Property Report for year 2010..What next ?

                                                                                                        Source: www.smartcompany.com.au


At this time of year it's customary to look back at the last 12 months, as well as make some forecasts for the year ahead.

Well, 2010 will be remembered as the year the property market stalled. Rising interest rates, decreasing affordability and economic uncertainty were a volatile mix that stalled the property boom we experienced in the first half of the year.

While many property buyers think Christmas has come early, some home owners and investors are concerned by the bad news they are reading.

Yes, property prices are flat lining and auction clearance rates have fallen and there are more properties on the market than there are potential buyers, but nothing suggests that the property market is about to crash.

Let's first look at the latest figures from RP Data:

The markets are fragmented

What these figures don't show is how fragmented the markets really are.

What I call "A class properties", properties in prime locations and with an element of scarcity, are still selling well, even though there is clearly less interest from both owner occupiers and investors than there was before.

However "B" and "C" class properties are not selling well. Some have dropped in value – maybe 10% - and some can't be given away (well, it's not really as bad as that, but you'd have to give a very steep discount for someone to buy them).

And all the key indicators suggest the slow down will continue well into the first half of 2011. The number of properties on the market is high and many vendors still have unrealistic expectations. They would like the type of price they would have achieved six or nine months ago, but unfortunately most will be disappointed.

Properties are remaining on the market for sale longer and more vendors are discounting their asking price to sell their properties. Rising interest rates and the prospect of further increases to come next year means there are fewer home hunters competing for the properties that are for sale. With more houses for sale this means more choices for buyers, and the longer homes take to sell the more likely they are to go for a lower or more reasonable price.

What's ahead in 2011?

Looking forward, 2011 looks like it will be another year when our markets are fragmented. The value of certain properties will keep rising, others will stagnate and certain properties will fall in value. However, rents are likely to increase strongly in most areas.

I see minimal growth and more likely falling values in some outer new home owner suburbs and cheaper suburbs where rising interest rate will hit hardest. In contrast, in many inner and middle ring suburbs, increasing demand from owner occupiers, investors and tenants is likely to maintain property values in these areas.

You see, the current tight lending criteria have meant that developers aren't able to build the medium and high density apartments required in these suburbs. This lack of new rental stock together with a growth in the 20-24-year-old demographic group means our vacancy rates will remain at historic lows and rents will keep rising strongly. And this situation is unlikely to improve over the next four to five years.

Why will it take so long?

Currently builders are just not building apartments (other than in the CBD where an oversupply is looming.) Eventually the banks will start lending to developers again – but with the time lags involved in getting developments on stream, all this means it will be quite awhile before our vacancy rate impr oves.

Rents will rise

Even though house price growth has stalled, our capital city populations are still increasing at the highest rates in the Western world. About 150,000 new Australian households are formed each year and each of them needs a home.

When people can't afford to buy they have to rent, and this means that capital city rents are going to rise significantly over the next year or two.

This means that if you want to increase your wealth through property, and take advantage of the new buyers market, then 2011 could be a great year for you, but:

1. You need to buy the right property – one that is bought below its intrinsic value, in an area of strong long-term capital growth and one with a "twist" – with an element of scarcity or one to which you can add value. And...

2. You will need to structure your finances correctly and allow for our changing interest rate environment.

I'm sure the 'chicken littles' will be back again yelling the 'sky is falling', as interest rates rise and affordability bites, however smart investors will be out buying the right type of property.

Sitting on the sidelines waiting to see how things pan out may seem safe to some, but it is likely to mean they will miss out on great opportunities. It is easy to do nothing... as Donald Trump says: "Nothing is easy... but who wants nothing?"

Cheers,

Rashesh Bhavsar
Financial Planner
Fortune Wealth Creation Group
www.fortunewealth.com.au

Portfolio construction: Finding the perfect fit

In an ideal world, all planning clients would have their own individually tailored portfolio of direct investments constructed to suit their personal circumstances and preferences. Indeed, the rise of individually managed accounts (IMAs) has delivered the technological platform to make it easier than ever to achieve this outcome. While it can be a complex and time-consuming exercise, here we explain the key steps in portfolio construction. 

