industry

Choosing your financial planner is important, as they will more than likely be a ‘long term partner’ to you and your financial progress (or journey) from where you are now through to your retirement.

There is a range of common mistakes that people make when seeking advice, and these should be known prior, during and after your engagements, to ensure you are getting the very best advice.

Coming unprepared

One of the most important elements to get the ‘right financial advice’ is to come prepared. Technology today is something that can support you in doing so, setting up a Dropbox or Google Drive and getting all your files ready for your meetings.

Files to get prepared are:

1. Bank statements – ensuring you have the last 3 to 6-months of your banking statements done.
2. Credit Card Statements – same as the above, it is important that despite how large or small your debt may be, you have them in the file.
3. Loan statements – car loans, business loans, personal loans, Buy-now-pay-later account (Afterpay/ZipPay) statements.
4. Superannuation statements
5. Insurance statements
6. Shareholding or investment statements
7. A list of goals and objectives – short, medium and long term.
8. Any other documentation that you feel is important and may have a bearing on your financial decisions now or in the future.

Although this may seem like an exhaustive list, it may indeed seem excessive, the more you have available, the better the outcome for you and your financial planner will be. Why? Because they have all the information, and they are not asking you to come back to them with additional information.

The more you need to go away and come back with information, the more time will be expended on your account by the planner – which in the end will cost you time and money. Failing to plan is planning to fail!

Looking for a quick fix

There are no ‘quick fixes’ to getting rich or retiring, this isn’t a Powerball planning session. Financial planning is the long game, it is about setting systems and processes in place to give you the absolute best opportunity to be financially stable in your future and into your retirement.

If you are walking into your financial planners thinking that you will walk out in a couple of hours with fists-full of cash – you are wrong.

What you will walk away with is a plan, a clear mind and a strategy on how you can set a course for your financial future. Even if you have inherited a significant amount of money or property from the estate of a deceased one, looking for a ‘quick fix’ is a sure path to losing some or all your money.

Irregularity of reviews

Although it may be annoying to set aside $500 per quarter for a review of your financial plan, review your assets and progress, and to look at any new funds, insurance or superannuation options that have come available – it is important.

As we showed in an early chapter, making the smallest of changes, and investing them wisely can make huge differences in your future financial stability and security.

It is vital that you have at least quarterly reviews with your financial planner, to ensure that everything is on track, that your investments are working as they should according to your plan and that if you need to iterate anything – that is to change any investments for any reason, then you are able to do so.

Honesty and Transparency

It does not matter what your financial situation is, or how much money you think you should have, not being honest as to your costs of living, your debt amounts, your income, savings, and other assets. On both sides of the fence – both the client and your financial planner – you both need to be open, honest and transparent.

Putting all your cards on the table early will ensure that you have a clearly defined starting point, goals & objectives while also you understand how the fee structure is set, where your money is going and why.

Don’t be too proud, ashamed or worried about what your financial planner ‘will think about you’, they are not there to judge, they are there to be your financial guide.

Failure to set or work within a budget

One of the most important factors with any financial plan is that you are working within and to a budget. If you are unable to curb excessive spending on discretionary items, thus leading to you being unable to invest, save or pay down that which you have set out in your financial plan – then your success is going to be hampered.

Just like being honest and transparent on the about of debt/equity, you have on your balance sheet – you need to ensure you stick to ‘the plan’ as you have agreed to do with your financial planner.

If you don’t stick to a financial plan, you could see your investments dwindle, putting downward pressure on your household – should you commit to investments that you cannot withdraw from for a period – such as a development fund or term deposit – or you won’t be able to achieve the objectives and goals you set out for yourself.

Financial Planners and advisors are charged with managing your money for your future. It is not about they want, their ideas or their interests, it is of the upmost importance that you remember that you are the client and it’s your money.

In recent times, the Royal Commission has gone along way to stamp out a lot of the ‘cowboys’ of the industry, but there are some key watch-outs when it comes to financial planning.

It’s about you!

As mentioned in this and previous chapters, your financial journey is about you, your family, your future, your retirement and your succession planning. Therefore, it is so important to engage your accountant, lawyer and financial planner/advisor collaboratively, so that your needs are being met.

In some instances, it has been seen that financial planners and advisors recommend products and services that they best benefit from – in terms of commissions and kickbacks – while not necessarily being the best for you.

This is something that you need to ensure you ask for ‘like for like performance of the fund/ investment/ insurance vs. comparable options or substitutes. No different to you looking at several open homes from several different agents before you commit to buying a house.

And just like buying a house, you are well within your rights to have your ‘building and pest inspections’, by asking your accountant and/or lawyer to review the details and provide independent and trusted advice.

You are not expected to be a financial expert

One of the common issues as a client is that you are not a financial expert. You may not jump out of bed and read the financial section of the financial review each morning. You may not have been through a finance degree, nor be an accredited financial planner – and you are not expected to be.

As part of the ‘duty of care’ that your financial planner is obligated to provide, they must explain everything to you within your current level of understanding. They should avoid bamboozling you with financial jargon, be condescending and push products or services on you, or have you sign up to things that you simply don’t understand.

It is ok not to understand financial products and services, as it is often said that they were designed complicated by Wall Street Bankers so only they – and a select few - could understand them.

As a client, you have every right to understand what you a signing up for and not be treated by anyone you are paying fees to in a demeaning way. IF this is happening, report them to the Financial Planning Association and see how they like that?

Communication is the key.

A trait of a good financial planner is clear, concise and regular communication with clients. Thanks to digital mediums – such as Zoom, Teams, Slack, Asana and more, there is no excuse even in a COVID-19 lockdown for financial planners not to be communicating with you.

Communication is the key to sound and prompt decision making, and if your financial planner is not returning your calls in a timely manner, not responding to emails or not uploading files to you as they said they would – you need to call that out.

However, on the flip side, remember they are busy running their own business, with other clients and their own small business considerations – so there is a balance.

Honesty – they must speak their mind!

When it comes to your financial matters, you want a financial planner that can speak their mind – and call the situation as it is.

You may get upset or feel embarrassed by their feedback or observations on your financial position, but it is better than signing up for services or investments, financial plans, or policies that you can’t afford or that are not right for you.

Not only does the planner need to speak their minds and be honest, but so do you as the client. It is paramount that you have a two-way, open and honest conversation – otherwise things will get missed, skipped or overlooked.

Issues with getting a second opinion.

Many professionals do not like their work critiqued by other professionals – no where more than in the financial services sector.

There are most certainly going to be differing opinions in the selection of financial product and services by your trusted advisor – ie. lawyers, accountants, financial planners etc – however, it is always important to get a second opinion.

As previously outlined, there are clearly defined roles and responsibilities of your professional service providers, they should not cross over. That is not to say that your accountant cannot review the validity of an investment option or change of superannuation provider as a ‘fresh set of eyes’.

Remembering they have financial training as well and know what to look for. Meanwhile, your lawyers can review the fund or investment options, check the legal validity, and undertake some due diligence for you.

It’s important to keep your advisors in their swimming lanes, but it never hurts to get a second opinion – remember it’s your money and your future we are talking about here.

The Financial Planning Association and Royal Commission into the banking and financial services sector have largely stamped out much of the bad advice and unscrupulous operators in the industry. However, unfortunately where there is money, there are people wanting to take advantage.

This may not be your financial planner themselves, but it may be those around the planner – you never know. As such, it is always important to take your time, never rush your decisions, review all the PDS (product disclosure statements) and get a second opinion – remember, it is your money and your decision.

No one likes discussing billing or having to pay bills, regardless of if you are paying your phone bill, car registration or your financial planner for services.

Like with many services, there are several different types of fee structures, based on which financial planners you use and what product or services you invest in.

For some people – the larger investors/clients for financial services, there also may be an incentive to invest more. With this in mind, the fee structures over $500,000 invested, for example, may attract a different fee, however, that is for another day.

Fee-only & fee-based structures are the two readily used fee structures within the Australian financial services market, but what is the best method for you? Let’s find out.

Fee-Only Financial Services

As the name suggest, fee-only financial service providers earn their fees through the money their clients pay to them. These can be billed in several ways, including a flat hourly fee for their services provided. For example, $200 per hour for 5 hours = $1000 + GST for reviewing your financial plan, setting up some new investment options you agreed on, and working with your lawyers & accountants to ensure everything is compliant.

The second is Funds Under Management (FUM) or Assets Under Management (AUM) that the financial advisor or planner is managing for you. This will be often used by Financial Advisors - more than planners – such as retail or property investment fund managers, who may for example offer you a return of 16% per annum on your invested capital, however “might pay 1% for all assets up to $2 million in AUM, 0.75% for the next $3 million and 0.65% on all assets above that amount”.[1]

A fee-only financial planner or advisor won’t receive income from any other sources, as their income is derived from the services they provide to their clients and the amount of FUM or AUM.

Fee Based Financial Advisors

Although fee-based financial advisors make money from billing their clients fees and charging a FUM or AUM fee structure, there are other means from which they derive income – which, truth be told, have come under far greater scrutiny within Australia after the Royal Commission into the sector.

These are largely derived from commissions paid by either brokerage services, through recommending of superannuation services, insurance companies and fund managers.

All of this is legal and above board, but it is important to understand if your financial planner or adviser is receiving a commission or kick-back for recommending you switch to a product or service.

Why? Because you need to ensure that you are switching due to superior performance for you as the end user, not a superior incentive scheme for an advisor.

An example of this, was a young executive that was wanting to learn more about what steps they could make on their financial future, so they sought out a meeting with a financial planner. As this was prior to the Royal Commission, the planner although qualified, was certainly not as astute as they should have been.

As such, they recommended and pushed the young client to move their superannuation to a different provider as the first order of business. However upon review of the Product Disclosure Statements (PDS) and the like for like performance over the short, medium and long term of both superannuation funds, it was clear that the current provider was performing better over all three periods, and had lower management fees.

When the client bought this up with the advisor, they had little to no answer as to why they should switch. What was clear through this example, is that the financial advisor was receiving a kick back from the super-fund provider and not working in the ‘best interests’ of the client.

It must be noted that this example is just that, and your financial planner should not only be working for you but should be working within the new guidelines on how they recommend products or services.

