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Video: Financial Planning with Ross Marais


James sits down with Ross Marais from More Time Financial to talk all things financial planning.

In this interview James and Ross chat about:

  • What financial planners do
  • Who should speak to a financial planner
  • The benefits of speaking to a financial planner
  • When to start planning for retirement
  • How much financial planners cost
  • Plus so much more!

Read on below for the full transcription of our interview:

– G’day everybody, James from here, and today we are very lucky to be joined by Mr. Ross Marais from More Time Financial. Ross, how are you?

– Good, thank you.

– Ross is a financial advisor at More Time Financial. He’s got six years under his belt. He’s also the host of the Young Money Podcast that you can find on your different mediums, Spotify is where I listened to it today, helping young people that are getting into the different industries and trying to learn about everything that is money, relationships, all of these things, so make sure you look out for that. This is really exciting because generally at Markets we try to teach people about all the aspects of property and focus on that.

– Yep.

– But one of the most important aspects is budgeting and that’s where I thought it’d be interesting to have you in to talk about sort of the management of finances.

– Definitely.

– And if there is room for property or what else there is out there that could facilitate a property to be purchased and owned and lived in and sold and so forth. So let’s start with your CV in under one minute, Ross, if we can squeeze it in.

– I’ll try my best. So graduated university about six years ago with a Bachelor of Commerce, majoring in financial planning. Started working for major financial planning company that if anyone knows, read too much about the news at the moment, they probably know, three letter company who that is.

– Okay, we’ll leave that to them.

– So, got some really good experience there, but quickly realized, I was only there for about 12 months, quickly realized that the traditional financial planning world, or industry, is tiered towards older people, gearing up for retirement, with large superannuation balances.

– Yeah.

– And it’s all about how can we get more money into soup ups, so they can retire, as soon as possible.

– Yeah.

– And, that was fine, but I quickly got upset, or got disgruntled by the fact that I wasn’t allowed to talk to people my age. I realized there was this big gap, between what we were doing, and then people around my age, or our age, starting their first job, buying houses, and doing those things.

– Yeah.

– And, so I ended up leaving there, and starting the company More Time Financial. And we’ve been going for about four years.

– Beautiful.

– And from day one we had this idea that we were gonna focus on people my age, or our age, our generation, help them manage their finances.

– Yeah.

– And that’s what we’ve been doing for the last four years.

– So, there was a gap in the market, and you’re trying to fill that gap.

– Yeah. Definitely.

– It’s an interesting one, because generally, money is held by people who have worked harder over time to achieve it, and then they’re able to invest it.

– Yep.

– More easily. So, were you finding that people in our position still had enough to give, even though there were houses to be bought, families to be raised?

– Well, I think that’s another one of the big misconceptions that the only thing that we do is invest people’s money, or talk about superannuation, and what I realized was there was this huge, even a bigger gap, between, okay, well how do we, if we’re earning all this money, because like most people we go to school, go to university, and then we started working in this job, where for the first time in our lives, we’ve probably earned more money than we’ve ever earned in our lives before.

– Yeah.

– But, no one really tells us what to do with it. So, obviously we went to the same school, that did a great job of educating us, but I don’t think there, no one really talked to me, I don’t know about you, about what’s a credit card? What’s a bank account? What’s savings?

– How do I manage?

– What’s interest? What’s tax? Like what are all these things? So we go at the base level, and we start from there, and say okay, well you’ve got income coming in, you’ve got expenses going out, what’s left over.

– Yeah.

– And then we can start, okay, well is a house part of your plan? Do we want investment property? Do we want to live in a house, and so we look at the cashflow and the budgeting side.

– Yeah.

– And then we can start, okay, then if we’ve got money leftover, let’s talk about investing, or investment properties, and we build from there.

– So help them take a deep breath, and then align things into a budget of some description, move forward from there. It’s fantastic advice. Well, excellent, excellent. Then we’re in the right company. So let’s start from the basics and then work our way up.

– Sure.

– Like you like to do, so we’ll try and keep that model in this interview.

– Sure.

– So what does a financial planner do, as such?

– So, we help people make smarter decisions with their money.

– Okay.

