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Who really owns the license?

Who really owns the license?

Having decided you will benefit from financial planning advice, you generally have only a handful of choices when it comes to sourcing advice and guidance from a professional and qualified planner.

You could seek advice from:

  1. Industry funds such as CBUS, First State, REST, HostPlus etc
  2. The banking system using CBA, ANZ, Westpac NAB etc
  3. A planner who is licensed through a dealer group whose name is not readily associated with a big four bank or large institutionally owned brand.

The first two are obvious. You may already be a member of one of the first two choices and feel comfortable knowing they will assist you (and recommend) using their own product range. That makes sense; you don’t go to a BMW dealership expecting the staff to sell you a Mercedes!

The third choice is a more complicated one. Who owns that license is an important question, and knowing who owns and manages these licenses may in turn influence the choice of products recommended by the financial planner who is supposedly helping you.

When you make the decision to work with a financial planning firm that is not owned or influenced by a large financial institution, it may help you to find someone local who may be better suited to your advice needs.

The Association of Independently Owned Financial Professionals (AIOFP) lists Financial Planners in your area that are not owned or influenced by a large corporation, and is probably the best place to start.

At Partners in Planning, we are a part of the AIOFP.

‘General advice’ confusion is profitable from a banks perspective.

‘General advice’ confusion is profitable from a banks perspective.

According to the financial planning lobby, Australia’s largest banking institutions may be taking advantage of consumer confusion over the term “general advice” to sell products via staff that are not qualified advisers and have no legal requirement to put customers interests first.

According to the watchdog, general advice fails to take into account the consumer’s personal situation, while personal advice from a licensed financial adviser must.

An individual giving general advice does not have to be well trained nor hold qualifications, and has no obligations but to promote the product that they work for.

Institutions are free to sell their products, but the concern is under the “guise of advice” that they are selling them through.

ASIC looked at a number of cases of personal versus general advice and found some concerning results for high profile banks including Westpac related superannuation accounts.

The commission alleges that during a series of telephone campaigns between Jan 2013 and Sept 2016, Westpac Securities Administration Limited (WSAL) and BT funds Management Limited (BTFM) provided advice on personal financial products. These included recommendations being made for customers to move out of their other superannuation funds into Westpac-related superannuation accounts.

WSAL and BTFM are not actually permitted to provide personal financial product advice under their Australian Financial Services License (AFSL).

Although ASIC cannot change the law, cases such as these will let institutions know they cannot cross the line. Westpac maintains its determination to fight ASIC’s interpretation of what “general vs. personal advice” is. The real risk lays in the risk to consumers when they do not know how to distinguish if they are receiving financial advice or just product information.

Sometimes in a one-on-one conversation, general advice warnings don’t not stop someone from straying into personal advice, and most of the time the person having the conversation will likely consider that they are receiving personal advice.

Why the banks integrated financial advice model is flawed

Why the banks integrated financial advice model is flawed

It’s hard to believe the banks can keep a straight face and say they can abide by the duty for advisers to act absolutely in the best interests of a client.

Under the integrated financial advice model, there are layers of different fees including adviser fees, platform fees and investment management fees adding up to 2.5-3.5%

The typical breakdown of fees is usually as follows: an adviser charge of 0.8% to 1.1%, a platform fee of between 0.4% and 0.8%, and a managed fund fee of between 0.7% and 2.1%. These fees are not only opaque, but are sufficiently high to limit the ability of the client to quickly earn real rates of return.

Layers of fees placed into the business model used by the banks means there is not necessarily an incentive for the financial advice arm to make a profit, because the profits can be made in the upstream parts of the supply chain through the banks promoting their own products.

This business model, however, is flawed, and cannot survive in a world where people are demanding greater accountability for their investments, increased transparency in relation to fees and increased control over their investments.

It is noteworthy that the truly independent financial advisory firms in Australia that offer separately managed accounts  have done everything in their power to avoid using managed funds and keep fee’s competitive.

The banks have refused to admit their integrated approach to advice is fatally flawed. When the Australian Financial Review approached the Financial Services Council (FSC), a peak body that represents the ‘for-profit’ wealth managers, for a defence if the layered fee arrangements, a spokesman said no generalisations could be made.

There are fundamental flaws in the advice model, and it will be interesting to see what the upcoming royal commission into banking will do to change some of the contentious issues surround integrated financial advice.

ASIC reveals big bank planners fail with “best interests duty”

ASIC reveals big bank planners fail with “best interests duty”

When ASIC conducted its detailed reviews between 2015 and 2017, it came as no surprise they found some damning results in relation to advice given by financial planners at our major banks. There is a requirement for advisers to act in their customers best interests called the ‘best interests duty’.

