By Amanda Morrall (email)
One of the great things about my job is connecting with people; sources, other journalists and readers. I have been privileged to meet some incredibly smart, interesting, funny, and successful individuals many of whom I have drawn inspiration.
I wrote recently about one of of our readers who staged a remarkable financial turnaround. He went from a free-spending, carefree, live-for-the-moment spendaholic to a goal setting, credit card spurning, whip-smart CFO of his own right with a six figure portfolio at the age of 29. You can read about his story here.
Yesterday I had my personal finance socks blown off once again by another reader who confessed to regularly setting aside 20% of her gross income, and self managing her own retirement portfolio outside of KiwiSaver. It was worth six figures. Being a snoopy journalist, I just had to get the story.
What was most impressive was that this reader was a single mum of two children. As one of those myself, I can appreciate that such a self-discipline savings programme (in the face of never ending expenses such as school fees, uniforms, birthday gifts, sports programmes etc. etc.) is no easy task.
On her own steam, she'd managed to wipe the debt decks clear, stock her emergency fund, save for a house deposit, buy a home (finance the renos as she'd bought a fix-it-upper) and channel her discretionary savings in a portfolio of her own design. She has been growing her savings at a rate of about 10%.
Here's the post if you missed it:
I'm saving 20% of my income (I'm not with Kiwisaver) and intend to do this until I retire from full time employment at 55, I invest the money myself, inflation adjust the savings each year and so far, so good with the capital increasing around 10%+ each year including interest and additional $'s saved. At 55 I intend to use 25% of the total capital to start up a self-sufficient lifestyle business - giving me a guaranteed income (as l will be mortgage free at this stage) and then I'll be able to live out my life doing pretty much - just as I please. Kiwisaver is not for me (even with the incentives) as it is far too restrictive for my plan and I like the control I have over my investments (they are fairly conservative) and playing around with the financials to get the outcomes I desire for that magic date. When I started 5 years ago I knew nothing about money, but I've read everything I could get my hands on and I'm feeling a lot more confident now about the future. Sure you can put your money into KiwiSaver, do what I'm doing or hedge your bets both ways - but think of retirement as another phase to life and hopefully all going well you will have an income, be able to protect your hard-earned capital and provide for the next generation along the way. Now I just have to live long enough to make it all happen :-)
I managed to glean some other details from her, which I'll save for my book, because they were so sensible and effective.
This gal didn't think much of her accomplishments, said her strategy wasn't "earth shattering.'' Maybe not however there's arguably very few who have done what she did (without the benefit of a partner). And while her saving strategy may be common sense, (saving more than you spend) there's precious few who have the discipline to enforce that. You wouldn't know it from reading our comments but we do have a fair female following at interest.co.nz and the ones I've heard from have it going on financially. It's inspirational.
What also impressed me about this reader's situation is that she went about business without shelling out for a financial advisor. My personal view is that if a financial advisor can get you on a path toward financial freedom (or at the very least security) that you might not otherwise have found, then they are in all likelihood worth the money. At the same time, I think those who are eager to learn, who invest the time in growing their knowledge and who have the discipline for follow through, can do without.
Said reader shared my view.
You don't need a financial planner, but I went to a couple of unbiased seminars to find out what they were saying - more or less what I already knew because I had devoured every article known to man-kind and approached successful people who were already doing very well. People are always happy to share their tips, I ignored the guy who had a 5 bedroom house in an affluent area with a 95% mortgage and felt he had made it - as that was his "wealth status-symbol"... He'll learn.
I don't want to beat up on financial advisors. They've been beaten up sufficiently post finance company collapse. But I am interested in hearing your stories about how, if any, they have helped or harmed your situation. I welcome the good, the bad or the ugly.
Either drop your comments in the thread below or email me directly. Your anonymity is assured.
Many thanks,
Amanda
74 Comments
The breadth of opinion is huge and a lot of it shallow IMHO. Ive lost enough money with private schemes that I will/have been doing my own thing for a decade....Im perfectly happy to make my own calls. Im in cash and paying down debt as I think its going to be nasty.....but I dont see why I cant turn around quickly if need be.....
regards
steven...you have been saying you have been "paying down debt " for years now.
Either you are doing it real real slow, or you had a huge amount of debt to start with.