– Now that’s obviously quite a broad statement. Now that might be something as simple as, you wanna buy your first home, let’s put in place savings plan, to help you do that. Put together a deposit, help you buy a house. Now that goes from something as simple as that, to or something a lot more complex, where grandparents, parents have maybe just passed away, and you’ve just inherited half a millions dollars, a million dollars, what do we do with that money? There’s tax implications. Do we invest it? Do we pay down debt? And obviously there’s a lot more complexities that come with that. We might be working with a young business owner, that manage two, or three, or four different businesses. They’ve got company finances, they’ve got company tax, they’ve got staff, they’ve got staff wages, they’ve got a lot of things going on, but they work with accountants, they might work with lawyers, but no one’s really looking at their personal finances. So once all that every bit of dust has settled, you’ve paid all your taxes, you’ve done everything, you’ve got all this money in your bank account, now what do we do with it? So we spend a lot of time trying to get people financially organized, or financially sorted. Where they might have 10 bank accounts, they might have six super funds, so we just wanna kinda simplify everything.

– Yeah.

– Work it out. What is it they want to do? And align their lifestyle, and financial goals, to what’s going on in their bank account.

– Fantastic. Okay, excellent. So that is what the role of the financial planner is, and if anyone gets confused by what a mortgage broker comes in to it,

– Yeah.

– and a financial planner, they are fundamentally different.

– Correct.

– And an accountant, and a financial planner, are also fundamentally different. Would that be correct?

– Correct.

– So what is the difference between an accountant, and a financial planner, ’cause I know that I hear people trying to align those two, quite often.

– Yeah, definitely. So the way I like to explain it, is that, we’ve got your accountant, that handles everything to do, so business is probable the best way to explain it. You’ve got an accountant for your business, they help you with your GST, they help with your staff super, your tax, the tax planning for the business. They also help with your personal tax, so there’s that small element, they help with your personal tax, that fits in a personal world. So you’ve got your business world, and your personal world. So the accountant helps a little bit on the personal, with your personal tax, but the main focus is on people with the business.

– The business side, yeah.

– We then step in on the personal side, and manage everything to do with your personal finances. So you pay yourself a wage from your company, you take a dividend, or whatever you do. Comes into your personal bank account, now what do we do with it?

– Yeah.

– Are we paying off your debt? Are we investing it? Will we put it into super? And all those things that sit on your personal balance sheet, or your personal side. So then you say, “all right, well I wanna buy a house.” So now, I can’t tell you, or we can talk about the structure, but I can’t legally, under my license as a financial advisor, tell you that you should go and set up a mortgage with ABC Bank, or XYZ Home Loans. We then get the benefit of a mortgage broker, to come in and say, okay, you tell us, because you’re the expert in that field. What loan is suited for you? Or your personal situation.

– Okay.

– So we pass your information to a mortgage broker, they help set up the loan, set up the bank accounts, then you come back to us, and we continue planning.

– Yeah.

– We then go okay, well we need to talk about your tax return, or plan, do some tax planning, let’s get the benefit of an accountant.

– Yeah.

– So we kinda see ourselves sitting in the middle, working together with you, kind of like a, I guess like an architect would on a project, work out what the plan is. What are we actually trying to build? Okay, no let’s go and get the experts. Let’s go and get the town planner in, let’s go an get all those other experts to come in, and help build.

– And have a total, complete picture.

– Yeah, so you bring in the expertise of different advisors, or different professionals, but yeah, I think that’s a key thing that a lot of people just, still today, people think I’m a mortgage broker, people think I’m an accountant, and it’s hard to try,

– But it’s different.

– Yeah. But it’s hard to try and unbundle that, because we’re all talking about money, I guess.

– Yeah. Well you’re not, ’cause you’re not telling a client to buy this house or that house, you’re saying, would you like to buy a house? And if you would, how are we gonna structure everything around you, so you can facilitate that purchase.

– 100%.

– Understood.

– Yeah.

– So, what qualifications then, should we expect from a financial planner? Do you need to go to university? Or are there certain certificates? What qualifications are involved?

– Probably a timely question, because they’ve just gone through a massive change, and a massive reform, that up until right now, up until 2021, I believe, you don’t have to have a degree to be a financial planner.

– Okay.

– So, you can get a certificate, or get a diploma, and you can legally give financial advice, as long as you’re licenses.

– Right.

– Now, they’ve just changed the rules, that you have to have a degree, from going forward 2021, I think it is, January 2021, anyone who’s giving advice now, has to have a degree.

– Right.

– So I was lucky enough

– By 2021

– By 2021. So I was lucky enough to get my degree early, and then start working, whereas, traditionally, a lot of older planners, they didn’t have to have degrees, so they didn’t want to spend the money, or spend the time doing it. So we’re gonna have this mass exodus in a couple of years time of all these older planners, either having to go back to uni, or most of them are thinking about retiring, or leaving the industry.