For this and many other reasons, it is paramount that you sit down with your planner, understand the fee structure, how if they recommended products or services are they being paid, and ensure that you compare ‘apples with apples’ when it comes to your financial matters.

[1] https://smartasset.com/financial-advisor/fee-based-vs-fee-only-financial-advisor

A financial planner with a solid financial plan over your lifetime can save you tens or hundreds of thousands of dollars of your financial journey, even more! That may sound unrealistic, but if you look at starting small, investing a little, if you put $100 per month in an investment account with a compounding interest rate of 11% – rather than buying your coffee every morning, over 30-years, that would be $280,000 in your pocket[1]!!

But what does it cost to get this sort of advice cost you to get set up, and cost you ongoing to maintain?

Despite the example above, and thousands more like it on how by making little changes to your life and lifestyle, you can set you and your family up for the future, there are huge barriers for people sitting down with a financial planner.

According to Canstar, for many Australians, one of the big barriers to getting financial advice is the cost. In 2019, ASIC research found that 41% of Australians intended to get financial advice in the future. Despite this, 35% of respondents said one reason they did not or might not get advice was because they thought it was too expensive.[2]

How fees are changed for financial planning services

Depending on what services you are getting, there are different types of fee structures that you may be charged by your financial planner for service.

We have outlined these below taken from the Australian Governments Money Smart website:

Fixed fees

• Statement of Advice (SOA) fee — A one-off fee for preparing your SOA. This fee is either paid up-front and deducted from your investments or added to ongoing fees for service.
• Fee to implement financial advice — A one-off fee for implementing financial advice — for example, opening accounts and purchasing investments. This can be an up-front fee based on the value of your assets.
• Fee for ongoing financial advice — An ongoing fee for advice and services, like reviews, reports, phone calls, emails and newsletters. This is often a monthly fee.
• Fee for review — A one-off fee for reviewing your financial plan and implementing any changes — for example, changing your investments to align with your goals.
• Investment platform fee — Fixed fee for the administrative financial platform
• used to manage your investments.
• Hourly rate — Fixed fee per hour to answer one-off questions that are not part of ongoing advice or services.
• Fee for service — Fixed fee for a service or a type of advice, for example, preparing your Statement of Advice (SOA)

Percentage-based fees

• Asset-based (portfolio percentage) — Percentage fee based on the total value of the assets in your portfolio. The more assets you have, the higher the fee. You pay this fee regardless of how well your investments perform.
• Investment management fee (performance percentage) — Additional percentage fee, based on the performance of your investments (usually measured by an agreed benchmark).[3]

What are the costs of seeing a financial planner?

The cost of seeing a financial planner can range from $2,500 to $3,500 to set up a plan, and then about $3,000 to $3,500 annually if you have an ongoing relationship with the planner, according to the Financial Planning Association (FPA).[1]

This should include at least a quarterly meeting to review your benchmarks & goals, investment activities, reporting and planning outside of the time you spend with your planner.

Put this into perspective with the example we gave before on the $280,000 through investing just $100 per month. This is only one of many strategies and savings you would make through a financial planner implementing a strategy for you.

Even at $3,500 for an initial consultation, then $3,500 per year, every year for 30 years, that would cost you $108,500 over 30 years. So already, you are $171,500 in front, using one basic and easy to use strategy – imagine how far you could be in front with ten different strategies all working together!

Just like your latest ‘Catch of the Day’ purchase, “its not about what you spent, its about what you saved”, financial planning is the same. By spending a little now, in the short, medium and long term you could have significant inroads, and financial freedom you never realised possible.

The question should not be “can you afford to spend money on a financial planner?”. It really needs to be, “Can I afford not to spend money on a financial planner?”.

[1] https://www.canstar.com.au/superannuation/financial-advisor-fees-cost/

[1] https://www.ramseysolutions.com/personal-growth/setting-financial-goals

[2] https://www.canstar.com.au/superannuation/financial-advisor-fees-cost/

[3] https://moneysmart.gov.au/financial-advice/financial-advice-costs

Goal setting is vital to the success of any project, be it a DIY project around the house, fitness or finance, if you don’t have goals, you have no idea where you are heading.

There are several key areas around financial goals that are vital – as with every objective or goal set, that they are S.M.A.R.T. A bit more about the specifics of these key areas are outlined below.

Specific

A meaningful financial goal is “I want more money”, it is not specific enough; it can’t be benchmarked in terms of performance or achievement, and really, it’s a waste of time. However, stating “I want to pay down $15,000 of my personal debt this year” is specific.

Being specific means you can either achieve the goal, or you do not – which is not terrible; you just need to iterate your plan so you can reset, refocus, and achieve it within the next defined date.

Measurable

Finance by nature is about money, which is quantifiable and measurable. A goal that is not measurable, is not really a goal at all. For example, “By January for my portfolio of shares to have investments in at least five different ASX listed companies”.

This is measurable, did you have five or more in January – then you achieved it, if not, then you failed – it is that simple.

Achievable

We touched on this in previous chapters, that as a goal, it needs to be achievable, or you are essentially setting yourself up for failure. For example, “I want $1 million in my savings around by December next year”. Which is fine if you can achieve it, but if you earn $50,000 + super and have $5,000 in your savings account, with a large inheritance or winning Powerball, there is very little chance that this goal is achievable.

This section is about working within your limitations, and this is something that you and your financial planner can effectively work on together.

Relevant

Within your financial goals and objectives, they need to be relevant. For example, “wanting to purchase a jet ski by June next year”, although not entirely relevant to your finance success, is indeed relevant as part of your financial plan, as you need to put contingencies aside to pay for your new jet ski.

However, if your goal is to “find a new boyfriend/girlfriend”, quite clearly is not a relevant objective, no matter how high it ranks on your personal goal or objective ladder.  

Timely

When setting your personal financial goals, determining what your short-term, mid-term, and long-term personal financial goals are is the first step.^[1]

Short term may be 6-12 months, it may include a holiday, paying off a credit card or just hitting a milestone in your savings account – such as “having $10,000 in a savings account available for investment in shares by December”.

Mid-term is usually between 2 to 5 years and will be more strategic than your short-term objectives, however just as important. Your short-term objectives may be independent of your mid-term – such as saving for a holiday – or they maybe intrinsically linked, such as that $10,000 you saved, being turned into $25,000 by year 2, thanks to investment and further savings.

It also may be around purchasing an investment property, setting yourself up with a self-managed super fund (SMSF) or similar.

Finally, let’s explore long term objectives

These are setting up retirement savings, trust funds for your children, investment portfolios or paying off your house by a defined date. Often lofty and in many instances most people don’t feel they even need to start thinking about these areas until they are well into their 50’s – which is very wrong and dangerous.

Goals and objectives are a vital part of everyday life, they allow you to benchmark your performance, understand if you have achieved or failed to achieve what you have set for yourself, but more importantly, it will force you to become habitual in how you review, plan, save and invest – which over the long run will have nothing but a positive impact on your financial security, and ultimately your overall health & wellbeing.

[1] https://www.moneymanagement.org/credit-counseling/resources/how-to-set-and-keep-personal-financial-goals

When considering using the services of a financial planner, it is important to familiarise yourself with not only what they do or what you expect from them, but also how they work.

According to the Financial Planning Association of Australia (FPA), there are six (6) key elements when it how it comes to the workings of financial planning[1]. The better you are prepared and understand this process, the better you can maximise the outcome in your sessions and results.

DEFINING THE SCOPE OF ENGAGEMENT

Firstly, your financial planner needs to take the time with you to define the scope. This is to say how they work, what they can do, can’t do and if they believe that they can assist you through engagement.

As previously mentioned, the financial planner may review your current situation and advise you spend 6-12 months with a financial coach to get any debts under control, potentially get some more funds in savings or a combination of both before you get started with the engagement.

By defining the scope of engagement, it is always ideal to get this in writing, so you can take the document away, re-read and ensure you understand the next phase in your financial journey.

IDENTIFYING YOUR GOALS

Much of financial planning is about identifying your goals. Remember back to the start of this eBook, in which we outlined the importance of treating yourself as a business with goals, objectives and benchmarks to achieve? This is how financial planning works.

Without goals, you have nothing to benchmark both you and your financial planner’s performance upon. Again, these need to be S.M.A.R.T, that is Specific, Measurable, Achievable, Relevant & Timely. So don’t put down you want to purchase a $750,000 Rolls Royce within 6-months of starting with a financial planner – unless you have the realistic capacity to achieve that within that time.

Clearly defined financial goals hold you and your financial planner to account, but also allow you to iterate & assess these as your financial journey continues.

ASSESSING YOUR FINANCIAL SITUATION

Financial planners, thanks to their continuing education and training, are experts in reviewing your current financial situation.

This assessment includes reviewing how much cash in the bank you have, debt (both bad debt and good debt) liabilities, superannuation, insurance levels and any assets. This allows them to provide you with a snapshot from which to move your financial plan forward. It also enables your financial planner to review your capacity to invest, divest, upgrade products and services to maximise return and minimise interest/commissions paid to third parties.

PREPARING YOUR FINANCIAL PLAN

Once your planner has your goals, current situation and has clearly defined the scope of engagement, they will now go about preparing your financial plan.

This should include methods & strategies, products & services and advice on how to take yourself from your current situation – which they have just assessed – toward to goals and objectives you have laid out.

Within this plan, as a client, you have every right to ask questions. For example, a financial planner may suggest you change your superannuation fund. You need to ask why, look at short, medium and long-term returns of both funds, and ensure that you are changing for reasons that suit you – not just the financial planner.

Although the Royal Commission into the Banking, Superannuation and Financial Services Industry, has straightened out a lot of the ‘pushing of third party services’ that are not appropriate or offer the greatest financial return to financial planners, commissions and payments still exist. It is always important that you as the client review all the PDS (product disclosure documents) and like-for-like performances of the funds to ensure you are getting solutions that suit your needs.

IMPLEMENTING THE RECOMMENDATIONS

Once a plan has been presented, and both you and your planner are comfortable, it is time for implementation.

This could mean the establishment of new bank accounts, moving superannuation to a new provider or SMSF (Self-Managed Super Fund), investment in funds, setting up trust accounts, shares or other financial instruments and so on.

