The incentive to succeed

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					The incentive to succeed
John Collett
September 23, 2009

It's not what you earn but what you do with it that matters. John Collett reports.

                                                        Many of Australia's wealthiest people started out
                                                        with nothing more than a will to succeed.
                                                        Despite humble beginnings they used their
                                                        limited financial resources to great effect and
                                                        built empires. Yet there are many people on
                                                        high salaries who have little to show for it after a
                                                        lifetime of work.

                                                        The BRW rich lists are littered with the names of
                                                        hard-working migrants who have struck it rich.
                                                        Con Makris, the Adelaide shopping mogul, rose
                                                        from modest beginnings as a Greek migrant and
                                                        worked several jobs to save enough to buy a
                                                        fish and chip shop.
Then there's apartment king Harry Triguboff, who has been wary of taking on too much debt ever since
he almost crashed in the credit squeeze of the early 1970s. David Barro, the founder of Victorian
building supplies and transport company Barro Group, who died in June this year, came from Italy in
1936. After working in the construction industry, he started his own cement and paving business in the
backyard of his family's home.

These stories demonstrate that it's not what you earn but what you do with the money that matters.

Building wealth, even on a small scale, demands discipline and direction, starting with saving and
investing. Most people leave it too late and their approach is often haphazard and ill-defined.

Apart from iron determination, the empire builders were quick to recognise the value of good advice.

Yet depending on which survey is used, only between 22 per cent and 34 per cent of Australians access
financial advice.

And the need has never been greater. Our financial lives are much more complex than our parents' and

Past generations may have retired without the superannuation benefits those in their 40s and 50s will
have but the older generation would have had some savings and their mortgage paid off by the time they
retired. Those close to retirement now are more likely to be carrying large mortgage debts into

Of households with a main resident aged 55 or over, the proportion still holding a mortgage against their
home rose from 10 per cent to 16 per cent between 2001 and 2008, according to Australian Bureau of
Statistics data.

With higher house prices, bigger mortgages and more people using their mortgage as a line-of-credit to
fund lifestyle, more people need help managing debt.

"I have no problem with debt over an investment unit as long as we are convinced that the property is
going to go up in value and there is an exit plan," says financial planner Peter Nicholson of Peak
Financial Planning, which is licensed through Count Wealth Accountants. "But I have a problem with
personal debt in retirement.

"I would not be comfortable to see any of my clients in that situation. I would have planned well before
retirement not to have personal debt as I would have advised them to save more and reduce their debt."

Another area of increasing complexity, where a planner can really help is estate planning. With more
marriages ending in divorce and more blended families, planners are spending a lot more time with
clients on estate planning.

"Good financial planning helps people plan and manage their financial situation, helping to build wealth
and achieve financial security," says Andrew Heaven, an AMP financial planner with WealthPartners
Financial Solutions.

"A financial planner can work with people to review their financial situation and help them set short- and
long-term financial goals." And superannuation is at the top of the list for planners.

"Studies have shown that over a working life of 40 years, the 9 per cent compulsory superannuation is
not enough to fund a comfortable retirement," Heaven says. The total contributions into super should be
about 15 per cent, he says. Planning advice is needed earlier than most people think because the new,
lower limits on how much can be salary sacrificed into super mean people have to start topping up their
super earlier than in the past, when they could leave it until a few years before retirement.

Most people seek advice because of a trigger point, says Laura Menschik, a financial planner and
director of WLM Financial Services.

Changing jobs, redundancy, an inheritance or planning for retirement can all prompt people to seek

Sometimes it is mostly about a reality check for the client, Menschik says. "A good planner should be
able to add some focus for the client, establish realistic expectations and take a disciplined approach,"
she says. But the plan will most likely have to change as life's circumstances change.

"Clients tell me they are getting married and not planning on having kids and six months later they are
pregnant and then I get the call to say it is twins," Menschik says. "What you did with them six months
ago goes out of the window and we have to re-adjust for their new situation."

But she says that a few goals should apply to just about everyone. For most people a very good strategy
is to pay off "bad debt" first: that which funds consumption, not investment. This is where the interest is
not tax deductible, such as credit card debt and personal loans. The debt with the higher interest rate
taking priority.

Menschik says that for most people home ownership is a good financial and lifestyle goal. The principal
place of residence is free of capital gains tax and the equity in the house can be used, down the track, to
help generate further wealth with a redraw facility.

The family home is also exempt from the age pension assets test. Estate planning, income protection
insurance and life insurance are also important to protect the family and the children's inheritance, she

Financial planner Wayne Leggett, a principal of Paramount Wealth Management, which is licensed
through Sentry Financial Services WA, says earning capacity and the standard of living in retirement are
not always related. He says it has more to do with having good savings and investment discipline. "I
have seen some very heavy hitters get to the end of their working lives without a lot to show for it,"
Leggett says. "I have also seen people of modest income make a fairly seamless transition into
retirement." He says the biggest ally to getting ahead is time. "The sooner you start saving the better
and that is just because the returns on anything compounds," he says.


The better financial advisers tend to be choosy about who they see.

That is because most of their clients come to them through word-of-mouth and their client list is usually
almost always full, so they can afford to be choosy. But it is also because they require their clients to
show commitment to the process.

Nicholson insists that potential clients do their homework, as he calls it, first.

"If I were to dish up a plan for them, it is my plan and not theirs," he says. By "homework", he means
drawing a detailed balance sheet of all assets and liabilities.

