They make used car salesmen look good …Personal Financial Advice or Product Flogging

The financial planning industry (and a number of accountants dubiously playing on the edge) has come under intense fire recently.

The downturn in investment markets has exposed a number of products that have not turned out to be in clients’ best interests. These include high yield mortgage funds, absolute returns funds, agribusiness and protected equity products and excessive margin lending.

Criticism of planners and offending accountants that promoted these products is well justified. In many instances, it is difficult to resist the conclusion that their sale was driven or too heavily influenced by what was best for the promoter.

But, judging from public responses to a number of recent newspaper articles adverse to financial planners many people also blame their financial adviser for recent poor investment performance and/or failing to get them out of share markets prior to the downturn.

This reaction suggests a failure of advisers to explain or admit that they cannot predict the future. Or, maybe, some claimed they could! And their clients irrationally chose to believe them!

What do professional financial planners do?

But if personal financial advice is not about picking winning investments and successfully timing entry to and exit from share markets, what is it about? What do professional financial planners offer that they can reliably deliver to enhance their clients’ lives?

Indirectly, our clients provide the answer. When they first appoint us, we ask them to nominate their "top 5" financial planning objectives. To assist their deliberations, we provide a list of typical objectives to choose from or add to.

The eight most frequently chosen objectives, with their accompanying description, are listed below:

1. To be financially well organised To create a Financial Plan that will give you a clear grasp of your present financial situation and help you make the most effective use of your resources to achieve your goals and objectives.

2. General Lifestyle To define you and your family’s version of a desirable lifestyle and achieve it as soon as possible.

3. Financial independence To achieve Financial Independence no later than age …………….

4. Lifestyle Protection To ensure that adequate provision is made for the financial consequences for the family of the death or disablement of you or your partner.

5. Income Tax Planning / Current Cashflow Management To minimise your income tax liability, produce an analysis of your personal expenditure planning assumptions and to ensure that your cash inflows are sufficient to cover your desired cash outflows.

6. Investment Planning / Future Cashflow Management To estimate future cash flow on realistic assumptions and to develop an investment strategy that will enable you to invest your capital and surplus income in accordance with risk/reward, flexibility and accessibility standards with which you are comfortable.

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