– Interesting. So that would be a question then, that you would recommend people ask of their financial planner?

– Yeah, definitely. Yeah. So there’s, it’s a bit of a challenging one, ’cause you’ve got, like, my answer to that would be, a mix of paper education, have some sort of qualification, and experience.

– Yeah. Theoretical or practical.

– Yeah. So I would like to say something, a combination of both. ‘Cause you’re gonna have older planners who are the most qualified in experience, but don’t have that piece of paper to show for it, so it’s kinda like, oh, there’s a bit of a disconnect there. But, yeah, I think a combination of both, to obviously make sure they’re qualified and can give the advice that you need, and then have the experience to be able to have seen that.

– So, currently, a certificate will answer any qualms

– Yeah.

– For qualifications. But by 2021, people who like yourself with a degree, will be the only people eligible to give financial planning advice.

– Yeah, legally give financial planning advice.

– Okay, very interesting. So a good question for people at home to ask, should they wish to bump their salary, or figure out how to compartmentalize their finances. That’s a good question to ask.

– Definitely.

– Okay, fantastic. So who then should speak to a financial planner? And why? Why are they speaking to a financial planner?

– I like to think of it like, I use the analogy quite a lot, so if anyone’s heard me talk, they’ll probably get sick of me saying this, but, Think of it like a personal trainer.

– Okay, yeah.

– So, you wanna get fit and healthy. Do you need a personal trainer? Yes. No. Maybe not. Some people are motivated enough that they know what to eat, they know how to exercise, and they can do it, for themselves. Then there’s other people that know they want, know they need to do something, but they either don’t have the time, they don’t have the motivation, or don’t have the skills and knowledge to know what to do. So then they go and hire a personal trainer, they draw up a diet plan, they draw up an exercise plan, and they held your hand, and they be accountable, and they give you the support to help you reach your fitness and health goals.

– Okay.

– So if you translate that to finances, there’s people out there that can do everything themselves, they’re happy to do the research, they’ve got the time, they’ve got the knowledge, and they, more happy, and they can do it.

– And more power to them.

– They can do everything on their own, and that’s great. Then there’s that other subset of people, that either they’re time poor, they’re got so much going on that it’s too complex, to manage, they’ve got multiple investment properties, they’ve got multiple businesses, they’ve going through a divorce, or there’s some sort of complexity, but they just have no idea what to do. And then there’s other people that just, there’s time leaks, so people are time poor, they’ve too complex, or people just don’t really know where to start. So they start their first job, they’ve maybe started having kids, they just not really sure what steps to take. They know they need to do something, everyone knows they need to be better with their money, or they probably should be saving a little bit more than they are right now, but they’re not really sure. Do I put it in a timed deposit? Do I, everyone’s telling me to put it into super, my parents yell at me about putting money into super, should I do that? And we’ve got a lot going on. Like, especially in our age groups, like there’s

– Everyone’s got a side hustle nowadays.

– Well, there’s from that age of like 24, 25, when you leave university, to age 35, we probably experience like 10 to 12 of the biggest major life milestones that we’re ever gonna experience. We’re getting married, we’re having kids, we’re buying homes, we’re getting divorced, we’re starting businesses, like, there’s a lot, a lot going on. And if you haven’t got someone there that’s either guiding you, or pointing you in the right direction, or making sure you’re staying on track, it’s pretty easy to just spend willy-nilly and put everything on after-pay.

– And lose track of the plan.

– Yeah. Exactly. Or have a plan to begin with. So that’s, if you talk about starting with basics, that’s where we kinda start, so

– Okay.

– What is it that we’re trying to do? Why are you going to work each day?

– Yeah.

– Why save? Like, everyone says “well, it’s so hard to save money.” “It’s so hard.” I say, “yeah, I agree.” It is hard. But why are you saving money?

– Yeah.

– I don’t know.

– So look at those goals.

– Well, exactly, so,

– Look at those goals.

– It’s pretty hard to run a race, and finish a race, if you don’t know where you’re going. So, it’s pretty hard to save money if you’ve got nothing to save for.

– Yeah. So people who really are in any position in their life, but if they just want a little bit of glue to hold all these pieces together

– Yeah, definitely.

– Then it’s good to find some advice, or somebody who sees it everyday, and deals with it everyday.

– Yeah. Definitely.