Step 1: Asset allocation – the most crucial decision

A number of academic studies have concluded the most important determinant of portfolio performance is the allocation of funds between the various asset classes. When constructing portfolios, we determine optimum allocations across a series of risk-based investment portfolios that aim to provide appropriate returns for a commensurate level of risk.

Allocations are based on long-term (10-year) forecasts for each asset class, using a rigorous analytical framework to undertake a thorough assessment of each asset class in the broader context of the economic environment and investment markets. We recommend using long-term forecasts as they tend to be less volatile than short-term forecasts and certainly more reliable than historical extrapolations. Growth in income is also steadier over 10-year periods and the effect of a change in valuation ratios is much smaller over 10 years than one year.

Ten-year forecasts are calculated by decomposing market returns into three elements: income, growth in income and the effect of changing valuation ratios. This can then be used to produce leading indicators for meaningful long-term forecasts of future returns.

An example of how this is done is shown in Table 1, which shows the 10-year, pre-tax index return forecasts for various asset classes. 

Once long-term forecasts are determined, the next step is to develop a strategic direction for each portfolio based on your assessment of the relative values of each of the major asset classes. This assessment is used to determine whether positions within the investment portfolios should be underweight or overweight, relative to what is considered a long-term neutral position. 

To demonstrate how this all comes together, Table 2 (see page 17) shows the neutral asset allocations for each of the portfolios. Changes to these allocations, be it underweight or overweight, are based upon the long-term forecasts shown in Table 1. 

Further to these decisions, the planner needs to consider risks and value opportunities within each asset class, for example at the sector or sub-sector level, which should prompt them to tilt the portfolio, typically on a short-term basis, to take advantage where appropriate. 

Step 2: Selecting the assets 

The next step is to determine what assets to use. The options and combinations available are endless – including managed funds, exchange traded funds (ETFs), direct equities, listed property, unlisted property, bond funds, and the list goes on. At its most complex level, this step requires extensive knowledge of the individual assets and managers.

Much attention has been paid to the science of manager and stock selection, and if you can consistently pick the best performing managers to justify the price you pay for them. Regardless of where you stand on this debate, there is no denying it is a challenging task. For this reason, we use ETFs.

ETFs offer broad exposure to the market at a relatively low cost with high levels of transparency. Also as a non-pooled investment, your clients are the beneficial owner of all investments so they don’t inherit another investor’s cost base for capital gains tax purposes. 

Step 3: Implementation – slow and steady or one big bang

Once extensive research has been completed on asset allocation, forecasting and determining which assets will be used, the portfolio has to be implemented. There are two options: investments can either be bought immediately in one transaction, or  value targets for each individual asset can be set, with multiple transactions made incrementally. 

We choose to stagger changes over a period of up to 12 months for two reasons. Firstly, if our asset allocation and investment committee has identified an asset as being expensive, it can continue to get more expensive, sometimes over the course of several years. A gradual reduction in exposure means we can continue to benefit from the positive performance of that asset. 

Conversely if the committee values the asset cheaply, it may continue to get cheaper and we can thus increase allocations more cost effectively. 

In some circumstances however, the decision may be made to implement changes more quickly if the valuation of an asset has become extreme. This means that if asset prices are assessed as being overpriced or very cheap, we increase the pace at which we implement set targets. 

Challenges that can arise at this step in portfolio construction include: what if the market moves against you and your price target is never reached? Do you defer the rebalance? Are you now forced to buy at a higher price or sell at a lower price than you wanted to, to achieve the model allocation? Have the relative market movements changed asset class weightings such that the need to trade is reduced or even removed? 

Like the steps preceding it, the implementation strategy requires significant research on the part of the person constructing the portfolio to ensure cost efficiencies are maximised at every point, and changes in the market are used to the portfolio owner’s advantage.

