End of the Year Myth Busting

End of the year myth busting & putting things in perspective...

We are at the finish line of 2011, a year that will be remembered as volatile, emotional and a year of change. So much has happened this year, in Australia and all over the world. So many of those changes happened because someone finally said stop and questioned the ordinary reality they have lived in. Just because things have always been a certain way doesn’t mean it is the right way. It’s good to question or compare things from time to time, it can give you a different perspective on life and it can improve your level of understanding.

Let’s take a closer look at few misconceptions and myths surrounding us every day. They are used in every day conversations so often that they are considered facts. Not many would question them and unconsciously many have their vision clouded by them. The reason why I am writing about them is that if corrected they could possibly change the perception and improve general knowledge of a few financial concepts. Ok, let’s start our myth busting exercise:

Myth no.1 – Superannuation is a risky investment

Superannuation is not an investment; it is a tax structure or a tax environment. It was designed to offer a tax favourable treatment of assets, used to provide you with benefits in retirement. Also it can considerably increase Centrelink eligibility.

The majority of people’s super money is invested in managed funds within their default employer super funds. These are generally exposed to shares and when the share market is volatile (which happened daily in the last few years) their balances would reflect that. But it has nothing to do with superannuation as the tax concept. Most assets widely held outside super such as cash saving accounts, term deposits, investment properties, direct share portfolios, art work, and commercial properties can be structured within the superannuation environment. It comes with certain restrictions, but also considerable tax and Centrelink benefits. So, next time when you hear someone saying: ‘My super lost money’, you can correct them by saying: ‘No, it can’t’. When you think of super, think of tax and Centrelink, instead of performance and investment returns.

Myth no.2 – Shares are risky investments

The only risk that applies here is the emotional risk associated with these assets. Shares generally carry a certain amount of volatility and that is very normal. The share market moves up and down and sideways on daily basis and no one really knows why, nor can they predict what will happen next. But as long as you stick to the fundamentals of buying quality companies, at good value, apply diversification and remove emotions and allow your investment enough time to perform, you are on track to achieve good growth. Unfortunately, average investors fail to stick to these rules and then subsequently blame the investments, of course! Shares generally offer good liquidity, especially if bought via managed funds. This is one of the great advantages compared to other growth asset like direct property. If you are in an emergency and need to cash in a portion of your portfolio, you can, and it is usually done within a matter of days. With property you simply can’t just sell the kitchen should you need cash quickly.  Additionally, shares can pay meaningful dividends which are often at rates higher than term deposit rates.

You are better off seeking a financial planning professional to help you make the investment decisions with you.

Myth no.3 – I don’t need insurance, they never pay claims anyway

You don’t need insurance, you want it. Ok, this is a tricky one. Because there are so many different types of insurances out there, it is often confusing to distinguish what type of cover people mean. There is insurance for everything these days. However, generally speaking, it is sadly personal insurance (Trauma safety net, Income Protection, Life and Total and Permanent Disablement cover) people opt to ignore.

It comes down to this; when deciding what type of insurance to choose from, consider two criteria – likelihood of a potential claim and the extent of the impact the claim would have on your life. Ask yourself these questions, and be honest. When are you likely to be more affected emotionally? – A. Someone steals your car or B. You are diagnosed with cancer of the liver. What will make a bigger impact on you emotionally? – A. Your house gets flooded or B. Your spouse dies and leaves you with two young children. Which is it going to be a bigger problem going forward? – A. Someone breaks into your house and steals your jewellery or B. You have a car accident and end up in hospital with a spinal injury and you are not able to go back to work anytime soon, your income has stopped and your bills continue to appear in your mailbox (not mentioning extra medical bills).

Your lifestyle today as well as the majority of your plans for the future relies on your regular income. Do not get fooled that you can start making plans with your income without securing it first.

An enormous amount of $3.5 billion ($3,567,649,826 to be exact) was paid in Trauma, TPD, Life and Income Protection claims* just in 2010. That means an average of $14.3 million was paid to 245 Australians every working day in 2010. Yes, it pays to have an appropriate cover in place.