At this stage, your financial planner more than likely will be working across your financial and professional service providers to get everything established – such as your accountant and lawyers.

REVIEWING THE PLAN

One of the most important areas of any financial plan is that it stays current. Your financial circumstances may change, they may get better, you may have a windfall, you may inherit some money – meaning you will constantly need to review your plans. Conversely, you may lose your job, you may separate from your spouse or suffer financial hardship through bad investments.

As such, you and your planner need to regularly review the plan, to ensure you are on track for achieving the goals, and if circumstances do change, then iterate the plan accordingly to ensure that you can manage what is required to get you where you want to go.

[1] https://fpa.com.au/about-financial-planning/how-it-works/

Just as the previous chapter outlines what you should be working with your financial planner on, there are also several things that are outside of the financial planners ‘swimming lane’ that should always be worked through with the relevant professional.

A good financial planner should work with not only your other financial consultants but also any business advisors (if you run your own business), lawyers and other professionals you need to surround yourself with as your investment portfolio grows, diversifies and becomes more complex.

There are certain areas that although a financial planner can be involved in the process, they should leave this or recommend this to other qualified professionals.

Sourced from the Australian Government’s Money Smart website, a financial adviser can give you general financial advice. This type of advice doesn't take into account your personal situation or goals, or how it might affect you personally.

A financial adviser can also give personal financial advice. This advice is tailored to your financial situation and goals and is in your best interests. The advice can include:

• Simple, single-issue advice— Help with one financial issue, for example, how much to contribute to your super, or what to do if you inherit shares.
• Comprehensive financial advice— Help to develop a financial plan to reach your financial goals. This covers things like savings, investments, insurance and super and retirement planning.
• Ongoing advice— Regular monitoring and review of your financial plan and affairs.^[1]

So, what shouldn’t a financial planner do?

Your financial planner should not provide accounting advice. No one should be offering you accounting advice, except for your accountant. This includes tax advice, lodging tax returns, setting up arrangements with the ATO and working with you to set up trust accounts, legal entities etc.

You need to ensure that you are getting a sign off from your accountant on all these matters and many more. Remember, they are the gatekeepers to much of the activity that happens with your accounts.

Stay away from getting legal advice from anyone other than a lawyer. This goes without saying that anything legal in nature MUST be attended to by a registered, licensed lawyer. Although your accountant or financial planner may be able to set things up or work with you on matters, much of the time a lawyer must be involved and must sign off on matters such as a trust account.

Yes, it will cost money to engage accountants, financial planners and lawyers, but a lot of these costs are ‘one-off’ (such as setting up a trust) or annual costs (such as tax returns) but setting them up correctly can mean the difference between winning and losing, making money and losing money, and being within or outside the law – it's that simple.

Your financial planners are not there to take advantage of you, they are there to work with you and achieve your financial goals- without your success, most of the time they cannot enjoy success either – remember that.

In the end, it comes down to the ‘swimming lanes’, you wouldn’t have a plumber fix your electrical sockets, so don’t have a financial planner work outside their area of expertise.

[1] https://moneysmart.gov.au/financial-advice/choosing-a-financial-adviser

There are many reasons that people seek advice from a financial planner. Financial advice can be useful at turning points in your life, like when you're starting a family, being retrenched, planning for retirement or managing an inheritance.^[1]

The key is that you, as the client, understand fully what is on offer, what is being suggested and most importantly don’t sign off on anything unless you are completely comfortable.

There are a wide array of things in which a financial planner can assist, depending on your financial position, age and risk tolerance.

Setting your financial plan (roadmap)

One of the most important functions that a financial planner can assist you with is setting your financial goals and plan in place. Known as a roadmap, this will assist you in working out how much you need to be comfortable, how much you can invest, borrow or save and how to set up a diversified portfolio so you can be prepared for the unexpected.

A financial planner is qualified and skilled at reviewing and understanding your personal circumstance, and recommending instruments that can assist you in building wealth, getting out of debt and increasing your quality of life.

This is not to say you will be taking baths filled with money, it is more about setting realistic expectations of what you can do, then showing you how, where and when to do it.

Investing

Investing is not just a mechanism for those wealthy few among us. You can in many instances invest as little as a few hundred dollars in ASX listed shares – on brokers such as IG Markets – or even invest in property or part of a property for as little as $100 per brick – Brick-X.

A financial planner can help you save to invest, invest money you may have come across as a windfall from work or a family gift, not to mention recommend more complex instruments such as listed funds, property funds and alternative investments should they be appropriate and fit within the objectives of your financial plan.

Constantly undertaking CPD (compulsory professional development), financial planners are up to date with all the latest investment vehicles, and can also prevent you from investing blindly in speculative fads – such as cryptocurrency, without the proper guidance and warnings of potential losses.

Setting you up for retirement

If you are under 50, you seldom think of your retirement. Sure, you may have superannuation – but is this going to be enough to continue to enjoy your standard of living?

Financial planners are experts in working with retirement planning. From setting up self-managed superannuation funds (SMSF), passive investments that make money while you sleep – such as investment portfolios, property etc – or simply showing you how much money you will need in both assets and cash to comfortably retire.

In many instances, people meet with financial planners too late and feel as though they are scrambling to get everything done. The key is setting up the financial plan/roadmap as early as possible.

Saving for children

Children cost money; it is as simple as that, with estimates ranging from $159,120 up to $548,500 over 18 years^[2] - and this is before you may want to send them to private schools!

Your financial planner can work with you to set up education plans with small weekly or monthly contributions.

You may need a bigger house or a new car - all of these can be proactively built into your financial plan as an iteration. Saving for children will allow you to continue to enjoy the things you love doing, but ensuring your children have the best in life – without you having to go out and work more hours, or get a second job to pay for their needs.

Estate Planning

A topic that most of us don’t love talking about, but it is vital especially if you have a partner, children and /or financial investments. Regardless of your personal circumstances, estate planning is important because it helps to ensure you are looked after during your lifetime according to your wishes and that on your death your assets will be managed and transferred according to your wishes, in the most financially efficient and tax-effective way^[3].

Your financial planner can ensure you have adequate levels of life insurance should anything happen to you, so your family is not left holding large debt and no way to pay them. They can also ensure that your final will and testament is set up in a way that those you love receive what you had intended.

Although a lawyer needs to write up and sign off, your financial planner is a vital part of this process.

Putting debt to work

Not all debt is bad debt – this is true! Your financial planner is able to educate clients on the difference between good and bad debt, plus ensure the debt is structured in the best way possible.

Good debt has the potential to increase your net worth or enhance your life in an important way. Bad debt involves borrowing money to purchase rapidly depreciating assets or only for the purpose of consumption.^[4]

Bad debt would be categorised as:

• Credit card debt
• Personal & car loans
• Buy it now, pay later accounts – such as Zip, Afterpay etc.

While good debt is:

• Mortgage debt
• Investment loans
• HECS debt
• Business debt
• Margin loans
• SMSF loans^[5]

When it comes to debt, it is important to have an understanding of what debt it is important for you to have to grow your quality of life versus that which just promotes your consumption or short term gratification of a need or want. A good financial planner can assist you with this, and ensure you are not taking on more than you can handle.

There are many areas in which a financial planner can assist you, and this is by no means an exhaustive list, but it is important to note that your personal circumstances will dictate what a financial planner can provide you, when and how.

As your financial situation strengthens due to sticking with the plan, just like a good book you will be presented more options, investment vehicles and potential revenue making ideas for you to minimise your expenses, maximise your financial position and enjoy your life to its maximum.

[1] https://moneysmart.gov.au/financial-advice/working-with-a-financial-adviser

[2] https://www.finder.com.au/life-insurance-and-the-cost-of-raising-children

[3] https://www.aetlimited.com.au/__data/assets/pdf_file/0011/223121/Your_guide_to_estate_planning_brochure_2014_v3.pdf

[4] https://www.investopedia.com/articles/pf/12/good-debt-bad-debt.asp

[5] https://assurewealth.com.au/15-ways-a-financial-planner-can-help-you/

Now that you have a fundamental understanding of the roles of accountants, financial planners, financial advisors, and financial coaches, it is key to work through how to maximise their effectiveness and efficiency.

You are ultimately responsible not only for the inputs (cash) and the opportunity cost (what you must give up in order to invest, pay down debt or activate the strategies the consultants have suggested), but you also have to live with the result (profit or loss).

So, although you may surround yourselves with professional experts, it is a fool's errand to walk in blindly and not pay attention to what is being recommended. This means getting second opinions before embarking on large investments and ensuring you have the financial acumen to set your financial journey on the right course.

How to get the best results for your financial investments

In childhood education it is said that “it takes a village to raise a child”, this is also true in the world of personal finance. You cannot achieve results by relying on advice from your accountant – it's not their job to advise you on investments. Similarly, you can't ask your financial coach or planner to do your annual tax returns.

The key to success and maximising your results is to surround yourself with trusted professionals that work together on your common goals. It is true that they will have differing ideas on what should be done, when you should be investing or how, but there are a range of strategies to keep everything on track.

Setting clear objectives or roadmap from the start

As mentioned in previous chapters of this book, when it comes to the role of your financial planner, it is about setting a financial roadmap for you.

By working with your financial planner to set this roadmap at the beginning, you are setting yourself up for the best chance of success through collaboration, iteration and compliance at every required turn.

Your financial planner is your ‘long term’ advisor, they may even direct you to first work with a financial coach for 12-months before coming and sitting down with them again – to get your financial affairs in order, debts paid down etc.

They will also advise you when it is important to see an accountant, and why – ie. prior to tax time.

By setting the goals and objectives from the start with your financial planner, you can share them with your other financial advisors, even sending a group email so that everyone is on the same page and understands what the goals and objectives are, so they are all working to best serve your interests.

Accountability and transparency is the key

By sharing your financial plan with your accountant, financial coach and any other advisors, you are building a network around you that will ‘keep each other honest’. For example, if your accountant looks at the financial plan, and reviews your current income to deduce that there is simply not the expendable income to invest in such a plan – then this is something you can Zoom/Teams/Skype – or even face-to-face meet – with both professionals.

