The Wolf of Wall Street has been released in Australia and unlike most financial films it has garnered a great deal of attention.

Most of this is to do with its excess and the cartoonish nature of the film, also the fact it breaks a world record for the use of the F-word on celluloid!

Think Goodfellas, just set on Wall Street and without all the murders.

But is there anything to be learned as an investor? Plenty, but most of it is featured in the first hour before the film turns farcical.

We begin as the film’s subject, Jordan Belfort, has his introduction to stockbroking at a major Wall Street brokerage firm.

His ideals of making money for his clients and his employer are shot down by lunch time, as he’s told, “the name of the game, moving the money from the client’s pockets to your pocket”.

Not that this should be a surprise as an academic study called “Inside the Black Box of Sell-Side Financial Analysts” found over 50% of brokers rated retail clients as “not important at all” to their employer.

After the crash of 1987 Belfort was unemployed and took a job pushing penny dreadful shares to unsuspecting investors.

The sales techniques Belfort learnt on Wall Street made him a star as he convinced investors all over the country to buy unheard of companies based on concocted stories about their potential.

It’s here you get to see those shonky sales pitches that inevitably form the basis for every investment scam or scheme that was ever perpetrated.

And while they might be shonky, they can often be skillfully executed which makes them more dangerous for the unsuspecting.

Be it shares, real estate, trading currencies, computer programs or tax dodges, there’s always a wolf willing to sell their fabulous wealth making secrets.

Yet there’s only one true secret to building wealth – it doesn’t come fast or easy.

It’s that time of year when we get to hear an avalanche of financial predictions for the year ahead – mostly because people are on holidays, but the media still needs to fill space in the silly season.

The television stations and newspaper quote the analysts with their forecasts about what may or may not happen.

So it’s always an interesting exercise to peak in rear-view mirror and see what they said way back in December of last year.

We can start off with Hugh Giddy, senior portfolio manager at Investors Mutual, who wasn’t so giddy about 2013.

According to Mr Giddy, the sale of a 1954 painting by Mark Rothko for $75 million late in 2012 was a sign we were getting ahead of ourselves.

He feared 2013 might be a return to the bad old days, where credit markets froze and shares plunged – this based on some rich guy buying a painting that looked like a 1920’s football jumper.

Chief market analyst at City Index, Peter Esho thought it would be a decent year for mining, highlighting coal stocks for a bounce after a woeful 2012.

Hew Hope, our largest listed coal miner led the way down with a 20% decline for the year (so far) and the results from other coal companies only got worse from there.

The Australian Financial Review told us 2012 couldn’t be repeated, “posing dilemmas for investors wondering how to invest in 2013”.

Of course most investors without an investment strategy or time machine would be left wondering how to invest in 2013, 2014 and 2015 and beyond.

For the record (at the time of writing) the ASX was up around 9% this year and the Dow Jones was up around 20%.

Like every other new year, we don’t know what is in store – that’s why we should have an investment strategy tuned to our risk tolerance and a healthy emphasis on diversification.

The gurus don’t know any more than the rest of us and if they did, why would they tell us?

Everyone have a Merry Christmas!

 

There are some great checklists available to help you choose a financial adviser, especially if you have no idea where to start.  But, most focus on basic questions such as experience, professional membership and the services they offer.

While these are helpful as a starting point, they don’t get to the heart of what determines the quality of the advice and service your financial adviser provides.

I think there are a few additional questions you can ask to help ensure you get great advice and support.

Q1.   How many clients do you manage on an ongoing basis?

Why?

So you can check your adviser has time for you.

If you are one of 400 clients, your financial adviser probably has less than half a day a year to allocate to you, once weekends and the need to bring in new clients is taken into account.  Before you pay for any ongoing service, make sure you are happy with the amount of time your financial adviser is likely to have for you.  Then think about what you’re paying (and what you’re receiving) for the amount of time allocated to you.

 

Q2.   With what other businesses are you, or your company, associated?

Why?

Finding out if your financial adviser has a relationship with another financial services business can identify a possible bias towards a recommendation that will pay them additional money, and may not suit your best interests.

Currently, there is a focus on holding direct property within a self-managed superannuation fund.  Financial advisers aren’t generally authorised to recommend specific properties, but some may refer you to an associated business in which they have an interest.  This business might establish the super fund or identify appropriate properties to buy.