– Okay. They’re the people. And then the benefits obviously, and I think we’ve covered a little bit, but we may as well try and if we can succinctly put them into points.

– Yeah.

– What would be those benefits, of engaging a financial planner? So, we can save time, so because we see it everyday we’re experts, well majority of us are experts in the world of finance.

– Yep.

– So we can save you time by, rather than you searching around, trying to figure out what to do, we can give you advice and make it nice and simple. And we’ve obviously got the knowledge of what needs to happen, and the ins and outs of it. We see it everyday. Been doing it for six years, and I still learn things every single day.

– Yeah.

– So, we find something, and it just amazes me that like we’re still learning, so the everyday person on the street, who are not in there everyday, they’ve got no chance of knowing all the ins and outs of it. So.

– Very important.

– The Australian government, and the Australian financial world, makes it really, really difficult for the everyday person to understand what is actually going on.

– Yeah.

– The rules change every year. The politics, they stuff everything up every year, so to actually know exactly what the rules are, what you are allowed, and not allowed to do, then it makes it quite difficult, so we can obviously help people do that, to give them the advice on what needs to happen.

– A lot of it is clarity. Of what I’m hearing.

– Definitely.

– A lot of it is just giving people, just getting the smog out of their head, and just getting a bit of clarity and understanding that there are ways to achieve the things that they want in life, but it takes discipline.

– Definitely.

– And time.

– Yep.

– And sometimes, that time element is not something that they will be able to find that time in their lives, and that’s where you need to find somebody who can.

– Or some people just aren’t willing to wait to do things. So if you tell someone you need to save for five years, before you can buy that investment property, or buy that home, when they’re so used to

– Netflix.

– Netflix.

– Watching a whole season at once.

– Yeah, or getting food delivered online, getting after-pay, getting clothes delivered the next day. So, I think that’s definitely a big element.

– The world’s getting faster.

– It is.

– It is. Bt that’s a positive, as long as you’re able to harness it, I suppose.

– Yeah. Okay, so before they come and see you, or your team, what should people be doing? How should they be preparing before they come and meet their financial planner?

– Yeah, so. I know for me, the first two things we need to try and figure out from someone, is where they are right now, so what is their current financial position, so if you can speed that process up, and kinda gather that information, then that’s gonna make a big help, and save a lot of time, on both sides. So, if you can, know exactly what your income is, if you’ve got an idea of what your expenses are, you don’t need to have an exact budget, but have an idea of what it is you’re spending, on a weekly, or monthly, or yearly basis, on all those expenses, your rent, your mortgage, all those things, where your superannuation is, if you’ve got any investments, if you’ve got any investment properties, just trying to get all that information together.

– Yeah.

– Because that’s the first thing we need to do. So before we can do anything, we need to figure out where you are right now. So we need to gather all that information, so the more information that they have on themselves the better. And then two, trying to have an idea of what it is you’re actually trying to achieve, what you’re trying to do. So we talked about those goals. So, you don’t need to have it crystal clear, of saying I wanna do this, this, this, this and this, by this date, but to have some sort of idea of what it is, or why do you wanna be better with your money. So you sit down and say okay, why are you here? I don’t know. Someone told me I should come talk to you. So if you’ve got an idea, that’s gonna put yourself in a good position to obviously start planning for us to be able to help.

– Very good advice. Okay. Yeah. Which once again will really give you that clarity, ’cause I think that half the time when you ask somebody, if somebody walks in and they say, “I wanna buy a home.” And I say, “all right, so what are you looking for?” And they can’t, they can’t answer it sometimes, and it makes me think all right, well if you just sit and think about it for five minutes.

– Yep.

– Surprising how little people are able to just sit by themselves and think about things for five minutes, and then you’ll find that it’s not as hard as you made it out in your own head, because you put up roadblocks, which is a natural human response, you put up roadblocks to things you wanna achieve sometimes because you don’t think that it’s possible. But if you take that time, and you just think it through, so before going to see your financial planner, or somebody who’s going to assist you, it’s good to take that time. You know, all right, well maybe I do want a house, I’ve always wanted it, I remember that now. ‘Cause you can forget it. And then that’s your next step.

– Yeah.

– Beautiful, very good advice. Okay, so then when it comes to property, if we can be more specific, how would you assist property buyers and investors, as a financial planner? So, again kind of going back to that, taking that holistic approach, now obviously you’ve got more experience in property than I do, but, you would know the ins and outs that comes with it, but there’s a lot of things that go into either buying, selling, or building property. So you touched on it earlier, about the budgeting side, so before you can buy a property, you need to have a deposit, in most cases.