"It is surprising how many people won't proceed on that basis," he says.

A good adviser will make recommendations based on the person's individual circumstances, taking into
account that person's appetite for risk and what they want to achieve.

A planner's advice, once agreed upon, forms a person's financial plan. This is the foundation document
for any comprehensive financial planning relationship. The plan will help people determine what they
have, where they are now and where they want to be in the future.

Then it's a matter of putting the plan into action and reviewing it on a regular basis to ensure it keeps up
with any changes in a person's situation and financial markets.

"No matter how little or how much money a person has, they will benefit by taking a more structured
approach to their finances," Heaven says. "Even just getting a handle on how they spend their money
can make a big difference to a person's finances," he says.


Financial planning has been in the headlines for the wrong reasons over the past few years. But there
are changes under way to better protect consumers, with government and parliamentary inquiries into
aspects of planning after too many investors lost their life savings from bad or reckless advice.

A lack of attention to a client's individual circumstances should ring alarm bells with those seeking
financial advice.

That was something missing with Storm Financial, whose advisers had a one-size-fits-all plan for almost

That was to double-gear them into the sharemarket, using their houses as collateral for the loans. As a
result of the sharemarket crash, many Storm clients now stand to lose their homes and, rather than
being self-sufficient in retirement, have to rely on the age pension.

Yet Storm Financial was licensed by the Australian Securities and Investments Commission and a
principal member of the Financial Planning Association.

That goes to show that anyone wanting financial advice really has to do their homework (See: How to
find a planner).
Good financial planning is much more than just picking investments. Any planner who is overeager to
recommend investments should be treated with caution, Menschik says. "You have got to trust the
adviser and should not feel like you are being pushed into something," she says.


The planning process should involve developing a budget and strategies for saving money, protecting
against risk, managing debts, growing assets and reducing tax liabilities, Heaven says.

It is also about planning for retirement, identifying entitlements for government benefits and planning
what inheritance is to be left to the next generation, he says.

Nicholson is paid mostly by fees and that's his preferred remuneration model but he allows clients to pay
by commissions if they wish. He separates out the advice from the investing. After the client draws up a
detailed balance sheet of their assets and liabilities, there is a series of meetings (at least three) and
Nicholson draws up a detailed financial plan. It maps out where the client will be in five, 10 and 20 years'
time. Most clients can expect to pay a couple of thousand dollars for a comprehensive financial plan.

Planners are now more flexible in how they are paid than a few years ago. They should be able to
accommodate those who just want one-off advice, and answer questions such as: "What should I do
with this inheritance?" through to a comprehensive financial road map.

Good advice goes a long way

Ross Jackson has been a client of AMP's Andrew Heaven for almost 20 years. Over that time, what
started out as a professional relationship has become a personal one as well. Ross says his main goal,
and that of his partner, Lisa, is to save enough to afford a comfortable retirement.

Ross, 40, is the managing director of a small business in Sydney's northern suburbs. His parents were
clients of AMP and he followed in their footsteps. His first foray into investing was buying and renovating
houses. "I'm not a sophisticated investor and I don't have the time nor inclination to become one," he

His circumstances have changed considerably over the 20 years, from being single, to married, to
having a child. On the advice of Andrew, Ross and Lisa have started an education savings plan for their
7-year-old daughter, Kirra. Ross and Lisa meet with Andrew twice a year.

"The relationship with Andrew is one based on friendship but it started as a professional friendship," he
says. Ross still dabbles in property and, though he will ask for Andrew's advice, he makes the calls on
property investing himself.

On all other matters, Ross and Lisa adhere to Andrew's advice. "I ask his advice on everything and do
not do anything outside of what he recommends," Ross says. He likes the fact that his planner is of a
similar age, has a similar outlook to him and that he can pick up the phone to talk to him any time.

How to find a planner

It's no good getting advice unless it's quality advice. That means people need to take their time and
choose wisely.

Unfortunately, the minimum standard required to be a planner is low and some planners are nothing
more than commission-driven salesmen. So how can you be sure of getting the real thing?

The Australian Securities and Investments Commission (ASIC) recommends that you deal only with
licensed planners or people who are representatives of licensees.

But that may not be enough to ensure you get good advice.
Word of mouth is probably the best approach. Seek recommendations from friends and colleagues and
from other professionals you trust, such as accountants and solicitors.

"If you do not feel good with the person then you should walk away," says Laura Menschik of WLM
Financial Services. "You have to trust your adviser because there are going to be lots of questions. You
are going to be asked about your goals, fears and concerns and whether your marriage is stable and
whether you want to leave any money to your kids."

More than 90 per cent of planners work for one of the big banks or insurers, either directly or though a
firm that is owned by one. Having the backing of a big institution can be good for consumers.

When the property developer Westpoint collapsed, many of the smaller planning firms who
recommended Westpoint went into liquidation, leaving clients with no one to turn to for compensation.

However, the institutions have a record of favouring their own products in their recommendations.

Those seeking advice should ask if the planner receives any commissions or other financial benefits for
recommending any particular products. And if there are any products the planner does not recommend
why not.

Planners should be members of the Financial Planning Association, though some planners do not
belong to the association because they believe that the membership standards are too low.

The Financial Planning Association has a referral service at

The Australian Securities and Investments Commission has a guide to finding a financial adviser,
"Getting Advice", at

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