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Financial Happenings Blog
Wednesday, January 17 2007

Here's a dirtly little secret for you. 

We are a financial planning firm, however:

  • We don't think we have any ability to pick shares that will perform any better than average.
  • We can't identify fund managers for you who will provide better than average returns.
  • We can't tell you whether Australian shares, international shares, listed property or direct residential property will perform best over the next 12 months.

Why on earth would you use us as a financial planner?

What if no-one in the financial services industry could do what we know that we can't  do - aren't they just charging ridiculous fees for promising something that they can't actually do?  There is plenty of research that suggest that no-one can pick outperforming stocks, time asset classes and pick better than average fund managers (if indeed any do exist!)

Here is an interesting quote that I came across about the fees charged by the financial services industry:

'We work in the most overcompensated industry in the world'.  Patrick Gedde.  Patrick is a renegade from the top echelons of financial services. For several years he served, first as Former director of quantitative research then CFO at Morningstar, the leading US company for researching and appraising mutual funds.  (Patrick went on to establish a financial planning practice that used index funds for portfolio contstruction).


There is a huge amount of scientific research that supports our ideas - and suggests those people representing that they can do these things are wrong - and charging a fat fee to be wrong!  Working with a financial planning business, and there are others beside ourselves, who base their business on the reality of how investment markets work provides a number of benefits for clients.  These include:

  • We know that fees are extremely important in getting successful financial outcomes - they have to be kept low!
  • We know that asset allocation is crucial - this is the most important portfolio factor to get right.
  • We know that trading has to be kept very low - keeping the portfolio tax effective.
  • We know that a long term approach has to be taken and will, in time, yield a good result.
  • We can build realistic expectations for clients, who will understand the need to stick to a long term plan to get good results
  • We know that STRATEGY is more important to a client than investments - we have to get that right!


Posted by: Scott Francis AT 06:04 pm   |  Permalink   |  Email
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