Either way, your persistently doom, gloom and despondent outlook on things indicates you don't have much in the way of assets left.
Get yourself a financial planner is my advice.
Im doing it too slow....but its the best I can do......
Assets are only yours when the bank etc doesnt have a %....and assets are only worth what you can get for them in the market at that time you come to sell.
Your advice is frankly worthless.....I dont need a financial idiot......between myself and father (who's a retired CFO) I eally dont need any, thanks.
Doom and gloom, because I have researched, looked at the very fundimentals of our economy, which is cheap energy. So I sit and wait.....there will be a time to buy property and I probably will, as it will once the bubble "value" is skimmed off be a good earner. You see I see nothing wrong with being a PI/Landlord, its just the numbers have to make sense v risk and they have not for a decade and they wont for at least 5 years maybe 10.
regards
Everytime you open you mouth its obvious you didnt think or cant.
In the Weimer republic didnt they burn bank notes to keep warm? oh wait what are wood shavings useful for?
Or of course you can also use them to make bio-fuel.....so yes they can be turned into money....
You [dont] see that money is a proxy for energy....its an iou....
regards
Quite incorrectly, actually.
You need to do the negative pig homework.
:)
Trees are positive pigs, money is a negative pig. The trees are real, the money is not - but it expects to be. The trees are worth more, anyday.
Money's only an expectation that you can buy, remember. If you know what it is you want, aren't you better having it already? More guaranteed than 'future ownership by proxy', in light of the inevitable rationalisation ahead.
I actually said what I am doing, as an opinion, anybody else is free to invest as they see fit.
Also there is no contract, no one has paid me so it cant be "professional". Have you spotted anything Im suggesting ppl buy? Gold? nope, housing? nope all bear huge risks of huge losses.....So im in cash, are you suggesting someone is paying me a back hander to hold cash? farcical....really....
Oh and you dont off er opinions? AGW isnt real in your opinion, is it?.....so ppl could ignore it and help a) warming reach 4deg C at which point agriculture will be bye bye...and b) at 6Deg C we will see a super warm period by which point the present food chain will be gone...and so will we as a species.
So who's being moral here? cant see much from you....just can kick to the next generation....
regards
AGW and we're all gonna die, aye Steven? I'm curious, and I hope you don't mind me asking, are you a Jehovah's Witness, ie, one of the 43,000 who are saved and the rest of us roast pork??
I know it'll be too hard for you, but others might want to actually see where temps are going and work out why there has been a significant decline in temps over the past 15 months.
http://wattsupwiththat.com/2012/04/15/a-big-picture-look-at-earths-temperature-quarterly-update/
Thats right eh....cant use 1998 as a peak year anymore as 2010 beat it and 2010 was an al nina year where 1998 el nino....so lets take 2010 as the new peak and only talk about 15months...........LOL.
"die" im sorry you think you will live forever? so whos the god squaddy again?
Congrats you are making yourself look like a complete idiot, well done.
NB 1/2 my (extended) family are fundie christian nutters, so fundie they left their fundie church to fund their own fundie....mind boggling fruity loops......
regards
All the financial advice you'll ever need:
1. Shelter (house): This is a basic human need that you will need for the rest of your life. Buy shelter early and direct every cent you can to pay it off.(avoid extravagant shelter that you can't really afford)
2. Once shelter is paid off buy other things that grow e.g land/commercial buildings/shares/term deposits/bonds. Try and mix it up, do your own homework, go for it.
3. Spend less than you earn . Don't buy stuff...most of it will be in a landfill in a few years anyway.
Stick to these rules and life is pretty simple!
Neili that is the traditional advice that has probabably served most generations well. However the in-between times have been like a tsunami to the majoity of popns at those times. Most were wiped-out regardless of whether they owned shelter (or rented it from the bank).
Don't buy shelter right now. Timing can make or break you a fortune in bubble markets, and, although there have been many historic bubble-bursts (guess it's now human-nature) the mother of them all is still possible (and some respected commentators suggest probable).
Minimise debt (not just deadheadding but cutting back to the roots).
Get all liquidy.
In the meantime - if you need a holiday - go for it!
My experience with a number of share brokers has been poor, so I do my own thing and that way must take more care and responsibility for my decisions. I dont doubt that there are some good ones out there but the ones I have encountered seem to confuse you and the net result often is a lot of unecessary buying and selling. That is how they make their money (each transaction) Buy safe steady assets and get rich slowly instead of poor quickly.
