An Encounter With a Financial Planner

The depiction below, is based on an interview The Finance Guy conducted with an investor. The individual has chosen to remain anonymous, but has agreed to let us post their story. The below tale is not a verbatim transcript of our discussion, it is a reconstruction based on fact. - no names of individuals or companies have, or will be disclosed.

I recently visited a financial planner (in Australia). All I wanted to do was discuss options for restructuring my retirement savings accounts. I want to consolidate my accounts, and confirm that my insurance within the retirement fund is adequate.

The meeting started off with a 30 minute 'fact find'. We discussed my age, a vague overview of my goals, and concentrated on my assets, in particular my investments. I have some shares, and a cash savings account but I am happy with them, and told him that I did not want to make any changes to these.

He then pulled out a picture of a baseball diamond, in which each base represented an investment strategy. Based on the 30 minute analysis of my circumstances, he decided that the best course of action for me, was to follow one of the four strategies he was offering.

The next step was for me to pay him a 'plan preparation fee', of $6,000. I would then sell all my shares and let him invest the money in managed funds. Ongoing fees would be deducted from the investment to pay the fund managers, and to pay him an ongoing servicing fee.

I'm not sure how slotting me into one of four prepackaged strategies was 'personal advice', or why it costs $6,000 to simply put my name on the documentation. I'm sure he has templates with clearly marked instructions such as 'insert client name', and 'insert amount to be invested'. It was a little disappointing that he seemed either unwilling, or unable to provide advice based on what I was originally asking for. Maybe my questions didn't fit in with the pre-rehearsed sales script.

Part of his sales pitch involved telling me how once I invest the money with him, I should leave it in there for the long term. I should ignore market down turns, or periods of poor performance because for me, shares should be a long term strategy

I agree that shares are a long term strategy, and his talk convinced me that I should leave my money with him even if his portfolio did very badly. The part that did not make sense, was why he wanted me to sell my existing shares in order to buy managed funds which would invest in shares (including the companies I had just sold). If he believes that I should treat shares as 'buy and hold'. I'd expect his advice would be to keep the shares for as long as possible.

Moving the shares to cash would cost me around $500 in brokerage (and that's with a cheap online broker). Then there's the capital gains tax. If I sell all my shares, I will realize profits and come June next year, I will have to pay tax on these gains.

Sound advice would have been 'leave the shares as they are'. The right advice was not the most profitable advice. Holding my shares, costs me nothing, and pays the adviser nothing. If moved to his managed funds, then I could be charged fees by the fund managers, and pay an ongoing 'trailing' commission to him.

My original query about retirement savings may have featured in his strategy, but I wasn't going to pay $6,000 for what appears to be a cut and paste financial strategy. Needless to say that my communications with this planner have ended.

I have not ruled out using a financial planner in the future, but I would need to find one who is able to give advice outside of the baseball diamond. I will also meet with my accountant before implementing any strategies.

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