– Or it’s very well advised, to know what you got.

– Yeah. So, obviously you need to have the income to be able to support any, even if it’s an investment property, you need to have the income, initially, before the bank’s gonna let you loan any money. So we help them look at that part, say, okay, you wanna buy a house. Can we afford it? Let’s run the numbers, let’s work out the income and expenses, and let’s plug in a $600 a week mortgage, or even if it’s an investment property you’re gonna rent out, what’s the shortfall, is it going to be negative for good, how are we gonna, where is that money gonna come from, so negative gearing, great, in theory, but it means you’re losing money, so we need to try and figure out, can your budget, personal, household budget, afford to take on this property, whether it’s to live in, or invest.

– ‘Cause things go wrong, and then how are you prepared to come back when things go wrong?

– Yeah, definitely. And then there’s the tax element, when it comes to property. So, if we’re thinking about investment property, in particular, there’s the tax deductions, there’s the tax depreciation, there’s all those things that come into it, now as we said before, tax is a bit more of the accountant’s domain, but there’s still

– You can touch on it.

– There’s still definite elements, and there’s things that we can do.

– Yeah.

– And then when it comes to the time where you’re going to dispose of the property, if that’s part of the plan, we’re gonna sell down the investment property, or it’s time to sell, or whatever needs to happen, there’s obviously capital gains tax that comes into it, now there’s things we can do legally to try to mitigate some of those capital gains, and again working with a good accountant, we can help, definitely, definitely do that.

– Yeah.

– And then there’s also trying to mitigate some of those risks that come with having a property. So you’ve just taken on a new property, you’ve got a large mortgage, maybe you’ve got kids at home, you’re the breadwinner, whether you’re the husband or the wife or a combination of both, now what happens if someone gets injured and is off work for a period of time. We’ve just based this entire plan, and the bank has lent you all this money, based on you, or your wife, or your partner

– Your circumstances.

– Working full-time on your salary. Now you’re off work for six to 12 months, that’s a big risk because everything is based on you working and income coming in. So the income dries up, everything else falls apart. So we can mitigate risk through things like insurance, or income protection, which obviously most people don’t like talking about, or paying for.

– No.

– But it’s a great way to mitigate some of those risks.

– They have access to the knowledge of how other people have handled these problems in the past, just being able to call.

– Yeah, definitely. Yeah.

– Yeah.

– And then there’s other things we look at, again with the help of a lawyer, is the estate planning point of view. So if you buy a house or a unit or an investment property with another person, whether that’s a partner, or a business partner, or a family member.

– Yeah.

– What happens if, you pass away, what happens if that relationship goes sour,

– Yeah.

– There’s things we can do to put in place from a legal perspective, to say, okay, if I wanna sell the property, but you’re not ready to, you have the right to buy it off me, I’ve the right to sell it to you, if you get divorced, or if you pass away, then your partner if we’re business partners or we’ve gone into this joint venture together, what does that look like legally? So it’s just having that

– They are tough questions.

– Very. Very tough questions.

– But they’re normally the most important are the toughest.

– Yeah, and unfortunately, the excitement that comes with buying property and everything, you can see it getting built, or you get the keys for the first day, no one wants to think about, oh, what happens if I get divorced from this person that I’ve just married two years ago? Or, we’re just so excited about, just finalized this project, and what happens if it falls over. So, we kinda play devil’s advocate from that perspective, say, okay, this happens, like more common than not, this is gonna happen, so let’s just put in place, we hope that this document never, ever gets used, everything runs smoothly, but in the case that someone breaks up, or someone happens, something happens, we’ve got this legal document that says this is how it’s gonna happen.

– Yeah.

– So we have that forward planning we’re always, we’re called financial planners for a reason, because we’re planning ahead. We’re asking

– It’s in the name.

– We’re asking those tough questions, we’re looking forward, where unfortunately most people have put the blinders on and don’t really wanna ask those, or answer those tough questions.

– No. And it’s good to confront them, once again, it could impact on the goals.

– Yep.

– And there are always things that, they may even adjust the goal, in the longterm.

– And I think, a little bit of planning can make a big difference, longterm, and save you, obviously a lot of money.

– I agree with that.

– A lot of money.

– I agree with that wholeheartedly. So then, for finding the right financial planners, somebody as we’re saying, we’re assuming that a lot of people are new to to trying to plan their finances, which is not something taught in schools.

– Definitely.