Neili's advice is spot on and number 3 is the most important.
If you are young avoid debt like the plague, Stay at home instead of racking up a student debt flatting. Apart from the debt accumulated it seems to set a life pattern of borrowing.
Wonderful stories.
We live in the nation of entitlement and we want our rights, but the reverse side of that coin is painted in responsibility.
What many see as an opportunity to get out of risk and consequences a few see as a treasure to be mined.
And they are out there these few, on the highways and down the byways. Often quiet, rarely seen on the podium of self promotion because they enjoy getting on with life. Sometimes you catch a glimpse of them in the twilight scamping away from the mob with its self righteous placards.
Don't define yourself by what you can't do. You are responsible for your own life - embrace the truth of it and strike forth. Remember, anything one woman can do - another woman can do!
Downsides of the self-made investor: A not uncommon scenario: - the retired/nearly retired kiwi, debt-free home, 3 or 400,000 to invest, puts the whole lot into a finance company/s at 11%. Loses the lot. Could have left it in the bank. Something happens to their brain after a lifetime of struggle, finally gets debt-free with some surplus, then .....
Even your average family solicitor tells the parents: don't put your money into a finance company. Maybe $10,000 for fun out of a few 100,000 - but not a whole bunch. Sure we can blame the failed finance co directors and any external advisors that advised the joe average investor - but, don't they need to take some responsibility for the risk themselves?
The conventional banks are next domino to fall. The system was only - temporarily - bailed out by socialising the debt (Govts took ownership). The debt is too big to be addressed - by several orders of magnitude, so it's just a matter of time. The longer the can is kicked down the road, the steeper the cliff.
If exponential growth was underwritable forever, you wouldn't need to comment here, and I wouldn't be calling you.
Banks - both their shareholders and their employees - expect to buy real stuff with their 'money'. Some of us study real stuff - and we can tell you there's not enough to underwrite the expectations of wealth.
http://www.energybulletin.net/stories/2012-04-09/capital-debt-and-alchemy
"Minus two pigs (debt) is a mathematical quantity having no physical existence, and the population of negative pigs can grow without limit. Plus two pigs (wealth) is a physical quantity, and their population growth is limited by the need to feed the pigs, dispose of their waste, find space for them, etc. Both may grow at a given x% for a while, but before long the population of negative pigs will greatly outnumber that of the positive pigs, because the population of positive pigs is limited by the physical constraints of a finite and entropic world. The value of a negative pig will fall to a small fraction of the value of a positive pig. Owners of negative pigs will be greatly disappointed and angered when they try to exchange them for positive pigs".
I suspect you're in the business of selling negative pigs :)
You havent studied history? I suggest the period 1929 to 1939 as a very good one to start with........Then read Steve Keen....also more recent history look at Ireland and Iceland in 2008, well worth reading up on....
Also I seem to recall some ANZ funds costing ppl a lot of money...
"Since late 2008, the Commerce Commission has been conducting an official investigation into the practices of ANZ and ING. Independent expert Professor of Finance, Robin Grieves from Otago University analysed ING's funds for the Commerce Commission, and documents the failure of the funds and the misleading marketing by ING and ANZ. He concluded: "The Funds contained multiple, large risks that ING did not measure or manage, which led to the loss of nearly 80% of the capital"
Or the BNZ,
"1990: Government bail out of $380 million to avoid collapse"
Sure no one has lost money in 80 years in a NZ bank....
2008 was just a starter....
Then there is the RB's open doors policy....when that comes into effect (Sept 2012) depositors carry considerably more risk.......why do it unless its considered necessary?
regards
but did they actually lose money?
If they sprang a mortgage on an inflated 'valuation' of an existing pile of bricks and mortar - what exactly did they 'invest'?
Nothing.
Exactly what they got back.
Their stupidity was to think of that 'valuation', as being 'wealth', and mis-diagnosing what the 'driver' had been for ROI's thus far - an increasing supply of energy facilitating an increasing supply of 'stuff'.
Negative pigs.
1.Their original sum of cash evaporated inside the finance company (you do raise the interesting question of 'where' the cash disappeared to)
2. The original sum of cash banked at the bank was returned to it's owner - with some interest.
It's no more complicated really. As Gummy pointed out - 1st rule = get it back.