ASIC found that 75% of advice was non-compliant with the duty, with many customers told to switch their superannuation to a fund run by the adviser’s employer. The advice failed to demonstrate that customers would be in a better position, often a result of inadequate research or failure to take into account the customer’s whole financial position.

ASIC warned the wealth managers there was a need to improve how conflicts of interest were managed, and it would ensure compensation was to be paid where needed.

Peter Kell, ASIC’s leading chair, said “there is ongoing work focusing on remediation where advice-related failures have led to poor customer outcomes and the results of this review will feed into that work”.

With the royal commission into misconduct of finance approaching this year, the report from ASIC is a further blow to the model of “vertical integration”, which refers to banks owning businesses that both create and distribute financial products to customers.

The chief executive of the Financial Planning Association, Dante De Gori said it was “completely unacceptable” that one in ten customers files reviewed had provided advice that left people worse off.

The finding by ASIC that three quarters of advice was “non-compliant” with the best interests duty suggested the licensees had not taken enough steps to promote change in their internal processes.

The Financial Services Council (FSC), a peak body that represents the ‘for-profit’ wealth managers, said it would work with the regulator to improve the industry’s processes.

It highlighted a series of reviews that rule changes in financial advice, including banning wealth mangers from paying advisers commissions, and the creation of a public register for financial advisers.

Industry Super Australia, competitor to ‘for-profit’ funds, said “hard questions” needed to be asked about banks role in the compulsory superannuation system. “The report proves the need for super nest eggs to be protected from the banks,” said Matt Linden, director of public affairs.

Think twice before getting financial advice from your bank

Think twice before getting financial advice from your bank

Next time a friendly bank staff insists on helping you with your money, consider this:
75% of the advice given to customers wasn’t in the clients best interests.

This startling figure comes from a recent review of the financial advice offered from the big four banks by the Australian Securities and Investment Commission (ASIC).

Even more startling: 10% of advice was found to leave investors in an even worse financial position.

Through a “vertically integrated business model”, Commonwealth Bank, National Australia Bank, Westpac, ANZ and AMP offer ‘in house’ financial advice, and collectively, control more than half of Australia’s financial planners.

It’s no surprise ASIC’s review found advisers at these banks favoured financial products that connected to their parent company, with 68% of client’s funds invested in ‘in house’ products as oppose to external products that may have been on the firms list.

Many financial commentators are calling for a separation of financial advice attached to banks, with obvious bias and failure to meet the best interests of clients becoming more apparent.

Chris Brycki, CEO of Stockspot, says “investors should receive fair and unbiased financial advice from experts who will act in the best interests of their client. What Australians currently get is product pushing from salespeople who are paid by the banks.”

Brycki is calling for structural reform to fix the problems caused by the dominant market power of the banks to ensure that consumers are protected, advisers are better educated and incentives are aligned.

Stockspot’s annual research into high-fee-charging funds shows thousands of customers of banks are being recommended bank aligned investment products despite the potential of more appropriate alternatives being available.

Parental Guarantee Strategy

Parental Guarantee Strategy

A step-by-step guide for Parents who are acting as Guarantors

With today’s property prices, first home ownership is becoming harder and harder to achieve.

Too often, we’re finding that parents want to help their children achieve their home ownership dreams, but are worried about how it may affect them financially. The risks appear to outweigh the benefits and parents are left in a do-or-die situation where they feel responsible for helping their children financially.

The questions and concerns surrounding the possibility of future divorce, job loss or injury cloud the minds of potential guarantors, leaving them in a vulnerable position when signing the bank papers.

‘What if the borrower loses their job?’ ‘What if they can’t make the minimum loan repayments?’What happens then?’

‘Where does that leave us?’

The theory dictates that this situation leads to the Guarantor having to find the money to pay for the amount in arrears, before their security property is sold to repay the debt. Often, this also means that the financial future of the Guarantor is uncertain, as they are faced with having to delay their retirement, while dealing with undue financial hardship… not to mention the overall tension within the family.

It’s a devastating situation that leaves all parties out of pocket, and is something that can be easily avoided. Here’s how:

Cash flow

A simple, no-frills income protection policy can help to reduce risk.  If a child can work and, adequately repay the loan, there is every opportunity to make repayments and continue to do so should any unforeseen circumstances occur.

Recently, we had a case where parents who were acting as their son’s Guarantors paid for his $500 per-year income protection to ensure the mortgage was looked after until he had enough equity to refinance them out. It was a great back up plan that helped to minimise risk.


Actual Debt

If death was to occur, a life insurance policy on the child that is owned by the parents can help extinguish the child’s debt. This includes debt on the family home, and avoids any ‘son or daughter in law’ issues that may arise from such circumstances.

