- consider whether Portfolio Rebalancing is worth it,
- look at the new Australian fear index - the S&P ASX200 VIX,
- update major investment market performance,
- outline recent additions to the online blog,
- look at an article from the archive - Winning in the retirement risk zone,
- outline recently published Eureka Report articles,
- provide details from the latest Westpac ASFA Retirement Standard report, and
- provide updated evidence of the three factor model in action.

Users of our website, through our User Voice feedback forum, have requested that we regularly update the graphs outlining the performance of the Dimensional trusts that we use in building portfolios for clients.  In response to this feedback we have updated these graphs to reflect performance up to the end of September 2010.

Commentary:

The main headline for Tuesday’s Australian Financial Review read “Planners’ fees slug consumers”.  If this did not get your attention it sure got mine.  Leong Yeow provided the following analysis:

• Consumers are paying up to 3 times more in annual fees for financial advice since the changes banning commissions were introduced
• Percentage based fees are as high as 1.5% of assets under management
• Additional one-off upfront financial plan fees of $1,000 to $5,000 are being charged

You might think that as a financial planner I would be cringing at headlines such as these.  Granted it is not good for the industry as a whole but personally my reaction is quite the opposite.  It reminds me and hopefully my clients and future clients that A Clear Direction has been positioned to fight against the fee gouging that goes on through the industry.

So how do our fees stack up?

We would prefer to offer clients a flat annual fee that included all financial strategy and investment advice, capped at $4,400 p.a..  For some clients this flat fee is prohibitive so we also offer a fee based on a percentage of assets under management.  The maximum fee that any client pays this firm is 0.55% of their assets under management.  Research I have read suggests the average rate is more like 1.1% of assets under management.

We do charge one-off financial planning fees at a standard rate of $660 per annum,  a little bit more for complex plans.  We think this sits pretty well against the standard $1,000 to $5,000 being charged elsewhere.

One last point to cover is a definition for the term “Assets or Funds Under Management”.  For A Clear Direction this refers to the assets we manage on the behalf of clients.  For investment clients and clients with their own Self Managed Superannuation Fund, we don’t think we need to charge a fee to manage their cash assets so this does not fall under the assets we manage and therefore we do not charge a fee on this.  We do however continue to provide these clients with guidance as to how to make these cash assets work as hard as possible for them.

Without wanting to beat our own drum (we acknowledge we are giving the drum a pretty good going over in this blog) we think our service offering and pricing is very competitive.  In the end though, you need to find an adviser you feel comfortable with and who applies an approach to financial planning strategy and investment advice which you are at ease with.

If you would like to find out more information about A Clear Direction please take a look through our website or get in contact – scottk@acleardirection.com.au

Regards,

Scott Keefer

My wife and I are thirty weeks in to our first pregnancy.  Such a huge life change provides an opportune moment to re-assess life’s priorities and the underlying financial support these require.  However it does not need a life changing event to create cause for reflection on your finances.  The onset of a new financial year is a perfect time to undertake a re-assessment of your financial situation.

I believe there are 6 key tips for you to consider.

Tip 1:               Review the big picture first

Having a clear picture of where you are going is crucial before putting in place any financial strategy.  At the same time try to weed out the aspects of your professional and personal life which are no longer priorities.  Define what’s important and what’s not.  Painting this picture should help you define the non-negotiable financial requirements to reach your aspirations.

Tip 2:               Determine the non-negotiable financial commitments

Probably the most difficult step is to work out what financial support you are going to need to meet your priorities in life, either the lump sum capital or ongoing cash flow.  When you are putting this together don’t forget to factor in the impact of inflation.

Tip3:                Attack your financial decisions like a CEO

After defining priorities and what amount of money it is going to take to reach them you can then start to work on specific strategies.