Right, and wrong.
The original cash in numerical terms may well be returned - but from 'peak' on, its purchasing power is reduced. Crudely, that has been happening since I was a young-un. It was masked by mechanisation, a move to slave-labour sources, some temporary economies of scale.
Interest could only be underwritten, if the spender of it (bank shareholder, employee) could continue to find something to buy. That was an escalating - an exponentially-escalating - demand on the future, finite resources thereof. Choose you % rate - the last doubling goes from 1/2 to finish, resource-wise. 24 years @ 3% - wasn't that the old Housing-Corp loan? - , for instance.
Banks don't hold 100% underwrite, and even that which they refer to as 'collateral' is only as valuable as a buyer says it is. It is agreed that no other type of fiscal system was going to be set up in the growth period (it was the only one which fitted) but it was obviously doomed from somewhere before the top of the Gaussian (although as we've seen, this went unidentified). Down the right-hand-side of the Gaussian, a growth-based fiscal system is toast.
Maybe - just maybe - a flat-fee loaning system might work, but on average, profit and interest and fiat-creation are going to be in trouble. Quite probably, that trouble will be duck-shoved onto others, most probably unwitting/defaulting borrowers.
If I go down the TAB I can lose money as well....but you know thats a risk, right?
So they didnt invest wisely? or were conned? or have learned not to trust and do my own thing....I put myself in the latter. Ive lost some small sums and with other "pensions" the actuals are under the so called projections which were based on infinite growth, business as usual. its pretty clear the so called pros are clueless....
regards
Bob Jones made the same point in one of his books , that retired Kiwis undergo a brain fade , and biff their entire lifesavings into some daft venture ...... such as truffles , ostrich farming , or even a little greed takes over and they hiff it all into a finance company ( which earns 2 or 4 % interest above what the trading banks offer , but at a huge risk of a 100 % capital loss ) .....
........ Warren Buffett had just two golden rules : 1 : Don't lose your capital .
2 : Don't forget rule number 1 .
Nothing to do with 'end of world', but certainly 'end of world as you know/want it'. That's mathematically guaranteed.
http://www.hubbertpeak.com/bartlett/hubbert.htm
http://physics.ucsd.edu/do-the-math/
http://questioneverything.typepad.com/
http://steadystate.org/herman-daly/
http://richardheinberg.com/222-the-end-of-growth
Are we about looking for truths, or do our facts need to be acceptable to 'advertisers' or other groups? Interesting question.
You probably needn't worry. There is a lot more paid :) spin/lobbying hereabouts on behalf of those who benefit from the status-quo (or the continued belief in it as a possibility). Folk like me tend to be rewarded in non-fiscal ways. Peace with own conscience, that kind of thing.
robby - useful comment - but wrong!
Labour is indeed energy, (you are an energy system) and requires calorific input, typically we first-worlders use 10 calories of fossil oil to provide us with one calorie of food energy. Software still needs computers, offices, driving to work, lights in the office, plumbing in the loos......
That's the big lack-of-comprende, though, in a nutshell. Presumably you think that one can create an intangible out of nothing, flog it, then spend the money on something real - beer, ice-cream, car, house? Most people seem to be misguided that way.
Negative pigs. :)
Not sure what you mean, but I think it's still that lack of comprende, with respect.
'Value' has to be 1:1 with energy, and it isn't. The over-run is many orders of magnitude, and cannot be corrected.
http://www.scoop.co.nz/stories/HL1204/S00101/debt-jubilee-for-new-zealand-the-great-reset.htm
The story is right, re the impossibility of the system to self-fix - hope Mortgage-belt doesn't gag reading it - but totally wrong regarding what is coming next. Keen apparently thinks all will be well with a re-boot. If that's his stated position ( I stand to be corrected) he's wrong. It would need repeated re-boots now, as the grunt-supply dwindles.
Someone said that its easy to make money in a boom market, which we had for at least 30 years, now we have a bear market.....30 years....
I dont understand why ppl put money in the finance companies, but it seems many older ppl did.....often for a small amount above the bank rate.....Dunno why, greed? thinking they could never lose because of the 30 year bull market had taught them that? and yes they should take responsibility....and mostly they are suffering losses....now of course its all dumped in deposit accounts and the banks are higely leveraged so that carries risk as well....