In many cases, this type of referral will be done transparently and there’ll be a compelling benefit to you for dealing with those parties.  But it is important for you to understand who will benefit financially from that referral and whose interests are being given priority – you need to be satisfied that any recommendation is in your best interests.

Also see Question 4 below about referral arrangements.

Q3.   Who owns the license?

Why? 

Few financial advisers have their own license and the majority act as representatives of a licensee that provides the support they need and authorises them to provide advice.  Many of these licensees are owned by financial product manufacturers, superannuation trustees, banks, insurers and fund managers.  The advice provided by their financial advisers tends to be weighted towards the products and services provided by the Licensee or companies in the same group.

So while you may still get good advice, you are far more likely to get advice involving that group’s products.  And you are less likely to be told to dispose of their products or be alerted to a better product or strategy offered by a competitor.

For example, the adviser employed by your superannuation fund is unlikely to recommend a fund other than their own.  In contrast, a non-aligned financial adviser is less likely to be influenced by association and will often have access to a wider range of options.

Ownership or association with a financial institution doesn’t necessarily mean that your advice will be bad, but you do need to recognise the conflict of interest this relationship creates.  That way you can determine whether the relationship is likely to influence the advice you receive.

If you are dealing with a financial adviser from a bank, see the comment about bonuses in Question 5 below.

Q4.   What referral arrangements do you have with other professionals and what fees are you paid for referring to these people?

Why?

You should check what your adviser is paid if they recommend strategies that involve other services they don’t provide directly.  To put it another way, have you been referred to a third party because it’s in your interest or because the adviser will financially benefit from making the referral?

For example, traditional mortgage brokers (who don’t refund trailing commissions) often pay financial advisers who refer clients a percentage of the commission they receive.  This provides a compelling reason for the adviser to refer clients to a particular broker.

In particular, be wary if your financial adviser recommends you speak with a specific property developer.  Even if you specifically sought a referral to a property adviser, always check what your financial adviser is paid and take that into account when deciding if this is the best possible referral available.

The self-managed super fund and property packages, mentioned in Question 2 above, can pay thousands to a referring financial adviser.

 

Q5.   How are you paid?

Why?

If your adviser is paid predominantly from commission, you may get advice that is biased towards products that pay greater commission than others.  This bias can sometimes be removed if your adviser caps their commission, or rebates or reduces the commission they may receive on products such as insurance.

If your financial adviser is paid a salary, ask how any bonuses are worked out.  Also ask when bonuses are determined so you understand at which stage in the adviser’s bonus cycle you are receiving your advice.  You should also check if your adviser’s pay varies depending on which products are recommended.

 

While many financial advisers won’t be used to being asked these specific questions, make sure you choose someone who appreciates why you’re asking and who takes the time to answer each one.

Professional advisers won’t hesitate to address your questions transparently and ensure the advice they provide to you is plainly in your best interests.  If they can’t clearly and easily respond, then that might indicate they are not the best adviser for you. 

Most Australians are familiar with the need to protect assets such as their home and car with the right insurance, but what about protecting your most important asset?

Many people may see their home as their most valuable asset, but in reality the most valuable and important asset for most people is their ability to earn an income.

Consider a 30 year old earning $65,000 per year. If they lost the ability to work, they would lose over $2.2 million in future earnings. That doesn’t take into account pay increases due to promotions or inflation, which could easily double or triple this figure.

Unless you live in a very valuable home and have a very small income, it is most likely that your ability to earn an income will be your most valuable asset.

Each day many Australian workers lose their ability to earn an income. This is generally due to major illness and well as accidents. But it’s not just major incidents you need to worry about. Even just a few months or a few years can have a major financial impact on you and your family.

Protecting your income

Just as you insure your home and your car, you need to consider insuring your income. An income protection policy will replace up to 75% of your income in the event that you cannot work for a period of time. This period of time will depend on the policy options you choose, but for most Australians this period – known as the waiting period – covers thirty days.

The funds from your income protection policy can be used to continue paying your mortgage or rent, along with keeping food on the table and covering all other costs and expenses. Without insurance or any other form of income, this generally isn’t possible.

 What about sick leave or a disability pension?

Sick leave is designed to cover only short term absences from work. Many Australians will only have a few weeks of sick leave available, and even in extreme cases it is unlikely that anyone would have enough sick leave to cover the rest of their working life.