Parental Guarantee Strategy; they’re a great idea but, like most things in life an exit plan is needed.

To find out more, contact Partners in Planning. We are expert financial advisor in Melbourne

*Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.

The Four Most Common Mistakes when Buying Life Insurance

The Four Most Common Mistakes when Buying Life Insurance

Buying Life Insurance is no easy task. It raises a lot of uncertain questions that leave us wondering what we need to do to make it easier for our loved ones should anything unexpected occur.

Here are the four most common mistakes that people make when buying life insurance;

1. Chasing the best price, and not the best cover

Let’s face the facts; we buy life insurance to have some sort of peace of mind if something major was to happen to us.

In saying this, we’re always reluctant to pay too much for cover. Cheaper policies (aka too good to be true) can be riddled with potential issues, so have a good read of the fine print and look into the providers claims and dispute handling history, and MOST importantly, above all else, review the listed policy exclusions.

2. ‘It’s ok, my superfund has Life Insurance

I have heard it one too many times. People often rely on the Life Insurance cover provided by their individual superfund.

Most super funds provide a default level of cover but, this is often well below the level most people need. Have a look at your latest super statement and see if the level of cover will even cover half your mortgage. Chances are, it won’t.

Did you know some policies are canceled automatically when you change jobs or stop receiving super money from your boss? It’s important to know and understand all the finer details when it comes to life insurance and super. Do your research; it’s worth the extra time.

3. ‘I don’t need advice, the guy on TV said its easy

Buying a Life Insurance policy is as easy as buying chocolate. Nowadays, it’s all a matter of picking up the phone or clicking a button online, and your Life Insurance Policy is sorted. You can walk into Coles and buy toilet paper and life insurance, all in the same aisle. It’s accessible. However, accessibility can be dangerous. Like I always say if it’s too good to be true, it is. Life insurance that is quick and easy to get may be declined at claim time for reasons such as non-disclosure, exclusions or hidden clauses.

Sitting down with a qualified and independent financial planner means you can benefit from advice on a multitude of policies that can be tailored to your needs. There’s no point in taking short cuts when it outrageously increases the risk.

4. Life changes, so should your insurance

Make the conscious effort to review your cover annually, and adjust accordingly. You may need to make some changes if;

·         You’ve recently been married or divorced (hopefully not within the same year!)

·         Have children on the way, or children who have left the nest.

·         Have an increase in income, more debt or are paying off a mortgage.

All these are circumstances shape the level of cover that you have, and naturally change over time.

We never buy life insurance for ourselves. It’s a small investment that we make to ensure that we don’t leave our families high and dry in the event of our death.

Spending 20 minutes to consider your life insurance choices now, will avoid any confusion later on. In my opinion, it’s the greatest gift you can give.

Find our more about the Life Insurance policy that is right for you by contacting Partners In Planning.

Finding the Perfect Financial Planner

Finding the Perfect Financial Planner

With a Royal Commission into the finance industry just around the corner, it’s important now, more than ever, to obtain accurate financial advice. We’ve created a list of go-to questions to ask before partnering with a financial planner.

Traditionally, the local Bank Manager was seen as the oracle of all things financial. Our parents would look to the Bank Manager to obtain advice and guidance on all things money. Oh, how the world has changed.

Now, banks employ teams of Financial Planners to give advice and indirectly sell products that, in many cases, the banks own themselves.

The big question is; how can you be sure you’re getting the best advice, without being sold an in-house product that may not meet your needs? How do you decipher through all the financial jargon, and reach a point where you’re satisfied with the information you have, and the product that you have received?

It’s true, having the right financial planner can make a world of difference. Research by the Financial Services Council has shown that people who received financial advice were almost $100,000 better off in retirement. However, how do you know which financial planners are putting your best interests before theirs?

To get you closer to your financial goals, here is a list of questions to ask before you decide to partner with a financial planner;

1.      Who owns/controls your license to give financial advice?
         It’s a sad fact 80%* of financial planners are owned/controlled by the banks.

2.      What are your qualifications?|
          It’s a worrying fact only 52% of advisors have a tertiary degree or higher.

3.      How many years experience do you have?
         This is important. They may have the knowledge, but do they have the experience?

4.      What are your fees? And how do you charge?
         If the fees outweigh the benefits, what’s the point?

5.      Does the planner have a conflict of interest with any in-house products?
         If they manufacture the products, how do they have a clear view of what product is best suited to your needs and requirements?

Asking these questions upfront at your first financial planning meeting is a responsible measure to take to help avoid any unpleasant surprises down the road.

Be sure to chat to Partners in Planning about all of your Financial Planning needs. Financial Planners Melbourne.