Although you may have teething problems at the start as each professional is undoubtedly going to try and position themselves as the ‘more important’, the fact remains – they are all working for you, so make them do just that.

How to manage your financial professional network

Sure, you may experience a clash of egos, conflicting ideas or even some heated discussions – however, it is paramount that you remember you are the client, it is your money, and you call.

As a good business manager would do, you need to keep every professional in their respective ‘swimming lanes’. Your accountant for example, is there to provide you with tax advice, work to minimise the tax you pay, maximise your cash for investment and ensure that you are accountable to the ATO.

Your financial coach is there to get your household budget and savings goals under control, while your financial planner is there to look at your future, how to invest in superannuation, investment funds and long-term initiatives to reach your financial goals.

All financial consultants are important to reaching your financial goals – but they must be transparent, accountable, and stay in their swimming lanes – if they don’t, you will have sharks in the water, and you are the little fish in the middle.

So, ensure you have a great team around you, expert professionals that understand your investment levels, your financial acumen and that their role is to work with and for you. The achievement of your financial roadmap is simply a journey to be enjoyed, not an arduous peak-hour commute.

There is often confusion when it comes to the world of finance. It could be said in many circles that the people that created and derived many of the financial products and services available in the market did so in a confusing way so that only those ‘privileged few’ could understand what was going on.

This was no more prevalent than the ‘US subprime mortgage crash’ in 2008. Driven by financial instruments known as credit default swaps and then derivatives on those swaps, in simple terms, the crash eventuated after people bet on the outcome of a group of mortgages which were bundled together by a financial institution and sold off as a debt instrument – this sent the global economy into a freefall!

When it comes to starting out on your financial journey, it is important that you understand the difference between a financial planner and a financial coach.

What is a Financial Coach?

Ever found that you can’t get on top of your bills? Have a credit card or two that keeps spiralling out of control? When it feels like you might never be able to get out of a personal debt spiral, enter the financial coach.

A financial coach is there like a personal trainer, a football or netball coach, they are engaged to coach and guide you through your current financial situation, take control and make more constructive choices on how and where you spend your money in the future.

That is not to say that will take control of your money for you – although some financial coaches certainly do this as well – but they work on a budget, debt reduction strategies, saving strategies, reorganisation of accounts, and debt refinancing options.

A financial coach is most certainly your first step in your financial journey. Why? Because if you go into an appointment with a financial planner with no savings, high debt and no idea on why then you are more than likely wasting your time.

What is a Financial Planner?

Once you are feeling more on top of your finances, you have savings, and want to look into purchasing a property, an investment, planning for your retirement or setting yourself up for the future – then it’s time to meet with a financial planner.

A financial planner will review your current situation – which is now looking much better thanks in large part to your financial coach – and sets an individual roadmap to your financial goals and objectives.

This could be taking the plunge into purchasing an investment property through a Self Managed Super Fund (SMSF), looking into investing into financial instruments such as funds, bonds or other available vehicles.

Your financial planner is qualified and an expert in a wide range of investment options, setting up vehicles for you to invest into your future, providing access to funds and ensuring that your investment plan is panning out. If it isn’t, then they will recommend adjusting your strategies or investments.

Financial planners as well are governed by far more stringent rules, regulations and CPD requirements. They require an undergraduate degree, post graduate studies and ongoing CPD to provide you services.

If you are planning on getting a financial planner in the future, you could run some investment strategies past them to get their input. After all, the sooner you get financially stable and pay down your debt, the sooner you can engage them to invest on your behalf.

Planners spend the majority of their time advising clients on the following: investment planning, retirement planning, tax planning, estate planning, and risk management 

There are many misconceptions on what the role of a financial planner does, by now we hope that you have a more robust understanding of their important role as part of your financial future.

In terms of what they do from a top-level as well, we have discussed in terms of their setting a roadmap for you, presenting a range of financial investment and superannuation options, and working with you to develop a plan to get out of debt and into a solid financial position.

However, when it comes to the day-to-day, what does a financial planner do? How does this benefit you as a client and why does it indeed matter to you at all?

Although a financial advisor may only sit down with you as a client for an hour, maybe two or three, by no means is this the end of their time spent on working on your account.

In order to do that proficient meaningful advice, they will need to meet and discuss your current situation or portfolio with your lawyers, your accountants, investment bankers (if you have one), fund managers and other financial service providers you may have working with or for you.

Even if you are only just starting your journey into getting financial planning advice and services, your financial planner will be researching your spending habits, financial acumen, ability to save, repay debt, debt levels and potential earning capacities.

All of the above is purely just researching into you, and then they will sit down and map out a plan, a schedule of advice and a range of products across a broad spectrum of financial instruments best suited to meet your financial objectives.

According to the Institute of Certified Financial Planners, planners spend the majority of their time advising clients on the following: investment planning, retirement planning, tax planning, estate planning, and risk management^[1].

While a financial planner may undertake this for an extensive list of clientele, they also are required to complete ongoing CPD courses, attend seminars and conferences on financial planning, review and research fund, share and portfolio performance, all the while ensuring that their ‘funds under management’ are all performing.

Financial planning advice cannot be provided to you without the proper research and understanding of market variables that could impact your financial performance – and ultimately the time when you will retire, buy an investment property or go on a family holiday.

As such, your financial planner not only needs to understand the market, the products and services available and ensure they are compliant in every way, but they need to understand you.

As you can see, where many people may feel that financial planners are charging high fees for ongoing management of your affairs, they are highly skilled individuals that need a broad understanding of all financial matters, markets and legislation to ensure they provide you with the very best service.

[1] https://www.princetonreview.com/careers/176/financial-planner

Financial planners, accountants, stockbrokers, bank managers, mortgage brokers … each has their own set of specific skills and can help you along your financial journey.

When it comes to investing in your financial future, there are many professionals that can help you on your way. Financial planners, accountants, stockbrokers, bank managers, mortgage brokers and then some. Each has their own set of specific skills and can help you along your financial journey.

However, there are some key differences to the skill set, advice and information that each of the above are able to legally provide you. Moreover, you as the ‘client’ have a fiduciary responsibility to yourself (as the end beneficiary of the next set of actions you take on your financial future) to understand where the services of one and the other interact, cross over and should be kept apart to maximise their effectiveness for you.

How are accountants and financial planners different?

We all know around July each year we need to start collecting our receipts, reviewing our car travel for work and book an appointment with an accountant to do our tax. Those who may run their own business understand that there is a lot more to accounting for small businesses, such as running regular BAS statements, business reconciliations, payroll tax submissions and much more.

In addition, if you are planning on purchasing a house in 1, 3, 5 or even 10 years, an accountant can make sure all your books are in order to achieve that. They can sign off your financial statements and submit information on your behalf once they have clarified it to the ATO.

Meanwhile, a financial planner is less transactional, less about what has been done in the last month, quarter, year or reporting period. They are more about planning for the future, your future.

Their services include recommending investment opportunities, diversification of your assets, planning for your retirement and setting yourself up with a plan for financial security into the future.

Why do you need both an accountant and a financial planner?

To use a sporting analogy, in the game of cricket you need a bowler and a batsman. Your financial future is no different, you can just have an accountant (bowler) putting your taxes in each year, ensuring that you are compliant and everything is up to date – in other words - bowling the ball down the pitch.

This is fine, you will do as you have always done, in fact, you will do as well as the majority of the population who don’t understand the true benefits of a financial planner.

However, if you add the batmen to the game (in this instance, the financial planner), they are there to take the information, situation and available options and provide an array of investment options (shots) that you can use to score runs on your financial scoresheet.

Accountants and financial planners are not in competition with one another, quite the opposite. They work with one another to review your current financial situation & compliance to tax (accountant), then use this with your future potential earnings, current risk aversion and a range of other factors (financial planner) to set the best plan out for you as an individual.

Surrounding yourselves with two financial experts – such as an accountant and financial planner – also has the added benefit of both having access to your records, and keeping each other accountable for their choice of investment opportunities, potential rewards, also if you have any reservations of one or the others service, you have the option to communicate this and seek independent advice.

Accountants and financial planners are both vital to your future financial wellbeing, the sooner you have both working together in your best interests, the better you will see your financial potential.

A financial advisor will consult with your financial planner, they are looking at one-off transaction, whereas your financial planner is looking at the long term

There is no shortage of jargon in the financial sector, much of which many people may feel has been specifically designed to confuse laypeople. However, this is seldom the case as the industry is highly complex, highly specialised, and where people wade into the waters of the market without the property understanding, knowledge or advice, it can be extremely costly.

There are several key professionals that provide financial advice to you as individual investors, these include your accountant, stockbroker, financial planners and financial advisors.

Investors or “a person who has aggregated net assets of $2.5 million or has aggregated gross income for each of the last two financial years of at least $250,000 a year can be classified as a Sophisticated Investor”^[1] They have a further range of investment specialists that deal in many off-market transactions that have much higher risk/reward variables.

So, when it comes to accountants and financial planners, we will discuss that later in this book, however, there is one area that people are often confused by definition – and rightly so – the difference between financial planners and financial advisors.

As such, we thought it pertinent to provide a definition on both, and how their services can provide you with advice and expertise upon your investment journey.

A financial planner is considered a ‘broad brush’ approach to your financial matters. They are looking at the long term, providing an ongoing service – starting with a financial roadmap - with what should be considered a holistic and comprehensive approach.

A financial planner’s role is to guide you through your ongoing financial journey, providing support and services to iterate your roadmap (financial plan) as life’s challenges present themselves along the way.

A financial advisor, even an independent financial adviser, tends to focus on a single problem. They don’t take into account the big picture. Instead, they look at the question narrowly, only advising you on what you have asked for.^[2]

Advisors focus on how to invest a pool of money – such as an inheritance, windfall or other financial benefits, into a product as a one-off transactional approach. Within the narrow focus, they are looking for financial products – such as a real estate fund – that may not be available on the retail markets, but provide a solution to your short term need – ie: establishing 15% p.a returns on an investment of $250,000 over a maturity period of 3-years.

While a financial advisor will consult with your financial planner, they are looking at one-off transactions, whereas your financial planner is looking at the long term. It is also true that many financial advisors have regular communications with financial planners, so they are aware of the suite of products the advisor may have available at any given time.