Some people may see Centrelink as their safety net, but the reality is that a disability pension will not meet the needs of most Australians. If you have a mortgage to pay and a family to support, you may find that a disability pension falls well short of your real income needs.

Worker’s compensation is another form of safety net; however this only covers incidents that are work related. If you suffer an illness or are injured away from work, you will not receive anything in the way of worker’s compensation.

 Why is income protection so important?

If you were to suffer an illness or injury that leaves you unable to work ever again, or even just for a few months or a few years, the impact on you and your family can be financially devastating. It’s also an unfortunate fact that financial problems can lead into other problems.

By having the right income protection in place you can ensure that any disruptions to your income that occur due to illness or injury will not have a major negative impact on you and your family’s way of life.

 Getting Protection 

It can be surprising how much income protection quotes vary between insurance companies. We’ve partnered with some of Australia’s leading insurance providers in order to offer our client the best value. Our expertise enables us to select the option that best suits your needs and your budget.

Economic Overview

The dominant theme in the global economy during the September quarter continued to be the prospect of the US Federal Reserve’s tapering of its stimulus program. With US economic signals still mixed, ‘The Fed’ surprised markets in September by postponing its monthly $US85 billion bond buying program.

The Fed expressed it was disappointed with the speed of improvement in the job market and downgraded its economic growth forecasts.

The Eurozone emerged from a two-year recession, yet its banking system remained weak. While in the UK, The Bank of England upgraded its growth forecasts for the rest of the year.

China appeared to be emerging from its slowdown, with improvements in retail, industrial output and exports. India, however, found its currency at record lows as inflation soared and growth hit a 10-year low.

Australia grew at an annual pace of around 2.5% and unemployment rose to a 4-year high of 5.8%. Mining investment showed signs of peaking, consumer spending remained soft, yet interest rate cuts were beginning to be felt in the housing sector.

 

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Market Overview

The benefits of international diversification were highlighted in the September quarter with divergent performances by Australian, developed and emerging equity markets.

Having lagged the world in the previous quarter, Australia recorded its best quarterly performance in four years. The gain of over 10% doubled that of developed markets broadly and tripled the return from emerging markets.

The Australian market also took encouragement from early indications of a lift in domestic demand as the RBA’s rate cuts and lower Australian dollar fed through. This news boosted sectors linked to the economic cycle, like consumer discretionary and industrials. In contrast, the less defensive mood left sectors like healthcare, utilities and REITs lagging.

In Europe, the easing of Eurozone concerns helped fuel strong equity gains by Spain and Italy, while over in the US the market hit record highs after the Federal Reserve decided not to taper its bond buying program.

Emerging markets again slipped behind their developed counterparts, this reflected the ongoing belief of reduced capital flows if the Federal Reserve had tapered its bond buying. There were divergences though; while India and Indonesia underperformed, Korea and Russia had solid gains.

Gold continued its volatile run, racing to an almost yearly high in late August, before erasing virtually all of those gains as it plunged during September.

In fixed interest, term and credit premiums narrowed, again as a result of the Fed’s change on tapering. Longer dated bonds outperformed shorter dated, while corporate debt beat government debt.

The randomness of returns chart remained random. Once again it reveals no discernible pattern over the previous three years of quarterly returns, showing there’s no better choice than diversification. After a poor June quarter Australian small companies pulled themselves off the canvas this quarter to lead the pack, followed by the Australian large cap sector. Global equities showed more modest returns after a strong June quarter, while Global REITs (the only negative asset class this quarter) finally slipped into the red with a 2.12% loss after seven consecutive quarters of growth.

 

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Investment Strategy Recognised

We’ve long strived to find the best investment options available. This means ignoring fads and focussing on rigorous research. Currently, much of the investment strategy we implement comes with the benefit of consistent historical data and decades of academic backing.

So it gave us great pleasure recently to see one of the pioneers of that academic research, Eugene Fama, awarded the 2013 Nobel Prize in Economic Sciences. Fama’s research is the reason we emphasise the futility of picking stocks and making predictions. It’s also the reason we encourage investment discipline over guessing what the market will do next.