Are you the right person for the job?

As you have probably gathered, portfolio construction can be incredibly challenging. Successful construction requires planners to manage the objectives of their client’s portfolio on one hand and a forever changing set of economic variables and investment choices on the other – not to mention giving clients advice beyond their investments. 

Individually constructed portfolios are an excellent option for many investors – they offer greater flexibility, control and transparency. But effectively constructing and implementing portfolios is a complex exercise, so planners considering this option for their clients should ask themselves if they are suited to this task and can deliver the returns their clients deserve. 

Source: http://www.financialplanningmagazine.com.au

Self Managed Super Funds: 10 things you should know about when buying property

SMSF, or a self managed super fund, is a small superannuation fund created for 1 to 4 members designed to create wealth. They are suitable for individuals who want to take control of their retirement planning by investing directly and making their own decisions about what and where to invest.
Your Investment Property reports on the 10 things you should know before buying property in your SMSF
1. SMSF must have an investment strategy
No SMSF can exist to create wealth without an investment strategy. An investment strategy is a set of rules or guidelines as to how a trustee intends to invest funds and contributions on behalf of members to achieve their objectives.
An investment strategy can be simple, but it must include actionable strategies to: maximise member investments; provide diversification across asset classes; include a strategy for paying benefits and maintaining liquidity; and take into account each member’s term to retirement, at minimum.
An investment strategy may also define a set of criteria or hurdles (for example yield, lease terms, asset size, etc) in order to draw a line between what is, and is not, acceptable as an investment by the SMSF. This may also extend to specific due-diligence requirements as part of the overall property investment strategy for a fund.
Trustees can set their own strategies, or where they need help they should seek help from a professional superannuation specialist or financial adviser.  Without a strategy, trustees will not be able to determine how direct or indirect property fits into their SMSF portfolio, or what exposure they need to maintain at particular stages in life with respect to when members retire.
2. SMSF can invest in any property type or sector
Generally speaking, a SMSF can purchase just about all types of property (including vacant land) which includes residential, commercial, factories, medical suites, office space, and so forth says David Hasib, director of SMSF Central.
In order to invest widely in any type of property, trust deeds must include provisions allowing direct property as an approved investment. It must also be flexible enough to match the risk profile of the member.
Hasib adds that other option should also include direct shares in a listed property trust off the ASX, or investing in a non-listed property trust. “These funds can have a broad exposure to commercial, industrial, office and even residential properties without the initial high purchase costs traditionally associated with direct property,” he says.
3. SMSF can’t buy property from a related party
It is against the law to buy an asset including property from a related party. All investments must be strictly at arm’s length. Related parties to a SMSF include all members and associates of a fund; employers; and their associates.
The definition of associates of a SMSF member is wide and includes: every member of the fund; relatives of each member; business partners of each member; and any spouse or child of business partners; and any company or trust controlled by a member or associate. This ensures that the transaction is made purely on a commercial basis and avoids potential conflict of interest.
There are three specific exceptions clearly defined by the ATO where an asset may be purchased from a related party, including: a listed security acquired at market value; business real property acquired at market value; and certain ‘in-house’ assets.
4. SMSF can buy your business property
The good news for business people is that a SMSF is allowed to invest in, or buy your business premises, provided it is used wholly and exclusively for the business.
“A superfund cannot purchase or run a business. It is a direct breach of the Superannuation Industry Supervision (SIS) regulations, attracting heavy fines from the ATO,” says Hasib. “However, a SMSF can indeed purchase the property in which a business is being conducted.”
When a superfund buys the business premises of its member, the business simply becomes the tenant and pays the SMSF a commercial rate of rent. “If a mechanic owned a factory from which he run his business, his SMSF would be allowed to purchase that factory from him because it would qualify as business real property,” says Hasib.
This would free up additional working capital to the business owner to expand the business.. It can also facilitate the transfer of an attractive long-term real property asset into the superannuation as an investment.
When deciding to transfer business real property into their SMSF, trustees must take into account:

1. their overall fund investment strategy
2. how this will affect all members
3.  how it will affect liquidity; and
4. whether such a transaction will dilute their diversification benefits through creating a concentrated exposure to one asset.