– You’re fresh out, you’ve come into some money, or at least you’ve been lucky enough to be in a situation where there is an amount, no matter how large or small, that you know that you would like to put somewhere to grow.

– Yep.

– What are the top three tips then, for finding the right financial planner? What should be those questions that they’re asking?

– I think number one would be, can you help me, in my current situation? So there’s a hundred and thousands of great financial planners all across Australia, but unfortunately what we haven’t done great, as an industry, is that it’s so varied. So me, as a financial planner, I work with typically people under 35 years old, and that’s kinda where I like to specialize. Whereas the planner next door, he might hate working with younger people and only work with retirees. So it’s a bit hard to know, just from looking at a website, or looking from the outside. Can that person actually help me in my current situation? So I think number one would be, have you worked with people like me before? And can you help my personal, can you help me in my personal circumstances? So I’m a business owner, I’m not married, I’ve got lots of money to invest, can you help me with that? Or, I’ve got two kids, we’re married, we’ve got no money, and we’re in a lot of debt. Is that typically someone you work with? So I would ask that question, upfront.

– Are you the person for me?

– Are you the person for me? And then, when it goes to trying to find someone, I would maybe talk to other people. Whether it’s your friends, or family, or people in your circle. Colleagues at work, they are typically in a similar kind of life stage to yours. Someone that’s in your similar position. And maybe ask them.

– Someone trusted.

– Yeah. Maybe ask them if they’ve asked with a financial planner before. If you work with an accountant, or work with a mortgage broker, a lot of financial planners have relations with them, so it’s always good to try and get some knowledge first. And what I will usually recommend when people come on board, if it’s the first time that they’ve ever dealt with, or spoken to a financial planner, is go out and interview maybe two or three.

– Great advice.

– Financial planners. Yeah, so, typically we like to see ourselves having a longterm relationship, so we don’t like you to come in tomorrow, give you some advice, then never see you again. We typically take a longer term approach. So if we’re gonna be working together for the next five, 10, 15 years, going to interview

– You’re gonna wanna

– two or three seems logical, or seems like it might take a little bit of time upfront, but if you’re gonna commit to someone, or you’re gonna invest your life savings with someone, you probably want to get to know them a little bit first.

– Excellent advice. And we try and give that advice when we’re speaking to people, that are interested in property, is, have you spoken, how many agents have you spoken to, how many properties have you actually gone and seen, you can’t just rely on seeing one thing, unless it ticks every single box, but that’s just highly unlikely, that that will occur. So there will be things that you like and dislike, so you’ve got to start asking those questions. Fantastic. Okay, this is an interesting one. So we’ll see if we’ve got a case study here.

– Yeah.

– And if you, can answer it you can answer it, if you can’t then that’s okay. We’ll find something else to talk about, but can you give us an example of how working with a financial planner has helped a first-time buyer.

– Yep, definitely. So, I had a client come on, it’s actually just ticked over about three years now.

– Oh, beautiful, okay, yeah.

– And, we set down, and that was the main goal, like as most people have the goal of wanting to buy their first home, which is obviously a great goal to have. And they weren’t really sure where to start. They said, “all right, this is what we wanna do.” They had, I think at the time, had about maybe about $5,000 in the bank.

– Yep.

– On a great income. Just started working, their first kinda career job, so earning good income, minimal debt. We put in place a savings plan. And said, “all right, here’s the goal.” It’s, we want to have $100,000 for a deposit, and we want it in, say three years time.

– Excellent.

– So, now going back to the fitness example, of how do you get fit, okay here’s a plan, just run everyday please, and eat healthy, and all, good luck, we’ll see you in three years time.

– Yeah.

– Which, as I said at the start, some people take it, run, easy, easy done. But for most people, they need that help, and accountability, and support.

– Yeah.

– So what we’ve done, over the last three years, with this particular client, is we’ve put in place the plan, and then we check in on a regular basis. We can plug all their finances into a program that we’ve, we have, and gives us viewing access of their bank accounts. So we can see, on a monthly basis, what you spent on Uber Eats, what you spent on Netflix, what you spent down at the pub, and not a way of saying you’re not allowed to spend money, but we said, “this is the plan, this is how much we need to be saving.” And then for the last three years, each month, we sit down and bore through a report, or every six months we get together and say, “okay, how’s it going?” Are we on track? What do we need to adjust? Making sure that we’re sticking, sticking,

– Where are the weaknesses.