So the art on a bear market is to hold onto it, but of course everything is a bubble and this time it is different, its just huge....I cant see anywhere terribly safe....
regards
An example of extreme saving and extreme early retirement that we can learn a few tricks from is a Danish guy (with a PhD in Physics) who lives in USA. He saves 75% of his income and retires after working for about 5 years. He runs a blog (www.earlyretirementextreme.com) and wrote a book on the subject. He has a following on the movement on early retirement extreme (nicely abbreviated ERE). Some of his thinking and philosophy is quite interesting and deep for a guy who is in his mid-30's, which I guess is a result of European schooling that expose youngsters to great thinkers/philosophers.
Jacob from Early Retirement Extreme is my inspiration. Read the book, crunch the numbers...early retirement is very do-able for many, just have to forego some of lifes distractions along the way. Simple choice really...your time (retirement) OR a whole lot of lattes and i-phones.
I work for an large "industry" fund here in oz. Industry funds are basically run only to benefit members rather than turn a profit like retail super providers. It's funny because I deal with so called "financial advisors" on a daily basis (who are basically just glorified sales-folk) - the sales focused nature just oozes from these interactions......
We have a team of advisors that are offered free of charge as a means of value adding to our product and retaining membership. I'm sure if the model was introduced in NZ the big players would be s**tting themselves.....
As a basic rule of thumb the trick to Financial Planning:
Start early, cut back leverage and growth assets as you approach retirement. (diversify blah blah blah)
My only personal experience, about 5 years ago, was a complete turn off. The "advisor" did not bother with any sort of anaysis of our affairs, completely ignored our reason for asking for a visit, and proceeded to "analyse" our insurance needs and recommending further spending on life and income protection. It was a guilt laden upsell, implying (looking at my wife while doing it) that I was endangering my family if I was not increasing my cover while disregarding our cashflow and investment situation.
He did all this without basic questions about our assets and liabilities. If were not for my promoting would have had no idea about shares or property, in work schemes, or even our basic budgets. He was there for two reasons - 1. ensure we did not reduce any existing payments he collected a commision on, 2 - try to increase our payments.
I was naive but hope my eyes are open now ...
I understand the above comments however paying for financial advice can be worth it weight in gold, seen it so many times. Be it a pro-active business advice, business introductions, commercial strategy or due-diligence on options you may be considering. Some insightful experience at the right moment can be life changing. These all reflect investments, more pro-active investments provide the returns.
The catch is few have the real ability, dedication or independence to provide it. There are so many more investment opportunities people simply are not aware of. For most people they will never meet the independent advisor who has made it their passion to be the best they can be in a niche, who gets a buzz helping others, they charge however do not need the money, they have made their money.
Naturally you alternative is to live within your means and aim for capital preservation. Although wouldn't it be preferable to live a larger life?
Financial advisors, insurance advisors and commission agents have put so many off even seeking out advice which is tragic.
There is still a place for competent financial advisors , given the lack of financial education in the secondary school system ........
....... and as us BB's got scant useful financial advice from our parents , the " traditionalists " generation , Gen X & Y need some guidence ........
The key thing being , that the financial advisor work on a fee basis only , and be truely independent from any firm pushing their products . Commission salesmen do not qualify as independent advisors .
Has anyone asked the crew at interest.co.nz whether this website could allow self-deletion of your own posts? Because you could then eliminate accidental double posts. As well as posts that maybe in hindsight might have been a bit on the inflammatory side - ie we could moderate ourselves better.
Also could interest.co.nz tailor the site for Tablets and mobile devices - in auto mode? Just a suggestion .....
Yes I second this request.
Ive done it a few times when I hit the save button, nothing seems to happen so hit it again; then, suddenly two posts. I have taken to deleting all the contents of the second posting and replacing it with a simple "sorry, double posting"
The history of the financial advisory industry in Australasia.
Up until Paul Keating introduced compulsory superannuation in Australia, late 1980's, the major life insurance companies, (AMP, MLC, Prudential), had hordes of commission only insurance agents working nights, making appointments and calling on the lemmings at night, at home, selling life insurance. You couldn't miss them.