“Fama’s research at the end of the 1960s and the beginning of the 1970s showed how incredibly difficult it is to beat the market, and how incredibly difficult it is to predict how share prices will develop in a day’s or a week’s time,” said Peter Englund, professor in banking at the Stockholm School of Economics and secretary of the committee that awards the Nobel Prize in Economic Sciences. “That shows that there is no point for the common person to get involved in share analysis. It’s much better to invest in a broadly composed portfolio of shares.”

 

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The Australian University of Property Spruiking

We’ve previously warned property spruikers are back and unregulated as ever, so we thought it was time to find out how qualified those property ‘advisers’ actually are with a little quiz:

1. To become a property investment adviser, what educational qualifications are required?

• Diploma in Financial Services
• Diploma in Real Estate
• Bachelor of Business

Answer: none of the above.

You can advise someone on buying a million dollar property, yet you are not obligated to have any educational qualifications.

2. The compulsory continuing professional development requirements for a property investment adviser are:

• Attendance at the national conference (15 hours)
• Equivalent of 20 hours which can include attendance at seminars, conferences, guest speaking
• Equivalent of 30 hours which must include attendance at the national conference.

Answer: none of the above.

Why would you have to do any ongoing training or development to keep up your skills if there was no minimum training or education requirements when you first started in the job?

3. The licensing requirements to become a property investment adviser include:

• Police check
• Minimum entry educational qualifications
• Endorsement from two current property investment advisers
• All of the above

Answer: none of the above.

You would think that someone who is advising you on making one of the biggest decisions in your life would be obligated to be licensed. Well, you thought wrong.

4. The regulatory body that oversees the property investment advice industry is:

• Real Estate Institute of Australia
• The  Financial Advisers Commission
• Australian Securities and Investments Commission (ASIC)
• A and C

Answer: none of the above.

You would hope that a large and powerful organisation such as Australian Securities and Investment Commission (ASIC) would be keeping an eye on investment advisers who are involved in some of the most important and expensive life decisions people will make. Unfortunately this is not the case. “Why?” I hear you ask.

The simple answer is real property is not considered a “financial product” under the Corporations Act. Anyone can give advice on real property and is not obligated to abide by the Corporations Act nor do they come under the scrutiny of ASIC.

Source: theconversation.com/au

 

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She’ll be right, mate!

Finally, an interesting comparison of central bankers and possibly cultures. As debate again began to rage over the prospect of low interest rates fuelling a property bubble in Australia, the RBA’s Head of Financial Stability, Luci Ellis said the following:

“I think there are a lot of people, the minute housing prices start to pick up they say, ‘Oh my goodness, we’ll all be rooned.’ The minute housing prices start to pick up they imagine it’s a bubble.”

In contrast, the German Central Bank sounded a note of caution in its monthly report after an 8.25% rise in German property prices over the past three years, saying:

“Housing prices in German cities have been rising so strongly since 2010 that a possible overvaluation cannot be ruled out.”

And to give the statements a little context, according to The Economist:

Australian property prices, 46% overvalued against rents and 24% overvalued against incomes.

German property prices, 15% under-priced against rents and 18% under-priced against incomes.

The reason we think young adults could benefit from financial advice at the best (worst) of times…

When you’ve helped people with their money over a long period of time you tend to notice when financial trends emerge.

While most are insignificant, some are interesting enough to have you asking colleagues if they’re witnessing similar things.

Lately it seems the Bank of Mum and Dad is assessing a few more loan applications than usual.

The economy is very different depending on which part of Australia you’re in, so these applications certainly aren’t all hard luck stories.

Merely the good income being earned has found an equally good spending and debt appetite to swallow it – the apple fell a long way from the frugal tree.

So what do you do, as the Bank of Mum and Dad, when you’re confronted with a loan request from one of your adult children?

Weigh up your own financial position first – if it has any material impact on your financial position and requires a significant action like liquidating assets or taking on loans yourself, I’d forget it.

Weighing up the circumstances surrounding the loan are important, you need to be able to get to the bottom of the financial situation your adult child is in.

If they’re not in a financial mess, a small amount to cover an unforseen circumstance or take a career opportunity may be a low risk proposition provided there’s a plan to repay.

If they’re coming to you because their existing bank has decided they’re already overleveraged then you’ve got a big red flag.

A bank not lending suggests they see any extra debt as a high risk situation, it marks you as the lender of last resort and that’s a dangerous situation to be in.

If you know your adult child shouldn’t be struggling financially, but they are, declining may be the best option.