– sticking to the goals. Yeah, because like anything, the first time you do it, it’s gonna be hard, it’s gonna be difficult, and it’s hard to save money, it’s hard to stay on track when you’ve got all these distractions, you’ve got your friends booking trips to Bali.

– Yeah.

– You’ve got weddings, and gadget parties, and bachs, hens, all those things that are easy, it’s easy to spend money.

– Yeah.

– I mean, companies make it really easy to spend money, so by working with us, we held them accountable to the goal, we kept them on track, and we’ve gone, and gone, and gone, and gone, and gone, and a couple of months ago they purchased their first property.

– That is fantastic.

– Reached the goal, and yeah, they moved in, so.

– Was that locally? Here on the coast?

– Yeah, locally, yeah.

– That is fantastic. But there, once again, everything seems to be centering around a theme. And the theme is to be organized, and to have a plan.

– Yep.

– And even if that’s not you, there’s someone there that can support you in trying to be that person.

– Unfortunately when it comes to finance, most people just, it’s too much, it’s complicated, which it is, and they just put the head in the sand, and they just don’t wanna, don’t wanna face it, so, if we can bring that up, we can start talking about it, and get it out in the open, and even people in not so great financial situations, by working with us, we can uncover and realize that maybe it’s not as bad as you thought.

– Yeah.

– And then we can put in place a plan to either pay down that debt, or get you in a stronger, stronger position.

– Excellent. Well that’s fantastic. A great case study, I’m very happy that you had that example ready to go. That’s fantastic. So, wow, that’s an interesting question. I wrote these myself, and I guess I should probably know my own questions. Here’s a couple, I thought, all right. So, let’s drill down a little bit then, to how everybody gets paid, ’cause I thought this would be an interesting question.

– Definitely, great question.

– ‘Cause I think people would think, all right, so what’s the catch here. And hopefully there isn’t a catch. But, how does a financial planner get paid? Is it, the bank steps in like a mortgage broker? Is it the customer entirely centric?

– So again, not a super simple answer for you, unfortunately.

– That’s okay.

– Like most things in our world, they’re more complicated than it needs to be. So traditionally, the financial planning industry was all sales-based. So, you come to me, you need life insurance, I’ll sign you up for life insurance, I get paid a commission from the insurance company.

– Yeah.

– You don’t pay me any money, similar to a mortgage broker.

– Did they have to declare that there was a kickback?

– There was a very long time where it was a very gray area.

– It was very, okay, understood, yeah.

– Where they’ve obviously got a lot better now, at cleaning it up, and making it a lot more regimented. So I came in obviously quite, I was in the industry for a shorter period of time, so I’ve only seen the relatively good side of it, and unfortunately there’s a lot of bad, that just happened. So, they’ve gotten better at cleaning it up, but still today, similar to the example of me working with younger people, next door planner working with older people, everyone tends to have different fee structures, or fee models. So typically, two types of fee structures.

– Okay, yeah.

– So the way we work is a flat fee basis. So you need X amount of advice, or you need advice on these particular areas, I’m gonna charge you a fee up front, and we have to say, “James, this is gonna be the fee, do you wanna go ahead?”

– Yeah.

– There’s no, and this is just us, so we say, “this is the fee, do you wanna go ahead?” This is what it’s gonna be. This is what we’re gonna do for you. So it’s based on a fee for service basis. These are the services we’re gonna provide, and this is gonna be the cost. So, we charge either an up front fee, to say okay, let’s sort everything out, put all these things in place, the fee is gonna be X. Now, if you need us on an ongoing basis, we’re gonna charge you a monthly fee, like a monthly kind of subscription, or a monthly personal trainer fee, to do these services. Everything’s based on this is what we’re gonna do, and this is the cost. And you know that up front.

– Yeah. So you’ve got KPRs.

– Yeah.

– And then you have to stick to those.

– Definitely. And now, the other approach is a percentage or a commission based approach

– Okay. Yep.

– Now, it’s not illegal, and it’s not wrong, or there’s nothing wrong with charging this way, it’s just a different approach. So, if you sign up for life insurance, or you get, if you place insurance with me, I can get paid a commission, or get paid a percentage, from the insurance company. So you might not pay anything, but I would get, as the financial planner in this example, I would get paid from the insurance company, just like a mortgage broker would get paid from a bank. So that’s on the insurance side, there’s a commission built into that, no that’s slowly getting taken away, and over the next couple of years, that’s getting phased down, or phased out.

– Did the Royal Commission have anything to do with that?

– It did.

