Fixing financial advice
I would like to endorse and add a little to the remarks made by Rhys Wood in his submission to the Financial Systems Review Panel.
I sold my practice and retired from the industry in 2011 after more than 30 years as an adviser. I was the Northern Territory’s first certified financial planner (CFP) in 1994 and completed a range of financial studies before and after.
There is no doubt in my mind that the legislative requirements now surrounding the provision of personal financial advice:
- Fail to make a material difference to the quality of advice being provided to the wider public.
- Are driving even the most professional advisers into the clutches of the Institutions. (I believe in Darwin there is only one adviser not ‘connected’ with an institution or product provider).
- Make it virtually impossible for a qualified sole practitioner wanting to provide independent advice to obtain an AFSL and serve his clients accordingly.
- Has done nothing to drive down the cost of advice. In fact, the costs have gone up.
Acting on Rhys Woods’ recommendations would go a long way toward resolving these problems.
Reverse mortgage pitfalls
Regarding Scott Francis’s article on reverse mortgages, I would like to make a comment.
Everybody understands (or should before commencing one) that with a reverse mortgage, the loan is to be paid out from the sale proceedings. Everybody also understands that there is a matter of compounding loan interest that needs to be taken into account.
In situations where the borrower does not want to have the asset sold and the loan repaid on their death, ugly things start occurring. For instance, if the borrower wants to pay the loan out, things like broken contract, early payout fees are brought up by the lender.
Some years ago I had some clients that were insistent that I organise a reverse mortgage loan for them. Even though I advised them to research other ways of receiving some cash flow, i.e. sell the house to family relatives, then pay rent, sell the house and purchase a smaller one, they said that if I didn’t organise the loan for them, they would go elsewhere. So, I organised a loan of $79,800 for them.
Then, guess what? Four years down the track, circumstances changed and they wanted to pay the loan back to the lender. But thanks to compounding interest and an early payment penalty, it cost my clients in excess of $150,000 to repay the loan of $79,800. So, there are many things to take into account when contemplating a reverse mortgage.
Taxing share trades?
I keep reading about the unsustainability of the Federal budget in the medium to long term. The media focuses on the realistic but sensationalist issues such as pensions, healthcare etc., with dire warnings about cuts and deferrals.
One thing which has gone quiet, and that the Treasurer hasn’t mentioned recently, is the possibility of taxing equity trades. This makes sense to me. Whilst it will increase my cost as an SMSF, it will gather greater revenue from the high frequency traders (see Eureka Report’s latest article on HFT). As far as I can see, the HFTs add absolutely nothing to the economy.