5. SMSF can develop property
“Generally speaking a superannuation fund cannot develop property,” says Hasib. “However, should a potential development represent a small portion of the fund’s total value and is in-line with the investment strategy, incorporating all the other assets in the fund, it may be successfully argued that it is appropriate.”
Due to the complicated nature of the process, a specialist advice is highly recommended in order to take into account individual circumstances of the members and their fund, as well as the specific profile of any proposed development activity.
6. SMSF can borrow to buy property
In September 2007, S.67(4A) was inserted into the Superannuation Industry (Supervision) Act 1993 (SIS Act), under which SMSFs became eligible to borrow in order to acquire a property as long as they complied with a number of provisions.
“Recent changes to superannuation legislation now allow SMSFs to borrow to acquire assets including residential and commercial property to support their investment strategies subject to meeting a number of requirements,” says Hasib.
Under the new guidelines an SMSF borrows funds to acquire an asset, for example a residential and / or commercial property. A separate trust is established to hold legal ownership of the property on behalf of the SMSF. These trusts are generally referred to as security trusts or warrant trusts. A loan is then arranged to meet the balance of the purchase price (plus costs) that the SMSF is not providing. The SMSF becomes the beneficial owner and manages the property as it would any other real estate investment.
“The loan is a limited recourse loan and the property asset is used as security. In the event of a loan default, the lender only has recourse to the residential and / or commercial property. They cannot claim on any other SMSF assets,” says Hasib.
7. Family and associates are not allowed to stay in SMSF residential assets
SIS law is very strict about residential property owned in SMSFs as an investment, including holiday property investments. They simply cannot be used by members or any related parties. Members including their family, associates and business partners are restricted in using the assets of the fund unless they are business real property, and then only if they are solely used for business purposes by a member or related party, and only where commercial rates of rent and lease terms are being provided to the SMSF which owns the asset.
8. SMSF allows you to buy a retirement home
In retirement, people need an income, and a place to live. One of the most fundamental superannuation questions is whether a member can acquire a residential property asset in their SMSF that will eventually become their retirement home.
According to Hasib there are ways this can be achieved in a SMSF structure.
A couple aged 50 might acquire an ideal investment property on the beach using their SMSF, either with cash, or with some allowable borrowings. The property in the SMSF is rented out, and the rental income plus contributions (any salary sacrifice plus any employer contributions) flow to the SMSF, less the 15% contributions tax. As cash builds up within the SMSF, the trustees use this money to pay off the loan that funded the original purchase. After 10 years they decide the sell their primary residence and pay no capital gains tax. They may then proceed with their plans to purchase the property off the SMSF (providing tenants have left).
If just before they purchase the property off the SMSF, they convert the fund into an allocated pension, as assets sold in pension phase pay no capital gains tax (CGT), then there will be no CGT on either property (note stamp duty is still payable). Purchase proceeds are in the superannuation environment paying them tax free income (assuming 60 years of age and over) and they get to live in the dream beach-front home, purchased 10 years ago using their superannuation, in their retirement.
9. SMSF benefit in the super tax environment
As with all investments in a complying SMSF, because contributions and investments in the fund are preserved until retirement, they enjoy the beneficial superannuation tax regime.
“Just like negative gearing in an individual’s name, the SMSF would benefit from the same tax benefits, that is, tax deduction for the negative component of the interest, and depreciation,” says Hasib. “However the biggest benefit is CGT. Should the fund hold the asset longer than one year and then decide to sell it then CGT drops from 15% of the gain down to 10%, and if sold in pension phase (generally over 55 years of age) CGT is 0%.”
The beneficial superannuation tax environment means that income and capital gains earned from a property held in a SMSF provide greater reinvestment value, being the difference between a member’s individual tax rate on income and capital gains, less the tax rate they pay within the superannuation environment.
10. SMSF must satisfy the law
“It is crucial to seek professional advice,” says Hasib. “The SIS regulation is complex and requires careful consideration before implementation. One also needs to take into consideration the appropriateness of starting a SMSF and weigh up the costs relative to the potential gain.”
It is mandatory that trustees, or would-be trustees, understand the law and spirit of the governing superannuation legislation (SIS). However as trustees of a superannuation fund they must also understand their obligations under the: Corporations Act; and the relevant taxation laws.
For trustees of SMSFs there are no excuses for not complying with the law, and the rules outlined in the trust deed and the investment strategy. Trustee obligations to the members of their funds are regulated by ASIC and the ATO. Penalties for not following these rules can include: your SMSF becoming non-compliant and losing its preferred tax status; the trustee(s) becoming disqualified to act as trustees; prosecution under law; and a range of significant penalties including imprisonment for criminal breaches of the law.
Trustees should keep informed of their duties and where confused: consult the ATO website http://www.ato.gov.au/; or obtain an explanation from an accountant, financial adviser or a lawyer.