The introduction of compulsory super changed all that. The insurance companies collaborated, formed the FPA (Financial Planning Association) set their insurance salesmen up as "financial planners" selling superannuation schemes instead. The Financial Planners were outsourced as businesses in their own right, as FPA members, but affiliated with the Insurance companies selling products instead of insurance only. Foundation Members of the FPA never sat exams. They all got automatic entry.
The restructure of the industry struggled for the first few years, but as the "dedicated" pool of funds grew, the industry matured. Financial Planners were selling Financial Lifestyle Plans.
By 2000, as the industry neared $800 million in total "funds under management" the industry was in full stride. The most successful was ColonialFirstState. The banks began to sit up and notice. They were missing out on the ticket clipping the Fund Managers were enjoying. So the banks (ANZ,CBA,WBC,NAB) started buying the Insurance Companies, and CBA took over Colonial First State.
Now when you walk into a bank, the tellers who are on performance contracts will try and "sell" you something, trying to set you up with an appointment to see one of their "Financial Planners" who are touted as Financial Advisors, who are simply "product floggers"
The unfortunate fact is the 4 "banks" comprise 80% of the superannuation and funds management industry and employ 80% of the "financial advisors". When meeting a financial advisor the first question you need to resolve is: are they independent or part of a dealer network group.
Fantastic story regarding the lady managing her own future, wish there we more like it. We dont need government trying to do every thing for every one, thats the problem!!
As for financial advice, my first question to any adviser or economist, "did you forecast the financial crises?" if not , that's all I need to know.
I am am managing my own future too, http://j.mp/yE0rV4.
In the early 2000's my financial advisor (research team) predicted a huge growth in investment returns in about 2008.
20 years and all I have to show for it is principle, thankfully its an experiment that actuall shows there is no long term growth, as I always say, show me someone that retired on the initial returns.
Hang on there Amanda....(cough cough !) Ahem.....as I've said many times...
Free Advice is worth every penny you paid for it..... .....
On paid advice....I would certainly rate Milford Asset Manag. ....but have my doubts as to the level of dilligence applied by people in general when investing their money.
That is to say ,people, while they may not be literate in matters financial ,have an obligation unto themselves to have understood the terms of their investment and risk (if any) when under direction of FM's......
Believe it or not , some of the major criteria required to be met by many investors in relation to the Qualification of their Financial Managers are..
He/She seems to know what their talking about.....
He / She seems to be a nice honest person.....
I don't really understand all that , that's why I'm paying you....and so on.
My worthless piece of advice to a large number of investors is ...if you did not understand that...say so....and again ...and again ...untill you do..! Or you have just made a blind investment with no care and all responsibility.
That said Good Morning Amanda....for you!
Money It can buy a House............But not a Home It can buy a Bed..............But not Sleep It can buy a Clock............But not Time It can buy you a Book.........But not Knowledge It can buy you Medicine.......But not Health It can buy you Sex............But not Love So you see money isn't everything. And it often causes pain and suffering. I tell you all this because I am your Friend, and as your Friend I want to take away your pain and suffering. So send me all your money.......... And I will suffer for you. CASH ONLY PLEASE!!!
my theory - it might be worth getting advice re what asset allocation you should have, and then refresh this every 5 years. But once you have this, simply buy index funds to reflect this allocation. Lets face it, the index is the weighted average of everyones best guess - this includes all the retail and institutional investors buying / selling on the basis of good / bad / indifferent advice. You could do your own research and buy select stocks, but we can only assume that the market approximates to the results of everyone else's research - do you think you can do better? and do you think your adviser can do better after fees? remember, you are BUYING off someone who is SELLING - maybe that person is selling because his adviser told him to.
The above approach achieves diversification, exposure to growth and most importantly, LOW FEES.
Financial advise is worth paying for but not many people see the value.
A good advisor will help people manage their cash flows better help focus on goals and assist with managing financial risk. Most of the population just drift along with predictable results. $1 in $1.10 out.,hopelessly unbalanced investment portfolios and no way of dealing with anything that goes wrong.
Financial advisory work requires increasing technical competence as economies and financial products become more complex ( witness the ING funds mentioned above that none of the advisors understood) and it also needs a salesman's ( or woman's ) touch to make people take action. Costs of doing business ( insurance , compliance etc) are also rising Not many people have the skills and personality required and those who do deserve to earn a reasonable income.