– Did that impact on the financial planning sector, as well?

– Massively.

– Is that because, a lot of the majors, have financial planning arms, anyway?

– Yep.

– And, my understanding is they’re severing, most of the major seven,

– Most of them are.

– Ties with their financial planning arms. Okay.

– So the problem came, and what’s brought this on, this change, and why we tend to see a lot more planners moving to a fee for service model, some slower than others, but that’s where it’s moving towards, is, there was a conflict. And whether it was intended or not, there was still a conflict. So, you had a bank that provided mortgages, and bank accounts, now you add a financial advisor arm to that, and you walk in the door as a bank customer, and say I need, they say, “you need to speak to a financial advisor.” Now you’re speaking to that financial advisor, as, most people are thinking, as an independent. They’re giving you advice that’s in your best interest. What tended to happen, in the older days, and probably still today, is that they said, “all right, James, here’s what we believe you should do.” We’re gonna recommend product A, B, and C to you. Here’s your three options, we’re gonna recommend product one, because we believe it’s in your best interest. Turns out, that product, has the same logo as the company they work for. So, if you walk into a Porsche dealership, the salesman’s not gonna try and sell you a BMW. He’s gonna sell you a Porsche. So you know that. Whereas, you walk into an advisor’s office, you’re assuming you’re getting independent advice, because you assume that they’re giving you professional advice. But, what happened was that they get a kickback if they recommend their own bank product.

– Yeah, okay.

– They get a commission. So if they go to a bank up the road, they don’t get as big a commission, if they go with the current bank, they get a higher commission. So that’s obviously.

– Was it legislated? Was that behavior legislated against?

– Yes.

– Before the Royal Commission?

– That’s what’s kind of brought it all

– Interesting.

– Sort of a perfect storm of all that’s happening, that’s caused all these changes.

– We’re very loose with home loans.

– Very.

– I mean to the point of the Royal Commission now is just basically making the banks do what they should have been doing for the last 15 years.

– Definitely. Yep.

– So now they’re doing it, finally.

– So, there’s a lot of things where, obviously you have to fully disclose what any kickbacks are, what ever your commissions are, so you as the consumer know exactly what it is. And if I work for a major corporation, or if I’m linked to any financial products, or any financial services, I need to disclose that upfront, and say, “I’m actually employed by XYZ Company, “I’m only allowed to recommend these products to you.” So, it’s not illegal, what happened, it’s just there was no disclosures.

– Yeah.

– You as the consumer.

– They were missing step.

– Yeah, so it’s just, that’s the issue with the commission based model, is that there’s that conflict.

– There’s room for manipulation.

– Yeah. So, are you giving me the best advice? Are you recommending the best product for me? Or are you recommending the product that’s gonna pay you the most?

– Okay. But now they do. So if you say, for example, once again, I have this insurance option A.

– Yeah.

– That we would highly recommend.

– Yeah.

– Do they then have to say, I know you touched on it, but if for insurance, I am going to receive this amount of money.

– Yep.

– If you choose to take the option I’ve put forward.

– Yeah.

– Okay.

– Yeah, so, it has to be fully.

– Well that’s up to the person, if they think the person deserves it.

– Yeah, so, if it’s fully disclosed. If some people take that commission as the advisor, they say, “okay, this is how I’m gonna get paid.” I’m gonna get paid from the insurance company, I’m gonna get paid this much. Where we’ve taken the approach, and a lot of other financial planners do this, okay, we’re gonna take the commission out, we’re gonna take all that out, and it’s gonna make your insurance premiums cheaper.

– Yeah.

– But we’re gonna charge you a fee, for that.

– Okay.

– So, we’re gonna charge you a flat dollar fee, but ultimately it’s gonna put you in a better position, because now we’re not, there’s no conflict.

– We’re here for you.

– There’s no conflict

– We’re entirely here for you.

– of what products we’re choosing, because you’re paying us, and that’s the only way that we can, we get paid.

– Okay. Wonderful. Very comprehensive. And nothing’s ever simple.

– Unfortunately not.

– But I think you’ve made the conflict seem simple enough. In any walk of life, I imagine. Okay, well that actually sums it up. I think, Ross, I think this has been really, really informative, and I very much appreciate you coming in today. Thank you for your time.

– No problem.

– If you wanna watch the full interview, make sure that you log on to the property investment hub, and very soon we’ll be talking to you, so I look forward to tuning in next time. Thanks Ross, and we’ll talk soon.

– Thanks, James.

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