Source: http://experts.realestate.com.au/buying/how-to-self-managed-super-funds-10-things-you-should-know-about-when-buying-property?rsf=newsletter

Overwhelming vote of confidence for financial advice

CANSTAR CANNEX recently conducted a survey of consumers who had received financial advice in the past 12 months. We found the overwhelming majority of 87% were satisfied with their experience, while only 10% reported being unsatisfied.

This is a big wrap for licensed financial planners and advisors, as it shows the levels of advice this group of professionals is engaging in to be of value to clients. The high levels of satisfaction reported by clients indicates they are benefiting from specialist knowledge and experience when it comes to protecting their assets.

So our advice is to get advice.

Source: http://www.canstar.com.au/life-insurance/advice-satisfaction/

Regards,
Rashesh Bhavsar
Financial Planner
Fortune Wealth Creation Group
http://www.fortunewealth.com.au/
03 9018 5534

House Prices may go up by up to 20% in next 3 years..Perth, Sydney & Adelaide are set to boom !

AUSTRALIAN house prices may rise by up to 20 per cent over the next three years, despite interest rates possibly reaching 9.1 per cent, but Melbourne will miss out on most of the price growth, according to a respected business forecaster.
A QBE Housing Outlook 2010-13 survey compiled by BIS Shrapnel forecasts house price growth of between 9 and 20 per cent in Australia's capitals over the next three years, the result of a stronger economy and undersupply of housing.
Prices in Perth, Sydney and Adelaide are forecast to grow by up to 20 per cent and Brisbane and Hobart are expected to rise 15 and 13 per cent respectively. Melbourne, Darwin and Canberra will grow the least.

Strong growth in Melbourne house prices last year and early this year combined with a higher level of housing construction - more than in any other state - and worsening housing affordability would slow the city's price growth over the next three years to 9 per cent, below that of all other capitals, the BIS report said.
The forecast follows concern voiced by some economists and international investors that Australia's housing market is overpriced and may be verging on a property bubble.
Investment bank Goldman Sachs recently dismissed suggestions that Australia was experiencing a housing bubble, but said property prices were overvalued by as much as 35 per cent.
Last August, the national median house price dropped 0.2 per cent in seasonally adjusted terms to $457,000, knocking $8000 off the median price for July.
But BIS Shrapnel said strengthening economic conditions and an undersupply of housing in most states should provide substantial upward pressure on house prices.
''Economic growth is also forecast to continue to accelerate, fuelling employment and income growth,'' the report said. ''Price growth is expected to generally peak in 2012-13 as economic growth also peaks.''
Demand for housing from first home buyers was not expected to improve until next year.
Australia's housing market has so far proved more resilient than most other developed nations, partly because of population growth and commodity exports.
In the report, BIS Shrapnel forecasts that variable interest rates will peak at 9.1 per cent in 2013.
''This will ultimately have a slowing effect on the economy and prices, although there may be one last gasp for price growth in some cities in 2012-13 where there is a large deficiency, or affordability is not strained,'' the report says.
''We expect price rises will be underpinned by a deficiency of dwelling stocks across most capital cities, which in turn will lead to tight vacancy rates and solid rental growth, flowing through to increased investor demand,'' said QBE chief executive Ian Graham, who commissioned the report.
Another report released yesterday shows mortgage stress is being felt most in the middle to outer suburbs, but there were fewer delinquencies - defined as failing to pay one or more mortgage payments - in Victoria than other states.
A survey by Moody's Investor Services of residential mortgage-backed securities suggests that most areas in Melbourne have performed reasonably well in terms of loan arrears.