·         Statistics are the aggregate from the following companies – AIA, AMP, Asteron/Suncorp, AXA, BT, CommInsure, OnePath, Macquarie, MLC, Tower and Zurich.

Myth no.4 – Industry funds - all benefits to members

This will come as a surprise to a lot of you. But here’s the real deal.

Industry super funds (ISFs) fall under different legislation than retail super funds and master trusts due to their not for profit status. They don’t have to publish gross/net investment returns, but instead they use what is called a ‘crediting rate’. This  provides them with an advantage to utilise it in their huge advertising campaign.

Tax is the biggest cost in super. When an insurance premium or a management fee is paid from your super balance, these are tax deductible expenses to the fund with tax credits normally applied back to your account. But not with the industry funds, you don’t see a tax credit going back to your account. They pool these credits and include them in the crediting rate and therefore overinflate the fund’s total return. It gets better. These funds are then used for what I think is far from benefits to the members. For example, Australian Super has 1.5 million members and an estimated deductible premium of $200,000,000. At 15%, this would mean a rebate of as much as $30,000,000 that the trustee is using for what? Advertising to non-members (possible breach of the sole purpose test?), subsidizing admin fees so that they look cheaper (transparency issues?) are not my idea of benefiting to members. As far as the facts go, they only benefit to themselves.

There is a long list of issues that an average ISF TV commercial viewer doesn’t realise, and is instead misled by the marketing skills of their sales department.

Oh, and by the way, ISFs refuse to be formally rated by the research houses. Probably due to concerns this would uncover cracks in their deceptive conduct by running their campaign of ‘Industry funds are run only to benefit members’.

Compare the pair? No, thank you.

Myth no. 5 - I don’t need financial advice

Financial advice is available for everyone but not taken by everyone. There are two types of people. The first type always complains about the present and only talks about the future and then there is the other type that does something about their life and plans and controls their destiny.

If you got this far through this blog you are probably in the second group. This is a great start. An ongoing relationship with a financial planning professional will enhance the outcomes you are after. A good planner will stop the information noise around you and keep you focused on your goals. They will simplify the legislative and financial complexities and help you to understand the rules. This considerably eliminates a lot of stress and allows you to get a sense of control, helping you stay confident that you are on track to achieve what is important to you.

Financial advice can end up making a dramatic difference to people’s lives. And it often does. So remember, you always have a choice.

After these holidays, upon returning to work and receiving financial advice, would you rather:

A – Ignore the advice, have no budget, make no extra contributions to your super, pay an extra $175,000 in your mortgage interest, try to time the markets, chase investment returns, and simply miss the best days in the markets and consequently have your super last you only few years into your retirement, pay unnecessary tax after you turn 60 and be at the mercy of government support instead of enjoying your retirement?

Or

B – Implement investment recommendations from your financial planner, get on top of your expenses, pay off your mortgage 12 years earlier allowing you to buy an investment property and increase your overall super benefits in retirement, pay no tax and spend the rest of your life taking trips and enjoying the grandkids?

Would you rather:

B – Ignore the advice, watch your life partner die after not having enough liquid funds to treat his/hers stomach cancer condition, miss the precious last months of their life after having to go back to work to pay the ongoing bills and put food on the table for your children, at the same time have no other option but sell the house you lived in with your family for years and where you were looking forward to raising your grandkids, and abandon the plans to fund your kids’ university studies?

Or

A – Implement lifestyle protection strategies with your financial planner, receive a lump sum when your partner is diagnosed with the disease, allowing you to contact the experts and treat the condition immediately, replace his/her income, take your time off work and spend it by their side and speed up their recovery, maintain all your future plans and together attend your kids’ doctorate graduation?

Merry Christmas and Happy New Year 2012, may it be filled only with the good decisions.

Michal Bodi, Financial Coach

Clarity the key to your success

Clarity the key to your success

Perception really is reality. Someone important once said: Give me the power to control the media and I will take over the world. It is fascinating to watch how the media and our politicians mastered their selling process and how successful they are in altering the reality of every day Australians.