Being business like with your own personal finances is crucial. The keys are to:

- Measure and analyse your personal balance sheet – assets and debts,
- Assess the use of debt and focus on getting rid of the bad personal debt and rather use tax deductible debt or no debt at all,
- Implement strategies to improve the efficiency and effectiveness of your money through carefully considered investment decisions

Tip 4:               Focus on risk-free cash flow enhancement strategies first

Many focus on finding the perfect investment without first considering how to maximise cash flow through non risky approaches.  By this I mean increasing cash flow through accessing all of your government benefit entitlements, making sure you are not paying too much tax by claiming all the relevant deductions and offsets, and carefully considering your budget to see if savings can be made to help reach those big picture priorities.

Consider the following as examples:

- Claiming valid tax deductions and offsets,
- Opening a first home saver account,
- Making a personal contribution into super to receive the government co-contribution,
- Salary sacrificing into super to build retirement savings and reduce tax,
- Starting a transition to retirement income pension.

TIP 5:  Target strategies relevant to your stage of life

Financial advice should be specific to the needs of the individual but some broad generalisations can be made to help provide food for thought depending on your stage of life.

Age 20 - 35 (Starting out, getting a first job)

Number 1: 'Don't Run it Off Into the Ditch'

This is the age where a lot of people get into financial stress because of debt. Avoiding consumer debt, credit card debt, car loans and personal loans means that you do not have to use part of every pay packet to pay fees, interest of finance companies. If you are spending more than you earn and racking up debt, it is going to be nigh on impossible to be successful financially.

Number 2: Understand the Power of Compound Interest

The younger you are the longer the period of time you can have your money working for you in investments. Compound interest is the effect whereby investment earnings from this year are re-invested and then earn more next year - and so on. $10,000 invested for 41 years and earning 10 per cent a year will turn into $500,000. However compound interest is a long term effect. The power of it is only effective over time so you must be patient.

Number 3: Insure your income

If you get ill or injured and are unable to earn an income this is a major financial risk for someone early in life. The answer to this risk - get a good income protection policy in place, preferably one that pays a benefit through to age 60 or 65 in case something bad happens.

Number 4: Superannuation

Keep your superannuation in the one, low fee superannuation environment invested mainly in growth assets, seeing as it is a long term investment.

Age 35 - 50 (Mortgage and often family commitments)

Number 1: Get some life insurance if you have debts and family - think about how your family/partner would cope if something bad happened to yourself.

Number 2: Pay off your mortgage with extra repayments. If you mortgage interest rate is 7.5 per cent, making extra repayments 'earns' you a rate of return of 7.5 per cent by saving interest on every loan repayment from then. That compares favourably to a savings account where the after tax return is more like 4.5 per cent. This strategy also provides a buffer should interest rates rise sharply at any time.

Number 3: Keep building your superannuation in growth assets - keeping fees low and your account in the one place.

Number 4: Make some long term investments outside of superannuation to provide overall financial flexibility until you can access your superannuation.

Age 50 - 65 (high income years, family becoming independent, preparing for retirement)

Number 1: Salary sacrificing to superannuation saves tax and positions your superannuation in the strongest way leading up to retirement.

Number 2: 'Transition to Retirement' income streams allow people over the age of 55 to take some superannuation benefits as an income stream. People can do this and save tax by salary sacrificing more of their income to superannuation. This is particularly effective after the age of 60 when the superannuation income stream is tax free.

Number 3: Think of a strategy to pay down any debt prior to retirement. You don't want to be servicing debt in retirement.

TIP 6:  Seek out a fresh approach

If you feel like you are stuck in a rut or just not getting anywhere with your finances, its time you sought out a fresh set of ideas.  I am the first to acknowledge that the financial planning industry still leaves a lot to be desired but there are many great advisers out there.  The key is to find someone who is independent from any biases either through their fee structure or because of who they are owned by.  Without these biases you can be confident that they are there to serve you rather than you just being another source of income for them.

Now these 6 tips don’t even start to consider the types of investments you should or shouldn’t be using.  I’ll leave that for another time.

Before too much more of the new financial year gets away, give yourself a well earned break; get to that favourite place where you can think with clarity and start re-assessing your life priorities and the financial structures it will take to reach.

Regards,

Scott