That is where the problem lies with most of the advisory industry. Not enough people who see the value and a need to earn a reasonable return for skills, aptitude and experience. The answer has been commissions. It means you can go and see an advisor who might charge you a couple of hundred dollars just to make sure you are serious. They will then actually get paid by product suppliers. It can work OK but the potential conflicts of interest are obvious and they have also been very real. The Finance company catastrophe would have been much less severe if it was not for the Financial Planners.
There is a trend away from commissions towards fees but if the public dont see value for the fees that will mean less advisors when the need has never been greater..
I have no idea what the solution to all this is.
Some good comments here. I agree wholeheartdely with KH and Happyfunball (cool name!) that really most financial "advisors" are simply selling product. You would be much better off with a budget/debt counselor before you start thinking about financial advice.
Personally I've been involved in financial markets for nearly 30 years. For the last 6 years, I've been a volunteer budget advisor. It's been a real eye opener, as I've seen close up how people get themselves into financial problems and how they manage their debts. At one extreme, I've seen people through bankruptcy (personal debts of over $40k) and at the other I've helped double income couples to simply manage their money in a better way (and yes Amanda, women are much better at this!!)
Personally, I think the funds management business is a waste of people's money. Historically It was harder to manage ones own cash, as access was more expensive and complicated. Now, and in the future, we will see those barriers and costs continue to fall (investing will get the TradeMe/ Xero going over at some point).
I reckon I could teach anyone in a few hours how to invest in the markets and avoid the need for extortionate fees and trailing commissions. Financial advisors should charge like any other professional, a simple hourly fee.
It's really quite simple. Learn the basics, understand what your needs are. Learn to save and avoid debt unless you can really justify it. If you do have cash left over that you want to invest then do a little homework or pay for some good advice on an hourly basis :-)
Raf - I don't doubt your sincerity, but 'investing in the markets' is still a matter of accumulating negative pigs. You may well be smart enough to cash yours in 5 minutes before everyone else, but remember that they are going to be doing that too.
You'd be better advising them to work out what is is they will need in the future, and to ascertain whether it will be scarce/in-contention (land, food, energy, tools, infrastructure) or regarded as 'discretionary'. The former they are better buying now, the latter later.
Playing with money (fiat-issued negative pigs) hoping to make more negative pigs, is not so smart when ultimately it's positive pigs you need to own.
I think I made the point that you do the basics first and understand your needs.
Now, people may choose to invest in a veggie garden, chickens, solar energy or a micro-wind system. They may also choose to invest in a business which provides a dividend, which they use to buy goods and services with. Ultimately, that's all part of any budget/financial advice.
For most people, paying down debt is the best investment they can make. After that, it may depend on your view of the future. That's why I really don't like Kiwisaver......it's built for a unchanging world and, especially, a current financial system. your money is locked up for an awful long time......not for me thanks....small free gifts or not.
Financial advice 101 . IQ Taxation Rule
If your wage is higher than your IQ you are paid to much and therefore finacial advise cost is another type of tax to make sure your income does not exceed you IQ level .
And just because you work for banks , accounting firm or law firm does not make your IQ any higher so therefore you will fall under the IQ tax provision .
This site reminds me of when I enter a taxi and because the taxi driver listens to Bernard Hickey on radio now they are ecconomist as well .
Honesty and integrity when have they been part of business they are merely a marketing tool .
You go to a financial adviser wanting a future prediction . MMM of how to make more money that smells like greed to me
As for you name if NZ does not become a slave someone else will that economics is that not just as bad .
One of the best to listen to is Nicole Foss - in Auckland at the moment.
Or you could read this:
http://www.chrismartenson.com/blog/trouble-money/73469
"It is this last part, the oil story, which has almost entirely eluded the intellectual grasp of our monetary and fiscal masters. I don't blame them, as mastery of the physical sciences is not a requirement of any classical economics departments in any of the universities that churn out our PhD economists.
This is very strange, when you think about it, because economics is entirely rooted in the process of extracting and converting natural wealth into material wealth. Without the primary inputs of the earth, there would be NO secondary or tertiary wealth for us to divvy up (via a money-driven rationing process) or develop exotic derivative products around. Economics should be the study of energy and resource flows as well as money"
Wonder where you've heard that line before, Amanda?
The whole article should be required reading for anyone liiking to go into hock at this point..
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