Cheers,
Rashesh Bhavsar
Financial Planner
Fortune Wealth Creation Group
www.fortunewealth.com.au


Source:http://www.smh.com.au/business/property/house-prices-up-20-20101012-16hr6.html

Property Report for September Quarter 2010

I have herewith attached a Property Report for September Quarter. This is a snapshot for Melbourne West. Read Page 3 for to read full report on Melbourne Property outlook. Click here to access the report.

Melbourne West:

Melbourne’s west remains relatively affordable, especially when taking into account proximity to the CBD. And although a levelling of the market is expected in the coming months, there will be no dramatic drop off as demand for suburbs in the west continues.

Vacant allotments in the west represent an especially strong segment with supply not meeting the significant demand. In particular, land with development potential is highly sought. 

There will be an increase in medium density housing as land costs gradually increase in response to the lack of supply. Although clearance rates are high, sale by auction isn’t traditionally the top method of sale in many of Melbourne’s western suburbs due to a stable supply of similar properties within designated regions. 

Deer Park supports this trend with only 11 per cent (REIV) of property sales resulting via auction in the last 12 months. However, this trend is slowly changing as demand for western suburbs’ property increases. Properties in Melbourne’s west continue to be supported by developments in infrastructure such as the additional rail links to the west, new shopping facilities and industrial warehouses on Derrimut Road, and the ongoing construction of Watervale Shopping Centre on the corner of Taylors Road and Calder Park Drive.


Please do not forget to feed my fishes by clicking your mouse on the water and hungry fishes will follow your mouse and eat the food !! 

Cheers,

Rashesh :)

Financial Planner, 

Fortune Wealth Creation Group

www.fortunewealth.com.au

Industry funds have a lot to answer for, says AFA

The millions of dollars spent on “anti-adviser advertising campaigns” by the industry fund movement would be better spent on restoring confidence in superannuation and advice, according to the national president of the Association of Financial Advisers (AFA) Jim Taggart.

Responding to recent Roy Morgan research that revealed a low level of consumer trust in advisers, Taggart said industry funds had a lot to answer for.

“Such campaigns only stoke and prolong the crisis in consumer confidence brought about by the global financial crisis,” he said. “Members’ money could be better spent on campaigns which set about restoring confidence in superannuation and advice, so that consumers are better positioned to grow their wealth and protect their assets.”

Taggart called on advisers to fight back.
“The future of advice is now up for grabs and the only people who can fight this battle are those of us who truly believe in the value of advice.”
Referring to the Roy Morgan research that found that a ban on commissions may make financial advice unaffordable for those that need it the most, AFA chief executive Richard Klipin said it supported AFA’s Back to Basics Consumer Research, conducted by CoreData/brandmanagement earlier in the year.
“The Roy Morgan analysis says what the AFA has been saying for some time now, and that is that the current proposed ‘reforms’ may actually limit consumer access to advice,” he said.

Source:http://www.moneymanagement.com.au/news/industry-funds-have-a-lot-to-answer-for-says-afa

Clarifications to some important insurance questions

Dear Friends

I have clarified some important questions directly with Senior officer at ING Risk Underwriting which was asked by Shail last weekend.

