HOW TO CHOOSE A FINANCIAL PLANNER THAT WILL MAKE – NOT BREAK – YOUR PROPERTY PORTFOLIO
With any investment comes risk – property is no exception. In order to minimize risk and maximize your chances of success, thorough research and planning is essential. If you are investing in property because you want to reach financial independence, it makes sense to choose a financial planner to help you understand and mitigate whatever risks are involved.
While having the right financial planner can make your property portfolio, having the wrong one can break it – and when you hear about the number of investors who have lost everything due to dodgy financial planners, it becomes no wonder that many Aussies see hiring a financial planner as a risk in itself. On the other side of the coin, however, not hiring a financial planner also carries a massive risk – the risk of not knowing what you are capable of and how you will deal with any changes that may arise. So, how do you choose a good financial planner in an environment where in the past some “glorified salesmen” have dampened the industry’s public image? We spoke with Dynasty’s Hasitha Perera to find out.
WHY USE A FINANCIAL PLANNER?
Hasitha Perera is the founder and Principal Advisor at Dynasty Private Wealth – an independently owned Financial Planning Service and Authorised Representative of GPS Wealth Ltd which is the licensee. He says, it is common for property investors to overlook some very important variables when structuring their investment strategies. These variables include the possibility of changing jobs or being unable to work for a period of time. Young couples who wish to have children in the near future need to plan for a period of single-income living. Perera says, a good financial planner will take a careful look at your situation and goals and help you devise the best strategy for achieving them. They will also take into account possible lifestyle and financial changes that may affect your investing strategy as well as devise contingency plans in order to mitigate risk – that four letter word that a lot of young investors don’t want to think about. He says, without having a plan B in place you may end up financially worse off than when you started.
And don’t think they will stand by and let you bite off more than you can chew. Perera says, a good financial planner will take the time and effort to question the practicality of your goals if they think they are unachievable, giving you a reality check that could save you from future ruin. Perera says, a good financial planner will also assess how your investments will impact your cash flow and help you to develop a budget to deal with these changes.
When setting up your property investing strategy, a good financial planner will also act as a “pivot point,” helping you to identify which other professionals you need to engage. Perera says, within your success team, your financial planner can then act as “a sounding board for any changes or concerns” that you may face.
Once your strategy is in place, they then will revisit and revise your investing to assess whether it is on track and in line with any legislative or personal changes that may have occurred. Perera says, a lot of investors focus on where and how they are going to start, but don’t keep track of how their money is performing over time. He says, “it’s never a set and forget strategy.” Engaging a trusted financial planner can not only put both your current and future prospects into perspective, it can also keep you on track to achieving your financial goals.
HOW ARE THEY STRUCTURED?
Financial planners can either be independently owned or affiliated with a major financial institution. If they are aligned to a financial institution, such as a bank, it is possible they will be biased towards products sold by that institution. Independently owned financial planners, like Dynasty, are have a much wider range to choose from.
HOW ARE FINANCIAL PLANNERS PAID?
Financial planners usually charge a fee for their service (usually an hourly rate) but might also have commission-based income arrangements (from insurance products). If they rely on selling products as their main source of income, it is more likely you will be dealing with a salesman rather than someone who will spend the time to assess your situation and advise you accordingly.
WHAT TO BE WARY OF WHEN CHOOSING A FINANCIAL PLANNER
Perera says, investors should be cautious of financial planners who do a lot of talking around product-based solutions before getting to know their client’s situation. “They should be asking a lot of questions to try and understand your situation,” he says, “before jumping to a solution.” He says, any planner who starts trying to sell you investment products or life insurance without even considering your situation reveals a motivation to sell rather than advise.
You should also be wary of financial planners who might appear to try and steer you away from property investing in favour of investments they can give advice on, such as shares and managed funds. Perera says, it is important for a financial planner to understand and support your motivations as a property investor, even though it is an area that financial planners can’t advise on in terms of where to buy, etc.
WHAT TO LOOK FOR IN A GOOD FINANCIAL PLANNER
THOROUGH ASSESSMENT OF YOUR NEEDS
The best financial planners will take the time to assess your situation before even thinking of solutions. At Dynasty Private Wealth, Perera gives a copy of their licensee’s Financial Services Guide to new clients and asks them to fill out a questionnaire before coming in for their initial consultation. He says, he reviews their responses to determine what they want to achieve and where they are at financially. He then has a phone discussion with them about the areas in which he thinks they are doing well, areas for improvement and how their property investing fits into all of this. He offers some strategic solutions for the clients, who then have the option to come in for an in-depth discussion on the best way forward for them.
EXPERTISE IN PROPERTY INVESTING
As a property investor, you will benefit the most from a financial planner who has expertise in helping other property investors. Perera has worked with Nathan Birch since the good old days when Nathan had a mere 20 or so properties. Since then, he has helped numerous clients follow a similar path. This has allowed him to integrate and understand the goals and strategies of invested clients as part of his professional repertoire.
ABILITY TO EDUCATE
The best financial planers will take a holistic approach to your investing. If they think you will benefit from diversification, they will be able to educate you on the best way to integrate your property portfolio with other types of investments.
It is also best to go with a financial planner who is transparent about any affiliations they may have and how they charge. This will give you peace of mind so you can focus on your investing strategy without fearing unexpected costs and/or product recommendations that benefit the planner and not you.
HOW TO FIND ONE
KNOW WHAT YOU WANT TO GET FROM THE RELATIONSHIP
Understand what you want to achieve and what you want to get out of your relationship with a financial planner. This will give you a point of reference for assessing different planners and what they offer.
TALK TO YOUR BANK
Perera says, as a starting point, investors may like to speak to their bank’s financial planner. Although they could be biased towards advising on the bank’s products, they usually don’t charge for the consultation. This may help provide a basis from which to proceed in your search – without it costing you anything.
READ THE FSG BEFORE YOUR INITIAL MEETING
A Financial Services Guide is a regulatory document that financial planners must give clients before engaging in business with them. Issued by the planner’s dealer group, it outlines the areas of advice they are licensed to provide, the types of products and services their advisers can assist with as well as how they are remunerated. Perera advises investors to read this before meeting with a financial planner so they can ask questions about anything that is unclear.
DON’T BE AFRAID TO ASK
Ask about which areas of advice they focus on, if they have any preferred areas of expertise and what type of clients they mostly deal with. Find out how long they have been operating and what their prior experience has been.
Check out ASIC’s MoneySmart website for a wealth of impartial financial guidance. You can also check out the Financial Planners Association which offers information about financial planners and what to look for when choosing one. Members of the FPA, such as Dynasty’s Hasitha Perera, must adhere to a code of conduct, ethical standards and undertake continuous professional development.