Small Business

Top 6 Myths About Financial Planning

Posted on: December 6, 2009

There’s a lot of misconception about financial planning and how it can help you.  Here is a list of the top 6 myths surrounding financial planning.  We hope that by dispelling some of these common myths you can get a better understanding of financial advisers and how they can assist you to achieving financial prosperity and security.

Myth #1: Only people who have already accumulated wealth and/or assets can see a financial adviser

This is one of the biggest myths surrounding seeking professional financial advice.  Most people believe that you need to have already established yourself financially before a financial planner can help you.  Some financial advisers will only want to work with you if you have some established assets as by advising you on how to allocate this wealth this allows them to be paid.  At Financial Spectrum, our financial advisers are fee-for-service, or charge a flat fee instead of earning a commission.  This means that they are able to assist you in accumulating wealth through things such as setting up savings plans and budgeting, whereas other advisers won’t as they wouldn’t earn a commission for this advice.  The value of advice at the early stages of your life can be just as great, if not greater than when you have already built up your wealth.

Myth #2: Financial Planners just sell their clients managed funds

Many people believe that financial planners just sell managed funds to their clients.  This isn’t true.  Whilst a financial adviser can recommend their clients invest in specific investments as one tool to help grow their wealth, a holistic financial planner will look at areas such as debt reduction, tax minimisation, property, shares, superannuation, insurance, and cash flow just to name a few.  All of these areas are important when looking to grow and secure wealth – not just investing into products.  Some financial advisers have a greater emphasis on placing their clients into managed funds as this provides them with payment via a commission.  This perhaps may explain why this myth is a common one.  Not all financial advisers are equal however.  Financial Spectrum is in the minority when it comes to offering clients truly holistic advice.  Because Financial Spectrum doesn’t earn commissions, its’ financial advisers place just as much emphasis on areas such as paying less tax and budgeting, as placing clients in managed fund investments.

Myth #3: I’ve already got an accountant, so I don’t need a financial planner.

Many people already have an accountant that they know and trust for their financial needs so they don’t think that they would benefit from seeking the services of a financial planner.  What most people don’t understand however, is that although it is very important that accountants and financial planners work together in partnership, both fulfil very different needs.  Financial advisers are trained to take a more holistic approach to your finances than accountants are.  Whereas an accountant will complete your tax return or offer advice for small business, a financial planner will work with you on understanding your life goals and help to implement a financial plan to help you achieve them.

At Financial Spectrum, we work closely in partnership with accountants to ensure that our clients receive the benefit of a team approach.

Myth #4: I don’t need a financial planner – I’m nowhere near close to retirement

A common misconception is that financial planners are only to help retirees or people starting to think about retiring.  This is very far from the truth!  Whilst it is true that there are many financial advisory firms whose target market are retirees, at Financial Spectrum we believe the true value of financial advice can be gained by starting early.  Most of our clients are younger professionals in their 20s, 30s and 40s who are at the accumulation stage of their lives.  We know that we are in the minority when it comes to our competitors but we are passionate about helping young Australians get ahead financially.  We help our clients to map out the goals they want to achieve in the short, medium and long term, and work with them to implement a financial plan to help achieve these goals.  Time is your biggest ally when it comes to setting yourself up financially – so don’t wait until you are in your 50s and 60s to start planning for the future!

Myth #5: Financial planners charge too much and get hefty kickbacks from companies they recommend their clients invest in

Financial planners have received a lot of bad press over the years and the result is that many Australians have a very negative view of the trustworthiness of the financial planning industry.  In truth, individuals authorised to provide financial advice to people in Australia are bound by strict regulations from the Australian Securities and Investments Commission (ASIC).  All remuneration received by implementing a proposed financial plan must be clearly outlined in a Statement of Advice (SoA) which must be given to the client.  This enables transparency in the financial planning process so that you know exactly how much your financial adviser will be paid in relation to your financial plan.

At Financial Spectrum, we’ve gone one step further and developed a fee-for-service or a fixed fee payment structure so that we don’t receive any commissions from any investment product that we recommend to our clients.  This means that our clients pay for our advice.  We believe that this fee structure helps to protect our clients from potential conflicts of interest.  In addition we offer a range of packages for our clients to select from so that they can feel comfortable that they’re getting value for money.

Myth #6: All financial advisers are the same.  Shouldn’t I just see the adviser at my bank branch?

There are financial advisers, and then there are financial advisers.  Whilst it’s true that all financial planners in Australia must be authorised under a financial planning licence from ASIC, it is important to know that there are potential conflicts of interest that may arise by seeking the services of a financial adviser who is connected to a large institution – be that a bank or other financial institution.  Why?  Financial advisers who are part of financial institutions who offer their own financial products (eg. life insurance and investments) will likely be restricted to a small selection of products that they can offer their clients.  This means that if you went to Bank XYZ seeking advice and the financial planner at Bank XYZ identified that you need income protection – it is likely that they’ll be restricted by the XYZ Bank to only provide you with advice to obtain an XYZ Income Protection policy.  The problem is that your XYZ financial adviser might know that a better policy for your situation can be provided to you by ABC Life Insurance, but because they are part of the XYZ institution, they can’t offer this policy to you.

The good news is that not all financial advisers in Australia are part of large corporations and therefore are better able to provide you with a wider selection of investment and insurance products from a range of providers in Australia.  These financial advisers tend to be known as “boutique” or “privately-owned” financial planning firms as ASIC restricts the use of the word “independent”.  These small boutique financial advisory firms are in the minority as many have been bought out by the larger institutions and do not have the massive monetary resources of their competitors, but they are out there and can offer you great financial advice.  Financial Spectrum is one such privately-owned financial planning firm based in the Sydney CBD.


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