1)      What happens with 3 months waiting period when you review your policy in future, is it starts again ?

Ans: 3 months waiting period only applies to increased level of cover, not the existing one.

2)      Are you able to cancel any one type of cover from your existing Policy in future ?

Ans: For example, if you go for Life, TPD, Trauma and Income Protection cover now and if you decided to cancel TPD or Trauma cover in future, you are able to cancel them without cancelling Life and Income protection. So there is no need to go for new policy.

3)Does Life or Income protection cover is for worldwide and for how long?

      Ans: This is very complex question to explain. I will try my best to simplify.

Scenario 1: If some has a intention to live permanently overseas then ING will not cover.

Scenario 2: If someone does not have any intension and he goes overseas permanently then ING covers worldwide cover for permanently. For income protection, when you claim income protection cover when you are overseas, you need to come back within 3 months to Australia to get continuous claim unless you are not able travel Australia.

       4)If you become unemployed, does income protection cover continuous ? (My doubt)

Ans: Income protection cover will cover for 12 months after you become unemployed for your own occupation and after 12 months it will continue to cover under home-make (home duties) definition.

I personally thank Shail to ask above questions and I encourage everyone to participate to our discussions. These kind of discussions/questions ultimately help you and me to get the most out of my services which is my ultimate goal to provide top quality advice and service. 

Please do not hesitate to ask me any doubt or question and no question is a silly question. The best way to ask me is via email as I can go back as many times and you can clearly explain your doubt.

Cheers,

Rashesh

Financial Planner,
Fortune Wealth Creation Group
http://www.fortunewealth.com.au/
Ph: 03 9018 5534

Myths about Financial Planning/Financial Planner

Myths about Financial Planning/Financial Planner

There’s a lot of misconception about financial planning and how it can help you.  Here is a list of the top 6 myths surrounding financial planning.  We hope that by dispelling some of these common myths you can get a better understanding of financial advisers and how they can assist you to achieving financial prosperity and security.

Myth #1: Only people who have already accumulated wealth and/or assets can see a financial adviser

This is one of the biggest myths surrounding seeking professional financial advice.  Most people believe that you need to have already established yourself financially before a financial planner can help you.  Some financial advisers will only want to work with you if you have some established assets as by advising you on how to allocate this wealth this allows them to be paid.  At Fortune Wealth Creation Group, we follow Fee-For-Service, or charge a flat fee instead of earning a commission.  This means that they are able to assist you in accumulating wealth through things such as setting up savings plans and budgeting, whereas other advisers won’t as they wouldn’t earn a commission for this advice.  The value of advice at the early stages of your life can be just as great, if not greater than when you have already built up your wealth.

Myth #2: Financial Planners just sell their clients managed funds

Many people believe that financial planners just sell managed funds to their clients.  This isn’t true. Whilst a financial adviser can recommend their clients invest in specific investments as one tool to help grow their wealth, a holistic financial planner will look at areas such as debt reduction, tax minimisation, property, shares, superannuation, insurance, and cash flow just to name a few.  All of these areas are important when looking to grow and secure wealth – not just investing into products.  Some financial advisers have a greater emphasis on placing their clients into managed funds as this provides them with payment via a commission.  This perhaps may explain why this myth is a common one.  Not all financial advisers are equal however.  Fortune Wealth Creation Group is in the minority when it comes to offering clients truly holistic advice.  Because Fortune Wealth Creation Group doesn’t earn commissions, its’ financial advisers place just as much emphasis on areas such as paying less tax and budgeting, as placing clients in managed fund investments.

Myth #3: I’ve already got an accountant, so I don’t need a financial planner.

Many people already have an accountant that they know and trust for their financial needs so they don’t think that they would benefit from seeking the services of a financial planner.  What most people don’t understand however, is that although it is very important that accountants and financial planners work together in partnership, both fulfill very different needs.  Financial advisers are trained to take a more holistic approach to your finances than accountants are.  Whereas an accountant will complete your tax return or offer advice for small business, a financial planner will work with you on understanding your life goals and help to implement a financial plan to help you achieve them.

