Frequently asked QUESTIONS
What does a Financial Planner* actually do?
People tend to hold a number of misconceptions about the role of financial planners. According to a number of recently published surveys, clients of financial planners are generally satisfied with the advice and service they receive, and recognise the value of that advice. Importantly, such surveys also show that people who use advisers are more likely to reach their financial goals than those who don’t.
However, some other people see financial planners as just investment advisers or that their role is solely to do with recommending, or even promoting, certain investment products. It is perhaps understandable that investment savvy individuals may think to themselves, ‘ I can do it myself why should I need the advice of anybody to tell me what fund I should put my money in, or how to finance my investment property?
No doubt some people do have the ability and experience to look after their own finances, but the reality is that most people don’t, and this where the work of financial advisers becomes important.
The advice provided by an experienced financial planner is wide ranging and requires a deep understanding of the complex world of finance in the context of forever changing laws and regulations. For example, a financial planner needs to consider such things as an appropriate retirement savings strategy, helping a client to decide on the right asset ownership structure, looking at the risk entailed in various investment alternatives, and alternative strategies to manage and reduce the cost of debt. In essence what financial planners do is help each client meet his or her financial goals, taking into account individual circumstances and aspirations and the options that are available to them.
Financial planners need to be able to advise clients how to balance current lifestyle preference against future financial expectations. They also help clients understand the difference between lifestyle assets – such as a car, and investment assets – such as shares, which provide for a future lifestyle needs.
Many people are also at least partly unaware how financial planners charge for their services, what licences and qualifications they must hold to operate legally, how the industry is regulated, and who benefits from a planner’s advice. These issues must always be clarified to client expectations. Further major questions routinely arise such as:
Do I need more than a standard will?**
A standard Will offers little assistance to a beneficiary of an inheritance in relation to issues of tax efficiency and asset protection. In contrast, a modern estate plan will include testamentary trusts which will provide your beneficiaries with maximum flexibility in dealing with their inheritance.
The usefulness of a discretionary Will trust to a beneficiary will depend upon the beneficiary’s specific needs and circumstances at the time of your death so it is important that the terms of the testamentary trust are sufficiently wide to offer the beneficiary as many options as possible so as to provide freedom and flexibility. Because a testamentary trust can live for up to 80 years from your death it can provide flexibility, asset protection and taxation advantages for many generations of your family.
To put it simply, instead of leaving an inheritance directly to a nominated beneficiary you leave the inheritance to your nominated beneficiary as trustee of a discretionary trust with wide discretionary powers. The trustee of the testamentary trust (normally the primary beneficiary) has complete discretion to determine who receives the income of the trust.
An experienced estate planning solicitor will be able to prepare the documents that will ensure the smooth transfer of assets from one generation to the next.
What is a mortgage consultant?**
Traditionally, banks and other lending institutions have distributed their own products. However, as markets for mortgages have become more competitive, the role of the mortgage consultant has become more popular. Today in most developed mortgage markets (especially the US, UK, Australia, Spain and Canada) mortgage consultants are the largest distributors of mortgage products for lenders.
The majority of mortgage consultants are regulated to ensure a level of protection for the consumer. The extent of the regulation depends on the jurisdiction.
What is risk insurance?*
The business of insurance is sustained by a complex system of risk analysis. Generally, this analysis involves anticipating the likelihood of a particular loss and charging people enough in premiums to guarantee that insured losses can be paid to property holders when a loss is incurred. From the insured point of view, the individual/company is managing risk that cannot be avoided. You could die, the house can burn down, your salary could stop, etc.
Whenever you decide not to seek cover for loss or harm, you are gambling that you/your family/your business will survive the odds that are contained in risk analysis science. That is, that your assessment of risk is preferred to calculated risk, based on actual experience and personal profiling. The practice of appraising and controlling risk has evolved over time for one primary reason: avoiding, mitigating and transferring certain risk creates greater predictability for individuals and businesses and to allow people and organisations to use the existence of risk more consciously and intelligently to maximize their opportunities, both economically, financially and in terms of securing peace of mind.
There are very good reasons why the issue of insurance should be at the forefront of mind for everyone and not as an option to ignore or postpone. What are the most common types of insurance? The most common types of risk insurance are: Death Cover – provides money for families upon the death of the main provider, Income Protection – protects your most important asset – your ability to earn an income Critical Illness/Trauma – provides money in the event of medical trauma, such as Cancer, Heart Attack, Bypass Surgery or Stroke.
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*Advice provided by Dollar Growth Financial Planning Pty. Ltd. as Corporate Authorised Representative (321108) of PJSBA Pty Ltd. AFSL: 480991 ABN 57 606 215 356.
Philip Enger (Number 239393), Simon Enger (Number 274975), and Handan Dikici (Number 288307) are authorised representatives of PJSBA Pty Ltd.
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**Professional services advice other than Financial Planning advice, are licensed by their own individual Professional Associations and are therefore not endorsed by PJSBA Pty Ltd. as annotated above.