The key differentiator is, however, a financial planner is long term and holistic, whereas a financial advisor is a short term and one-off. Both are required at different stages of your investing career; however, it is an important distinction on who is responsible for what and why in this your financial journey.

[1] https://www.morgans.com.au/private-clients/Sophisticated-Investor-Panel

[2] https://frazerjames.co.uk/financial-advisor-financial-planner-the-difference/

A certified financial planner (CFP) is a designation that is recognised in 27 territories around the world, and is the standard of excellence when it comes to financial planning 

Although there are now – in large part thanks to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry – far more stringent guidelines around financial planning and the financial services industry than ever before, there is a need as a consumer of any service to undertake some due diligence.

Just like every chef, doctor, mechanic, or accounting professional are not created equally, nor are financial planners. However, thanks to certification standards, industry governance bodies, government regulatory bodies (such as APRA and ASIC), the professionals in the financial industry are being held to a higher standard than ever before.

What is the standard in financial planning in Australia?

According to the Financial Planning Association of Australia (FPA) “For more than 30 years, the Certified Financial Planner® certification has been the standard of excellence for financial planners. CFP professionals have met extensive training and experience requirements and commit to the highest ethical standards that require them to put their clients’ interests first. 

The CFP® designation is fast becoming the first choice for clients and employers – and it’s easy to see why. The highest designation in financial planning, coupled with commitment to the highest ethical standards, sets CFP® professionals apart from the rest.”^[1]

What does the CFP standard provide for a client?

When you engage a financial planner with the CFP certification, you should expect an extremely high level of care, industry best practice skills and expert service.

This is in large part thanks to the high degree of CPD or ‘compulsory professional development’ that is expected of members, the minimum entry requirements and the industry professional standards that govern them as individuals – both professionally and personally.

Although this may sound somewhat dramatic, in the wake of the activities by many financial planners prior to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, many practices that wouldn’t stand up to the ‘pub test’ were routinely rolled out by many so-called professionals in the industry.

For a CFP to achieve the certification and accreditation, they must adhere to not only industry best practice, but be leaders within the industry.

As a client, you can be rest assured that when your financial planner is a CFP, they will be held more accountable, as the CFP accreditation holds them to that standard, but also brings them business and allows them to charge the applicable fees.

What happens if I am not happy with my CFP?

If you are not happy with the performance of your CFP, and you feel they have acted inappropriately or recommended products or services outside your risk tolerance, or potentially provided false or misleading information – then you have yet another avenue for restitution when they are a CFP.

However, it isn’t all about doom and gloom, quite the contrary, a CFP is an industry professional, one that has worked extremely hard to not only be recognised by their industry as a top practitioner, but has to ensure their skills – both technical and interpersonal – are developed each and every year to better service you as a client. So, next time you speak to your financial planner, ask if they are a CFP, if not, why not?

[1] https://fpa.com.au/education/cfp-certification/

There is a vast array of expertise, training, qualification and ongoing development

that is required to become, and remain a financial planner  

There are many different business professionals offering almost as many services in today’s personal finance world. When it comes to financial planning, as could (and should) be expected there is a vast array of expertise, training, qualification and ongoing development that is required for qualified financial planners not only in Australia, but across the world.

A financial planner has several core duties:

• Analysing and understanding a client’s current situation, and actioning, scrutinising and monitoring investments on their behalf
• Making recommendations with regards to investments, superannuation and retirement planning
• Helping clients to manage and invest their money to help them meet their financial objectives.^[1]

Although there were many pathways prior to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, there are not far more stringent guidelines to becoming and maintaining your status as a certified financial planner in Australia.

In 2019, new education and training standards were imposed upon all existing and future financial planners and advisors to ensure you as the client receives the very best in advice and service.

According to the ASIC website, in relation to the qualification, exam and professional development of financial planners, existing financial advisers must bring their qualifications up to an approved degree or equivalent level to meet the education requirements.

They must have an approved bachelor’s degree (AQF7 level) or above or equivalent. The maximum requirement is an approved graduate diploma (AQF8 level) comprising eight subjects.

Depending on their current qualifications, an existing financial adviser may only do bridging courses, such as the FASEA Code of Ethics (if it was not included in their qualification).

For new financial advisers, the minimum education requirement is an approved bachelor’s degree (AQF7 level) comprising of 24 subjects, or above or equivalent.

Where a new financial adviser already holds an appropriate qualification, they can meet the education standard by attaining an approved graduate diploma (AQF8 level) comprising eight subjects.^[2]

How is this enforced in financial service firms?

Within a financial services firm, there must be an AFS licence, or Australian Financial Services licence held by one or more senior parties to the business. A business providing financial services must hold an AFS licence.

Your financial planner will need to have a current AFS licence or be a representative of a licensee from the day they start your financial services consultation.

However, ASIC notes that consumers should be aware that the licensing process is a point-in-time assessment of the licensee, not of its owners or employees. Holding an AFS licence does not guarantee the quality of the licensee’s services.^[3] 

Why is the education level of a financial planner important?

Seeing that holding the licence “does not guarantee the probity or quality of the licensee’s services,”^[4], it is vital that consumers know that your financial planner is not just picking ideas from the newspapers and presenting them to you.

Having completed a bachelor’s degree and subsequent post graduate diplomas, your financial planner needs to continue their studies with CPD or compulsory professional development. Within this training they develop their technical and ‘soft skills’ within their profession.

This continuous development ensures that clients have a financial planner that understands the current laws, that is only providing the most up-to-date advice, and that any advice you receive is from someone who has spent the best part of a decade in achieving their qualification to be sitting in front of you.

Although financial planners may differ in their approach, they access to information, their use of tools and technology, you can rest assured that they are qualified to do so when they are a member of the FPA (Financial Planners Association), are a registered CFP (Certified Financial Planner) and are the holder of a FSL ( financial services licensee).

One final recommendation before you commence with any financial planner, is to ask to see their up to date credentials to this effect, thus proving to you through your due diligence that they are certified to plan your financial future.

[1] https://www.seek.com.au/career-advice/role/financial-planner

[2] https://asic.gov.au/for-finance-professionals/afs-licensees/professional-standards-for-financial-advisers/qualification-exam-and-professional-development/

[3] https://asic.gov.au/for-finance-professionals/afs-licensees/

[4] https://asic.gov.au/for-finance-professionals/afs-licensees/

Ask the right questions, hold your financial planners accountable, and ensure you maximise the upside of working with them, and more importantly, them working for you 

When working with a financial planner, there are several key ways individuals can maximise results and take responsibility for your financial future.

Firstly, we need to ensure that you have done your due diligence, investigated your planner and understood your goals and aspirations in terms of finances.

Then comes the important part, honesty. Yep, just like when the doctor asks how many standard drinks you have per week and you say, “oh only a couple of a Saturday night”.

To maximise the upside of working with your financial planner, you need to ensure you are honest, transparent and provide them access to anything they may need.

From access to bank statements, credit card statements, and home loan documents, these professionals are experts in confidentiality, but they are also experts in working out the best personal plans for their clients’ finances when they have all the information.

How to maximise your financial planner and the financial planning process

Now that we have that section out of the way, we have taken the next section straight from the FPA website, on how to maximise getting the most out of your financial planner and the financial planning process.

1. DEFINING THE SCOPE OF ENGAGEMENT

Your financial planner should explain the process they will follow, find out your needs and make sure they can meet them. You can ask them about their background, how they work and how they charge.

2. IDENTIFYING YOUR GOALS

You work with your financial planner to identify your short- and long-term financial goals – this stage serves as a foundation for developing your plan.

3. ASSESSING YOUR FINANCIAL SITUATION

Your financial planner will take a good look at your position – your assets, liabilities, insurance coverage and investment or tax strategies.

4. PREPARING YOUR FINANCIAL PLAN

Your financial planner recommends suitable strategies, products, and services, and answers any questions you have.

5. IMPLEMENTING THE RECOMMENDATIONS

Once you’re ready to go ahead, your financial plan will be put into action. Where appropriate, your financial planner may work with specialist professionals, such as an accountant or solicitor.

6. REVIEWING THE PLAN

Your circumstances, lifestyle and financial goals are likely to change over time, so it’s important that your financial plan is regularly reviewed, to make sure you keep on track.^[1]

As you can see, it is all about being prepared, being clear on your goals, not simply your wants or desires. It is about being realistic, having a plan, engaging the services of a trusted financial planner and conducting regular reviews of that plan.

When it comes financial planning, if you go off-course, that is fine, your financial planner is there to work with you and take things to the next level.

[1] https://fpa.com.au/about-financial-planning/how-it-works/

There are a key set of variables that you want to ensure you have a handle on with your financial planner, to keep them honest and accountable 

Like with anything, we all enjoy value for our hard-earned money! Be it from a great deal on a new outfit, a discount on your next family holiday, or even 50% off on your favourite items at the local supermarket – it is the feeling of a win.

Not only is it that ‘winning feeling’ but more theoretically, it is the knowledge that your investment in resources (money & time) have been put in the right place to maximise your desired result.

Before we move too far forward, we need to outline some key definitions. Firstly, the use of money can be defined more accurately by the ‘time’ at which you wish to use it.

For example, say you inherit some money from your parents’ estate when they sadly pass, then you and your advisor invest in shares/ stock of an oil producer. By doing this, you are moving your wealth from the present to the future.^[1]

Therefore you ‘invest’ now, to move your wealth from the present to the future. Meanwhile, you may wish to use that money to ‘consume’ now – rendering those same funds null and void should you wish to use them in the future. This is an important distinction for the next section of this chapter.

When choosing to use the services of a financial planner, you are choosing to plan, hence, moving your wealth from the present to the future. However, there are going to be costs that you need to consume for the ‘services’ both now (for the planner’s time) and into the future (trailing commissions, performance commissions etc) depending on the type of services and investments you choose.

So, what are the key metrics by which you should measure your financial planner?

As a client of a financial planner, it is often hard to look past the ‘bottom line’ or in other words how much money you made this year vs. last year.

In addition, it is often difficult to ignore the often-dramatised success of people investing in speculative or high-risk instruments – which in many cases is no different to putting your money into the casino!