Instant access to information of any kind makes it already more difficult and confusing to make any kind of decision. Therefore it is natural that we automatically delay decision making and throw it in the ‘too hard basket’.

Then, due to relentless lobbying via the media or the next door neighbour, we tend to go back and (without much consideration) opt for the imposed option. Without considering the consequences we then quite happily close the subject. There, the case is closed and filed.

If ever questioned about the decision in the future we often get somewhat defensive. It was us who made it in the first place and therefore we protectively don’t want to re-open the subject and potentially change the outcome. The power of our ego usually works its magic from there.

In various degrees I am confronted with this human behaviour on almost daily basis. I don’t blame anyone for behaving in such way. It doesn’t happen consciously. But let’s think about it. Is an access to information and a little knowledge enough to make a good decision? The difference between knowledge and wisdom is realising that a tomato is a fruit but we cannot add it to a fruit salad. Therefore, we need something else, something or rather someone  that will guide us how to use that knowledge.

The point I am making here is that it is up to a financial professional, to clear the fog. To clear client’s mind from the heavy clouds of too much information noise, advertising and confusion. An experienced adviser can provide CLARITY, look at the bare facts and make a rational decision for our client.

In the past we spent a lot of time on basic client education as the effective tool to raise our client’s awareness, it is no longer necessary. There is plenty of information out there and it is not hard to access it. What is important though is to choose the right information and match it with a quality expertise. Only financial wisdom can provide the right direction, take the burden off client’s shoulders and give them a solution that is right and unique to their situation. Once this happens, the reaction we get is usually quite amazing. Once the client realises that we want what they want and that we are going to make it happen for them and that they don’t have to worry about it anymore...it feels great on both sides.

And that is what I believe the financial planning profession should be about. To be there for our clients, to provide them with leadership and clarity they need, so they can rely on us with any important lifestyle decision. It is a noble profession that deserves this recognition.


by Michal Bodi

The value of financial advice

How can we add value? Why pay for financial advice?

How can you help me? Often I get asked by people enquiring about my role. The answer is always, I don’t know, but if you allow me to find out more about you and your life goals, I will be in a better position to develop life plan guiding you to achieve what is important to you. So... how can I help you?

I take pride in my ability to get the best for our clients.  I am personally confident that I can add value to every single person walking down the street. Of course, not everybody wants to receive advice and that also works for me. It gives me a great deal of satisfaction and a sense of accomplishment to deal with clients who perceive the benefits of quality financial advice. I take pride in my down to earth approach; ability to connect with my clients and years of experience and ongoing personal development and training. Often, after meeting new clients, they comment on how they now actually understand the complex and oftentimes daunting financial issues and jargon.

Our initial meeting is all about getting to know you and seeing how we can add value to your financial position and your life in general.  As a rule, we will only go ahead and formulate a plan if it is clear that we can add value to your life and you clearly understand it and instruct us to do so. This way we are both certain that you will be better off. Then we will agree on flat dollar based, initial and ongoing fee and your preferred method of billing.  I will never receive commissions from your investments.

Everyone has a different reason for coming to see a financial planner, and so success means something different to each client.  But, from my experience, in most cases we add value in these four areas:

Practical Value

My advice will save you time. Recommended strategies will give you a structure to go by and confidence and discipline to succeed.  I will streamline, simplify and manage your finances, and help you to make the right decisions.

Intrinsic Value

My qualifications and ongoing professional development mean that I understand the latest rules and how they work.  My years of experience and expertise mean that I know how to explain all this to you in plain English.

Financial Value

This is the most obvious are where I will save you tax, protect your assets, manage and reduce your debts, help you accumulate wealth and make your money work harder for you.

Emotional Value

Our ongoing relationship means that there will be someone there to take care of it all.  This means less stress, more peace of mind and the knowledge that everything is taken care of. The relief you have taken an action to secure your financial future - priceless.