At Fortune Wealth Creation Group, we work closely in partnership with accountants to ensure that our clients receive the benefit of a team approach.

Myth #4: I don’t need a financial planner – I’m nowhere near close to retirement

A common misconception is that financial planners are only to help retirees or people starting to think about retiring.  This is very far from the truth!  Whilst it is true that there are many financial advisory firms whose target market are retirees, at Fortune Wealth Creation Group we believe the true value of financial advice can be gained by starting early.  Most of our clients are younger professionals in their 20s, 30s and 40s who are at the accumulation stage of their lives.  We know that we are in the minority when it comes to our competitors but we are passionate about helping young Australians get ahead financially.  We help our clients to map out the goals they want to achieve in the short, medium and long term, and work with them to implement a financial plan to help achieve these goals.  Time is your biggest ally when it comes to setting yourself up financially – so don’t wait until you are in your 50s and 60s to start planning for the future! 

Myth #5: Financial planners charge too much and get hefty kickbacks from companies they recommend their clients invest in

Financial planners have received a lot of bad press over the years and the result is that many Australians have a very negative view of the trustworthiness of the financial planning industry.  In truth, individuals authorised to provide financial advice to people in Australia are bound by strict regulations from the Australian Securities and Investments Commission (ASIC).  All remuneration received by implementing a proposed financial plan must be clearly outlined in a Statement of Advice (SoA) which must be given to the client.  This enables transparency in the financial planning process so that you know exactly how much your financial adviser will be paid in relation to your financial plan.

At Fortune Wealth Creation Group, we’ve gone one step further and developed a fee-for-service or a fixed fee payment structure so that we don’t receive any commissions from any investment product that we recommend to our clients.  This means that our clients pay for our advice.  We believe that this fee structure helps to protect our clients from potential conflicts of interest.  In addition we offer a range of packages for our clients to select from so that they can feel comfortable that they’re getting value for money.

Myth #6: All financial advisers are the same.  Shouldn’t I just see the adviser at my bank branch?

There are financial advisers, and then there are financial advisers.  Whilst it’s true that all financial planners in Australia must be authorised under a financial planning licence from ASIC, it is important to know that there are potential conflicts of interest that may arise by seeking the services of a financial adviser who is connected to a large institution – be that a bank or other financial institution.  Why?  Financial advisers who are part of financial institutions who offer their own financial products (eg. life insurance and investments) will likely be restricted to a small selection of products that they can offer their clients.  This means that if you went to Bank XYZ seeking advice and the financial planner at Bank XYZ identified that you need income protection – it is likely that they’ll be restricted by the XYZ Bank to only provide you with advice to obtain an XYZ Income Protection policy.  The problem is that your XYZ financial adviser might know that a better policy for your situation can be provided to you by ABC Life Insurance, but because they are part of the XYZ institution, they can’t offer this policy to you.

The good news is that not all financial advisers in Australia are part of large corporations and therefore are better able to provide you with a wider selection of investment and insurance products from a range of providers in Australia.  These financial advisers tend to be known as “boutique” or “privately-owned” financial planning firms as ASIC restricts the use of the word “independent”.  These small boutique financial advisory firms are in the minority as many have been bought out by the larger institutions and do not have the massive monetary resources of their competitors, but they are out there and can offer you great financial advice.  Fortune Wealth Creation Group is one such privately-owned financial planning firm based in the Melbourne CBD.

Myth #7: I can't afford a financial plan right now.

Perhaps part of the reason you think you can't afford one is because you're paying too much in income taxes, interest and investment expenses, all of which a financial planner can help you to reduce. And fees you pay for ongoing investment advice and tax planning are also tax deductible.

Hiring a competent and ethical fee-only financial planner to write you a comprehensive financial plan will probably be the best investment you will ever make.