Here is what to look out for when you want to measure up your financial planner:

1. Past Performance

You may have heard the term “past performance is not an indication of any future returns” and this most certainly is the case. However, if you are looking for a capable financial planner, you most certainly want to deal with one that has a history of delivering returns – ideally superior returns to just putting your investment in a bank term deposit or managed fund.

Ask for a review of the past 5, 10 or even 20 years performance if your financial planner has been around for that long, and take a look at what they have delivered for their clients.

If you are already engaged with your financial planner, it is key that you again look at the past performance, how your money has tracked in the short, medium and long term vs the plan you sat down and created together at the start of the financial year or your engagement with the planner.

If there are deviations, they need to be worked through, strategies iterated and plans updated to ensure that your financial goals and objectives are being met, or better yet, exceeded.

2. Planning

We all understand that things don’t always go to plan, nor is it always wise to stick 100% to the program. As a client, your financial planner should have a handle on your accounts, on opportunities that could be appropriate, but also if things are not going as planned - they should have a way to get things back on track.

Implementing hedging, divesting some investments and moving them into different asset classes when required is one of the key features you should be looking for in a financial planner.

You should always measure your financial planner on what is coming next, not just what has happened in the past. What are their plans for your money? What are their plans to increase your wealth and enable you to enjoy your future with financial security? If they can’t answer that, even if your performance is outstanding, then you have some serious questions to ask.

3. Transparency

One of the key elements to consider around performance and measuring is not just what your financial planner is saying, but what they are not saying. You need to take a look into your statements, into their marketing materials, their product disclosure statements and ask several key questions:

1. Are the returns in my portfolio clearly displayed and easy to understand?
2. Are my returns compared to applicable benchmarks?
3. Is my broker or advisor willing to walk me through any aspect of the performance that I don't understand?
4. Are my returns beating their benchmarks?^[2]

If you are answering no to any of these key questions, then it is time to have ‘the hard talk’ with your financial planner to ensure you are getting the right advice, not off the shelf service.

4. Accountability

In addition to this, your financial planner should exercise accountability in relation to investment vehicles, funds or instruments they direct or advise you to invest in. For example, if your financial planner has a retail fund – such as a property investment opportunity with 15% returns p.a over 5 years, that may sound great, and it may fit into your risk tolerance, however, has your financial planner invested their own money in the funds?

There is no better way to keep them honest and accountable to what they are recommending you to invest in, than by ensuring they are investing in that same product themselves.

In summary…

Although it may seem obvious, the first KPI (key performance indicator) that you should be looking at as a measure of your financial planner's performance is the financials. How much has been made/lost? Has the plan that was formulated at the start of your planning process been stuck to? If not, why and were you informed?

In terms of your performance were you over what you expected, if so is your portfolio investing in assets that are above your risk tolerance? Conversely, if you are not achieving the benchmarks, is your portfolio investing in the right products? Is your planner too conservative? These are all questions you should be asking.

Then you need to ensure that they are being transparent in their reporting to you, honest about the performance of potentially underperforming assets or potential bad investment choices. By doing this, they are being accountable, which is paramount to ensure your financial future.

Remember, that this is your money, your future, and your path, although your financial planner is acting as a ‘tour guide’ of sorts, you should not feel out of your depth with any of your investments. You should feel that you are getting value for money, good service and honest people acting on your behalf.

[1] McMillan et. El (2011) Investments: Principles of Portfolio and Equity Analysis, CFA Institute, Wiley & Sons, NJ, USA, P.3

[2] https://www.fool.com/investing/general/2012/05/11/how-to-assess-your-financial-advisors-performance.aspx

If you have ever heard the adage “You have to spend money to make money”? When it comes to your Financial Planner, nothing more is closer to the truth.

“For many Australians, one of the big barriers to getting financial advice is the cost. In 2019, ASIC research found that 41% of Australians intended to get financial advice in the future. Despite this, 35% of respondents said one reason they did not or might not get advice was because they thought it was too expensive.”^[1]

Although, this may be the case, like with people planning their superannuation and where they go (yes, that is also a function that you Financial Planner can do for you both through selection of super funds or SMSF, but more on that later), if you select the wrong plan or investment type, then over time this could cost you tens of thousands, even more!

While financial planning may be considered outside the budget of many Australians, giving up a couple of dinners out each quarter to cover the cost may be one of the most impactful and positive changes to your lifestyle you could ever imagine.

There are many elements to financial planning, and we will outline the initial and potential ongoing costs, then also the types of billing often undertaken by the industry.

It should also be noted that post the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, there have been dramatic changes to ongoing, grandfathered and rolling commissions that were being paid for planners and advisors, ensuring that the industry provides a more level playing field and recommend the ‘right’ products to clients, not just those that have the largest ongoing payday.

So, how much should Financial Planning cost?

As outlined in previous chapters, with financial planning you need to look at your future, like a business would, and set up a business plan or a financial plan.

This detailed roadmap will typically cost between $2000 and $3000 from most planners, as there is a comprehensive review of your current situation, goal setting, gap analysis then a full review of the services and products that could assist in closing the gap between where you are and where you want to get to.

According to research by Investment Trends, on average you’ll be charged $2,250 in up-front fees the first time you see a planner. Younger clients (under 45) tend to pay half of what older clients pay on average ($1,200 vs. $2,600). This is because younger clients tend to have less wealth accumulated and require less complex advice.

Then when you continue your relationship with a planner, the average ongoing advice fees are approximately $3,450 per annum.^[2] This continuation is almost as important as the plan, if not more-so.

The reason you need ongoing, meaningful support is to ensure that your plan stays on track, or iterates to support your new goals, objectives or circumstances. For example, you may come into some inheritance that you didn’t expect, you may lose a high paying job or you secure an opportunity to retire earlier.

Sure, financial planners can help you make money, save money, invest money and even get that boat or holiday home, pay your mortgage off sooner, all of which is incredible. More importantly, the small cost in the overall scheme of your income and expenses is that you are getting set up for your future.

[1] https://www.canstar.com.au/superannuation/financial-advisor-fees-cost/

[2] https://fpa.com.au/news/much-cost-see-financial-planner/

Once you have decided that you want a financial planner, finding a good one is the next step.

Like your personal financial situation, finding the right financial planner is a very subjective process – you need to find the best financial planner for you.

While you need to ensure your financial planner has a personality that you can ‘work with’, you need to remember you are looking for a fully qualified, licensed, expert professional that has your future interests and financial longevity at the forefront. You are not looking for a new best friend, nor someone to get horse tips for the next race at Flemington.

As such, you need to look through the veneer, peel back the blinds and ensure you use due diligence in the selection process of your financial planner – not just pick the first one that comes along.

Personal recommendations

Personal recommendations are always a great place to start, you may have a family member or friend who knows or uses a financial planner. However, this does not mean the recommendation is the ‘best fit’ for you.

A financial planner needs to be your financial coach, build your financial roadmap, and ensure they have your best interest at heart.

A personal recommendation may go a long way to achieving this goal, and it certainly navigates a lot of the time and effort that a full-scale search may entail. However, we always recommend getting at least one second opinion, meeting at least one other financial planner, if nothing else, so you can see who realises the best potential of your personal and financial goals.

Forums and Google Searches

A little bit of information is a dangerous thing, and nowhere more so than on the web. From uninformed forums, blogs and articles written by content writers with no experience in finance, no qualifications, and some with an axe to grind, many often looking to create ‘click bait’, or generate leads.

Although initial information searches are a great place to start, nothing counts more than meeting face-to-face, asking some tough questions of your ‘soon to be’ planner and ensuring things are online. Just as you should not diagnose your illness using ‘Dr. Google’, don’t put your financial future in the hands of a bunch of often misinformed - and ‘often angry’ - keyboard warriors’.

Professional recommendations

You may already have professional services that you know, use and trust. These could include accountants, lawyers, marketing, advisors etc. These professional services would often work with people within the financial sector, including financial planners.

It should always be noted that you, as the client and as the person whose financial future is at stake, should always conduct due diligence, ensuring that you are happy with your potential financial planner, not moving forward with engagement to appease your referrer.

Professional registers

In the wake of the 2019 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, it was clear that governance of the industry, rouge financial services operators and exorbitant fees – in some instances for no service, and in other examples for the recommendation of products & services that were overpriced, sometimes leading to losses, or total losses of investors’ funds – were rife.

Although it was a vital step to ‘clean up’ the financial industry, the industry was tarnished with a broad brush, and even the very best operators within the industry were subjected to unfair assumptions & vilifications.

With the Financial Planners Association of Australia (FPA) as the industry body that works with financial planners to ensure they are compliant, regulated, upskilled and promoting industry best practice, in conjunction with the Australian Governments’ Smart Money website, there are lists or registers of financial planners that are available for review and contact.

The Smart Money Financial Advisors Register and the FPA’s Find a Financial Planner webpage provide some solace that you are protected by standards and governance levels that are required to be passed and upheld by the operators within the industry.

Although you are taking on financial advice and making the ultimate decisions yourself, if you choose an FPA planner, you at least know there is recourse and an industry body that governs the transactions and activities of their members.

However, ultimately, the advice that you take on financial matters is just that, and things can change. As mentioned, it is just important that you find a trusted planner that is ideally local to your home or office, that you have been referred to or has provided testimonials from current clients and finally is a member of the FPA or on the Smart Money register.

Transparency is the key in all your financial matters, just ask yourself…is this person looking after my best interests and can I see myself meeting with them in 10, 20 or even 30 years? If so, then you are on the right track.

A financial planner can provide you with meaningful advice, realistic advice about what your financial future could look like, and importantly how to get there.

When thinking about your future, there are many things that no matter who you are, we all consider at one point in time.

How much money do I need to live the life I want? What age will I retire? Why is it that people around me are able to afford new cars, new homes and investment properties and I can’t?

Regardless of if you are 30-years old, or 60-years old a financial planner can provide meaningful and realistic advice about what your financial future could look like, and importantly how to get there.

Obviously before you move to getting financial advice, it is vital that you ask yourself (and your partner if applicable) some key questions. What am I looking to achieve? How much do I have now? How much can I realistically earn over the foreseeable future? How much of that can I invest? And importantly, what am I trying to achieve?