It may force them to actually evaluate their financial position and see the need for a budget overhaul – something that won’t come about by giving them another loan.

Book a free consultation with an experienced financial planner who can assist you in getting back on track now!

07 31692570 or
admin@truefinancial.com.au

You probably know a few women who you would call “shopaholics“.

These are the women who always let a great sale, or a shiny set of new shoes get the best of them. Sometimes they spend more money than they should and probably have a stack of credit cards that they struggle to keep up with back home.

Living in a culture that looks up to glitzy celebrities and values consumerism, it is easy to fall into the trap that our worth as men directly correlates with our ability to purchase shiny things.

Moreover, we all have a competitive nature that drives us to want to one-up our peers, whether it is with the newest technology, the shiniest car or only drinking top shelf liquor at the bar. Does this hit close to home?
Be aware that it is very possible for men to become addicted to spending money, and this happens when they get a rush from buying something new. Some men get into the habit of buying new items regularly, and they get an endorphin rush each time that a new item is purchased. After getting this endorphin rush enough times it can be possible to become addicted. This is when things become dangerous and destructive, and it’s the type of situation you want to avoid getting yourself into in the first place. Below are a few tactics you can employ to safeguard yourself from unnecessarily emptying your wallet.

Stop Spending Money Indiscriminately

If you think you could be an emotional spender you should try to stop yourself from buying something the next time you are at a store. As soon as you are about to buy, sit back a minute and think about if it is something that you really need. Just thinking about it for a second is often enough to make you second guess your expense. If a simple break isn’t enough, you should go home without the item and take some time to think about it. It’s easier to avoid an emotional expenditure after you are away from it, and you may later realize that buying this item would have been a complete waste of money.

Get an Accountability Partner

Many times simply knowing that you have a problem is not enough to help you avoid it. Instead, you need to bring other people into the equation who can provide support to fix the problem.

Take some time and find a person to talk to that will help you be accountable or the money that you spend. This could be a spouse, a relative, or a friend. This person will be someone that you call before you make any purchases. If you feel bad about calling them, you most likely should not purchase the item in question. If you are not sure, they will be able to help you determine if you are making a good spending decision or not.

Many guys avoid spending the money because they don’t want to tell their accountability partner about it. Others change their minds about making the purchase after speaking with their partner about it for a few minutes. Just having someone there to talk to can be a huge help.

Spending money is not the only thing you have to talk about with this partner. Discuss moments when you are suffering from stress or depression as well. If you are an emotional spender, your spending habits are tied into your emotions. This means that when you aren’t feeling good, you may try to compensate by spending money.

Budget Large Purchases & Implement Patience

Too many men make emotionally-based decisions when purchasing items like homes or vehicles, and as a result, end up spending much more than they needed to. Impatience and lack of planning are common reasons why houses end up being seized and cars make their owners perpetually broke. For men who are emotional spenders, it would be a great idea to develop some sort of budget before you even arrive at the dealership or talking to a realtor. This will automatically help you figure out a number that you can, and are willing, to spend on a new vehicle. You can use Auto Credit Express’ loan calculator to determine the right monthly car payment that will fit your budget, and the Bank Rate home budget calculator will help you to account for all those erroneous fees that add up when purchasing a home. Additionally, don’t be afraid to negotiate, and always shop around for the best deal rather than accept the first number that you’re presented with.

Give Yourself a Little Leeway

Many men will stop indulging when they realize they are emotionally addicted to shopping. This leads to frustration and, in many instances, binge spending. To avoid buying expensive items impulsively, you should give yourself a small spending budget that you can use for whatever you want. Put away five or ten percent of your earnings to spend at the store and you shouldn’t have any more impulse buys that go over budget.

Emotional spending is a serious problem for many men, but that doesn’t mean that it has to rule your life. Consider your spending habits. If you think you have a problem, do something about it. There are plenty of steps you can take to get away from your unnecessary spending, and you just might realize that you are happier without it.

Keeping your emotions in check can be a difficult thing to do but with some practice you can become a master of your emotions.  One useful method to stay on track and achieve your goals is to consult with a financial adviser that can help tailoring a budget that suits your needs and wants, as well as making the most of your financial resources for both immediate and long-term enjoyment.

Book an appointment with our certified financial planner John Duncan today by ringing us on 07 3169 2570 or send an email to admin@truefinancial.com.au and we will get in contact with you today.