There is no point booking an appointment with a financial planner should you be walking in with unrealistic expectations. Such as I earn $45,000 and I want to buy a Ferrari and a holiday home on the Gold Coast in 5-years’ time. Unless you win the lottery or have some inheritance coming your way, we are sorry to say this is not going to happen.

You need to look at yourself objectively, be honest and work out the reason why you, in your current financial situation, want to see a financial planner.

Why do people use financial planners?

There are two key reasons people seek financial advice, these are general financial advice and personal financial advice.

General Financial Advice, as the name suggests, is advice that doesn’t take into account you and your individual situation. This may be advice about a particular investment vehicle, such as shares, cryptocurrency, an investment fund etc. The advice doesn’t take into consideration how you may be liable or affected by the product or service personally.

Personal Financial Advice is a more comprehensive, tailored review and advice for you, of you now, where you wish to be in the future and the mechanisms available to you, in your current financial situation to get there. A qualified and certified financial planner will ask a series of detailed questions about you, together you set goals, review products and services applicable to your personal situation, and then advise you and manage your progress moving forward. Services may include, but are not limited to:

• Simple, single-issue advice— Help with one financial issue, for example, how much to contribute to your super, or what to do if you inherit shares.
• Comprehensive financial advice— Help to develop a financial plan to reach your financial goals. This covers things like savings, investments, insurance, and super and retirement planning.
• Ongoing advice— Regular monitoring and review of your financial plan and affairs.^[1]

With the rise of the ‘gig economy’, changes in working conditions, Self-Managed Superannuation Funds (SMSF) and general market access to riskier investment options (such as cryptocurrency, CFDs and other leveraged, often speculative instruments) a financial planner is often not only a good idea, but a mandatory one.

Why is a financial advisor so important?

Gone are the days where you start a job from the bottom of the company, work your way up for the next 20, 30 or 40+ years, collect your gold watch and retire to watch the sunset at your beach house as your grandchildren listen to you talk about ‘the good old days’.

The seismic generational changes in technology, historic housing price spikes, employment, how we work and who we work for – not to mention access to debt and credit facilities or the global economy, have all led to people wanting a work life balance. Working for themselves, working from home, working from anywhere – all sounds fantastic, until you realise that you are 50+ with no superannuation, a mortgage that you can’t foreseeably pay off and no ‘extra’ or ‘passive income’ from investments outside your work.

A financial planner can work with you, from a VERY small base, to set up your future. Including but not limited to savings, investments in funds, shares, alternative investments, currencies and much more, to provide income streams and security for you – despite your annual income.

When is the best time to see a financial planner?

Many people feel that financial planners are either “only for rich people '' or alternatively is like going to the dentist, and often ‘kick the can down the road’ as they may be embarrassed at their level of personal debt, number of credit cards or lack of financial prowess. WRONG!

The best time to see a financial planner is right now. Why, because today is literally the first day of your new financial life from the day you meet with a financial planner – no matter your financial situation.

Financial planners are there to work with you, and really only benefit when you as their clients do, not only now, but into the future. For example, if you are in your mid 30’s, with a few credit cards, merger savings and can’t see how you could ever get a mortgage like your friends – a financial planner can get you there.

If you are in your 50’s and are realising you have 15-20 more working years and want to set yourself up for retirement – a financial planner can help.

You are the recent recipient of some inheritance and you down want to see it go to waste – a financial planner can help.

Financial planners are experts in just that, planning how to realise the best outcomes financially for their clients over the short, medium, and long term.

And sure, there may be some home truths, some budget cuts, your ego may even take a bruise, but when the dust settles you will have a plan, with defined goals, and you will literally see the results starting to happen from week 1.

From there, your financial future will be more secure, it’s important to note, you need to take the first steps – but you also need to be responsible and take responsibility of your money, as the financial planner can show you how and work by your side, but only you can make your financial freedom a reality.

[1] https://moneysmart.gov.au/financial-advice/choosing-a-financial-adviser

Financial planning is the process of setting yourself and your loved ones up for a future in which you can enjoy, live comfortably and not worry about financial matters.

Many people have an idea what financial planning is, setting a budget, saving, investing money and helping people with money realise growth on that money. However, these people would be incorrect.

Financial planning is the process of setting yourself and your loved ones up for a future in which you can enjoy, live comfortably and not worry about financial matters. This is not saying that you will be throwing stacks of $100 notes around on your yacht like a rockstar.

What most people don’t understand about financial planning is it is a service for everyone from all socioeconomic and financial backgrounds. Everyone’s future is different and everyone expects different things – so when we say financial stability, that could be getting an additional residual income of $50,000 per month or $500 per week – it can be done with a cohesive financial plan, undertaken with a professional financial planner.

So, what is financial planning?

No matter what your goals are in life, it’s essential to plan ahead. A qualified financial planner can provide support to set goals and develop a practical plan to help you achieve them. As you move through life and your circumstances and needs change, a financial planner can review and tailor your plan, to ensure it’s still right for you.

Financial planning offers a solution on how to more effectively manage your finance in the short, medium and long term. This can be anything from saving from a holiday to building a comprehensive and diversified portfolio of financial assets.

Where a personal trainer works with you to help reduce weight or achieve a goal of running a marathon, a financial planner does precisely the same thing – but for your finances. With a top-line view of your situation, a financial planner will work with everything within your disposal. Household budgets, savings, superannuation, discretionary spending (such as holidays), investment options and of course planning for your retirement.

I have debt and little savings, so should I see a financial planner?

Of course! Take our example of the personal trainer once again. It doesn’t matter if you are 50kg or 150kg, seeing a personal trainer is essential for many reasons. They personalise a program for you, have you doing regular exercise within your personal circumstances and up the weights, distance and/or time as you progress – again, a financial planner is no different.

You may have several credit cards, a HECS Debt from university and be living from pay-to-pay to make ends meet, or you may be financially savvy with savings, investment properties and a portfolio of shares – it does not matter, a financial planner can help!

What is the process of financial planning?

As your financial wellbeing – as with your health & wellbeing – will largely dictate how your life is lived both now and into your future, it is important that you establish a meaningful and long-term relationship with your financial planner.

A good planner will work about setting goals, creating a plan and providing you with expert guidance, tips, techniques and opportunities to get your finances to where you want them to be. That is not to say they will make you a millionaire overnight, but they can set you up within your capacity, based on what you earn, what you can save and what you need to run your household - and of course take that holiday – while setting yourself up for the future.

You may have noticed that we keep talking about ‘a holiday’. Why? Because there is a misconception that by seeing a financial planner, they will tie all your money up and only let you have it down the road when the investments mature. Again, this is not true.

As mentioned, a Financial Planner sets your financial goals, ensuring they are S.M.A.R.T or Specific, Measurable, Actionable, Relevant and Timely.

For example, you may want enough money from 2022 to have one, overseas family holiday per year – fine. You may wish to retire by 60, with over $2 million in assets and investments outside the family home – ok. And I want to be a millionaire next week – not so good.

S.M.A.R.T objectives allow you to be real about what you can achieve within your personal situation, your risk tolerance, the years you realistically have left to work, and your earning capacity. You may now have school fees to contend with, when they are removed from the equation you can redistribute that money into your investment portfolio to maybe buy an investment property, shares or invest in a managed fund.

The key is and mentioned several times, it’s all done to a plan, with your Financial Planner, who meets with you each quarter, month, year – whatever suits you – and works collaboratively to achieve your goals.

Summary

In summary, there is never a bad time to set an appointment with a financial planner. Whether you are drowning in debt, through to driving your Porsche during the week and your Bentley on the weekend – a financial planner can help you move from where you are today, more effectively and efficiently to where you want to be tomorrow.

A failure to plan is a plan to fail, however when we are talking about you and your family’s financial security, your retirement, quality of life and yes holiday’s is this something you really want to gamble on?

Financial planning is planning to ensure the rest of your life is comfortable and you can spend it doing what you love, with whom you love and on your terms.

Working with a professional financial planner can give you confidence and peace of mind that your financial future is secure.

There are many myths and misunderstandings about financial planning, that they are only for the wealthy, that they only push their products or the ones that make them the most commission, and even that they are expensive and a waste of time.

Firstly, all the above is not only false, but it is almost entirely the opposite.

Financial planning is about developing strategies to help you manage your financial affairs and meet your life goals – and the first step is to make sure you have access to the right advice.

An excellent financial planner sits down with you (and your partner if applicable) and sorts through your current financial situation, your future desires, and your capacity to bridge the gap from where you are now to where you want to be.

You should know that a financial planner can be beneficial to you regardless of your income level. But they’re most beneficial to someone seeking specific advice about their spending, saving, earning, or investing strategies (or lack thereof). A financial planner isn’t meant to teach you the fundamentals of personal finance but to show you how to use your money as a tool to accomplish what you want.

Your financial planner will form objectives to suit your short-, medium- and long-term strategies to achieve those objectives and recommend a range of financial services and products to achieve those objectives – hopefully, sooner rather than later.

To become a Financial Planner in Australia, one needs to meet the minimum standards set by the Australian Securities and Investments Commission (ASIC). From 1 January 2019 the Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 requires new financial advisers to complete a bachelor or higher degree (or equivalent qualification).^[1]

This new ruling requires even the most senior existing financial planners to meet the same minimum qualification standards that until the 2017 amendments were not in place. This is a great piece of mind for you as a client of the ‘new breed’ of financial planners.

In addition to their qualification, your financial planner should be a member of the FPA or the Financial Planning Association of Australia, which mandates that planners must, along with serving you as a client, complete a large amount of CPD or Compulsory Professional Development.

That means that they are going to be upskilled, trained and proficient in the newest and most advanced products and services to help you achieve the financial success and freedom you are looking to realise.

Financial planning is the sum of many parts, but most of all, as the name suggests, it is a plan.

Remove the subjectivity, look at your future through an objective lens.

If you are not from a business background, this may be a little hard to comprehend, but bear with us. So think of yourself as a business (and you as the CEO), and your financial planner, your CFO (chief financial officer) who has to map out the most prudent, logical and realistic roadmap for your business (you) to achieve the objective set by the CEO.

Every business has a business plan, a set of S.M.A.R.T Objectives (Specific, Measurable, Achievable, Relevant, Timely) that guide their strategies, their operations, marketing, sales, you name it.

[1] https://www.seek.com.au/career-advice/role/financial-planner

2020 will forever be the year COVID-19 gripped the world and the sent global equities into free-fall.

Although many of us are not strangers to stock market crashes – there are some unprecedented circumstances around this particular COVID Crash which suggests that it may be more malignant and less temporary than its predecessors – leaving a lasting change on investor behaviours whilst hindering any chance of ‘quick knee-jerk recovery.’

Some prudent questions Investors should be asking themselves given the current circumstances…

What are the medium to long-term of effects of sustained quarantine?

The world has never endured a sustained quarantine where global economies have been stripped to bear essential goods and services only. A sustained quarantine – more aptly, sustained unemployment - could have devastating and permanent effects on both the micro and macro economy.Unlike the recent COVID19 Crash, immediately following the 2001 and 2008 Crashes, Consumers around the globe could return to work the next day and continue grinding the gears of their respective economies – with unemployment peaking at 7.1% and 5.9% in both 2001 and 2008 respectively(https://tradingeconomics.com/australia/unemployment-rate)

Treasury Data in Australia indicates that without the JobKeeper allowance unemployment rate could be as high as 15% as of April 2020 – for some context, during the Great Depression levels of unemployment hit 20-25%.

Is unemployment artificially supressed due to JobKeeper allowance?

Unemployment is a lagging indicator – Q1 unemployment was 5.1% which is forecasted to rise approximately 10% in the June quarter (https://www.abc.net.au/news/2020-04-13/coronavirus-unemployment-covid-19-treasury-figures-jobless-rate/12145542

Recipients of the JobKeeper Allowance are classified as employed according to ABS reporting - which leaves room for speculation that it could well in fact be a lot higher.

Moreover, there will a prolonged period between when the Government can no longer afford to continue JobKeeper Allowance payments and when we see aggregate demand restored to pre-virus levels.

The longer this period the higher the potential unemployment rate will climb – especially pertaining to small to medium sized businesses who cannot afford to absorb demand lag.

Is there sufficient room for effective Monetary Stimulus?

In short, NO.

The Modern Monetary Theory adopted by Central banks the world over, have become solely reliant on the swift adjustments of interest rates to remedy any economic downturn.

However, it seems this trend is simply no longer viable.

During Recession, Central Banks reduce interest rates and increase the Monetary Supply -  through Quantitative Easing – which in turn increases inflation and drives up asset prices. This has become known as expansionary monetary Policy – and has been the Get-Out-Jail-Free Card for central banks for the past 40 years.

However, nothing is free in this world…

Expansionary monetary policy has ultimately increased global debt and has now pinned global interest rates to near zero.

(https://tradingeconomics.com/australia/interest-rate)

In May of last year Ray Dalio, CEO of Bridgewater Hedge Fund, described the diminishing effectiveness that Quantitative Easing and lowering interest rates has on stimulating an economy in downturn. Ultimately foreseeing a monetary apocalypse in which there would be an i) economic down-turn and ii) where interest rates would be pinned to zero.

Lo and behold here we are 1 year later….

It may be quite dry to those of other affinities, but I  encourage you all to read it: https://www.linkedin.com/pulse/its-time-look-more-carefully-monetary-policy-3-mp3-modern-ray-dalio/

Dalio goes on to detail that in this scenario there is little to no room to lower interest rates and that QE effort would only lead to hyperinflation. He describes how Governments and central banks would need to move to a new version of Modern Monetary Policy – which he calls Monetary Policy III – more reliant on fiscal stimulus rather than monetary.

As investors, you do not need to need to concern yourselves with the minutiae of this inevitable cataclysmic shift in global monetary policy – all you need to know is that such a change would be lengthy, arduous and will riddle global equities in speculation for a continued period.

 Can we find refuge in Gold and Silver?

To an extent…

Investors tend to change asset classes depending on the perceived risk in the markets. Stocks are considered to be riskier assets than bonds, precious metals and cash. Therefore, ‘a market where stocks are outperforming bonds, precious metals and cash is said to be a risk-on environment’. https://www.investopedia.com/terms/r/risk-on-risk-off.asp

Precious metals are what we call Inflation hedged assets which means they are risk-off and as such are negatively correlated to stocks.

Whilst a portfolio which is negatively correlated to the stock market is great during crashes, it is adversely susceptible to quick changes in investor sentiment should the market consolidate sideways – which is what can be expected as the stock market treads water or tapers back-and-forth whilst trying to find its bottom.

Investors would be wiser to achieve a portfolio that is NON-CORRELATED as opposed negatively correlated to the equity market.

Instead of backing a horse to win or not to win – it’s sometimes best to bet on sport or some other unrelated event.

Since winding down our ASX portfolio last year, we have had been steadfast in achieving returns uncorrelated to the Global Equities – we feel our Swing Strategy has best achieved this.

Here is another great source of uncorrelated assets from Guggenheim Investments: https://www.guggenheiminvestments.com/mutual-funds/resources/interactive-tools/asset-class-correlation-map

Is Property a viable alternative in Australia…?

High unemployment leads to reduced household income which ultimately reduces serviceability of debt for the average Australian investor – ultimately causing a drop in housing demand.

Historically, demand-driven crashes are quickly recovered provided there are no extraneous inhibitors of demand… such as sustained employment and the stoppage of immigration.

Previously under these circumstances, the RBA would cut rates to increase the availability of credit which would inturn prop up demand – however with  current cash rate set at 0.25% leaves little room for a rate cut, with evidence supporting  “monetary policy transmission of rate cuts is indeed weaker when interest rates are persistently low”. https://www.rba.gov.au/publications/confs/2017/pdf/rba-conference-volume-2017-borio-hofmann.pdf

More concerning is that the key driving force behind Australian Residential housing market strength has been Australia’s net immigration. 

It’s no secret that migration increases house price.

“The pick-up in immigration coincides with Australia’s most recent housing price boom. Sydney and Melbourne are taking more migrants than ever. Australian house prices have increased 50% in the past five years, and by 70% in Sydney.” (https://theconversation.com/how-migration-affects-housing-affordability-92502)

One can only speculate how long Australia’s border will be closed and  what the immediate effects a zero-immigrant economy will have on residential housing market…

Coupled that with a potential 15% unemployment rate and ineffective monetary stimulus – we may see a slide in both demand with a potential increase in supply as Australian Households seek to ration assets.

‘Some economists, such as AMP’s Shane Oliver, estimate that prices could fall as much as 20% if the recession lasts more than six months’ https://www.theguardian.com/australia-news/2020/mar/20/australian-housing-market-will-hit-the-wall-in-coronavirus-recession-experts-say

What should my portfolio look like in  2020?

A bear market is hard to predict – it’s turn-around even more so. One thing that can be predicted with confidence is the prevalence of market volatility as investor sentiment switches back and forth from risk-on to risk-off.

The dynamic shifts between risk-on and risk-off sentiments require portfolios which are actively traded and directionally unbiased – can profit in up and down markets.

Walker Capital’s current strategies are actively traded currency and commodity portfolios. It is our objective to achieve returns uncorrelated to the stock and property markets in order to provide investors opportunity to diversify risk and maximise returns.

Whilst there are there are correlations between certain stock indices and currency pairs – provided we actively trades both directions in currency prices the returns we yield are uncorrelated the stock markets.

Our strategies should be considered as an alternative to investments into the stock market given current market conditions

“The Australian share market has wiped out $50 billion worth of gains it made in the past two months “ ₁

The benchmark ASX 200 has fallen 2.6 per cent to 6,427 points by 2:00pm (AEST), with nine out of every 10 stocks in the red” ₁

The recent decline in the domestic stocks is part of a global sell-off amidst recession fears in the US coupled with trade-war speculation along with all-in-all lacklustre economic forecasts.

China experienced its weakest factory output in 17 years, with its latest official figures showing that industrial production grew by an annualised 4.8 per cent in July”

“The cause of the market panic was a bond market phenomenon known as the "inverted yield" — when interest rates on America's long-term (10-year) government bonds fall below short-term (two-year) rates.

It has been regarded by traders as a reliable predictor of US recessions in the past few decades. Furthermore, this "inversion" in bond markets has not occurred since 2007, just before the global financial crisis.” ₁

A more chronic - and local - cause for concern is the 12-month -8.37% decline in house prices across Australia. ₂

The RBA also cut the cash rate to all-time lows in July to 1.0%₃  - leaving little-to-no room for monetary stimulus – which may signal that the worst is yet to come.

After enjoying years of expansionary monetary and successful performance of Risk-On assets – it appears the tide may be turning…

“You only find out who is swimming naked once the tide goes out…” – Warren Buffet

As we enter the contractionary phase of the credit cycle, we will see capital flight away from traditional risk-on assets - like shares and property – and increase investment into inflation-hedged assets – like bonds and alternatives.

For investors, it may be prudent - and timely - for a re-appraisal of your portfolio’s nakedness…

We here at Walker Capital have held the belief all year that the domestic stock market is overpriced - beckoning a long overdue correction. As such, we remain steadfast in our absolute return investment style and will be looking to capture market volatility in either direction.

Walker Capital provides investments uncorrelated to shares and property. Given Walker Capital’s MDA products are aggressive, we recommend no more than a 10% allocation of a client investable net assets.

If you missed our Audit Report 2018-2019 you can  access it here

See what our clients have to say review our testimonials.

Corporate Member of IMAP

Walker Capital is an accredited and recognised as a corporate member of the Institute of Managed Account Professionals (IMAP).

IMAP was formed to bring together advisers, managers, platforms and other managed account service providers to help build a better industry.

The role of IMAP

Institute of Managed Account Professionals (IMAP) is the industry organisation for advisers, managers, providers and other businesses actively involved in offering or supporting Managed Accounts.

IMAP provides association members with access to the latest developments in the industry; education and training and access to industry professionals at all levels.

IMAP is the voice of the managed accounts industry and represents its interests to regulators such as ASIC.¹

1. reference  https://www.imap.asn.au/

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