Friday, March 09, 2007
How will you manage?
If you're a working Australian, you're almost certainly a share investor whether you know it or not. The reason is compulsory Superannuation. Your super fund very likely invests in shares on your behalf (as well as cash and property).
Unfortunately, for most Australians, superannuation is unlikely to provide, in retirement, the same level of income you've become accustomed to while working.
If you want to use share investment to boost your wealth outside of the super system, there are basically two way to go about it - managed funds, and direct share investment.
In a managed fund, you and other contributors invest by purchasing "units" in the fund. The capital amassed by the fund from the sale of these units is then re-invested by the fund manager. If the manager's investments are profitable, the capital of the fund increases, and so does the value of your units.
Of course, the fund company charges for this service - in the form of establishment fees, management fees, and often large exit fees if you want to withdraw your cash. And then, as we have seen, there's no guarantee the fund will even match the performance of the sharemarket index.
Still, managed funds do have the advantage that someone else does all the work for you - you don't have to know anything about investment.
Managed funds are often promoted by financial planners - professionals who assist their clients to make the most of their hard earned money.
Unfortunately, there's no guarantee of the performance of financial planners either, if this article from the Sydney Morning Herald is anything to go by:
Another route is direct share investment. But this requires that you also invest time into learning how to manage your own money.
Advice be damned
A lousy report card leaves financial planners with a serious credibility problem. John Collett reports.
The results of a joint Australian Consumers Association/Australian Securities and Investment Commission (ACA/ASIC) shadow shop survey of financial planners makes a mockery of attempts by the industry to be seen as a fully fledged profession. Only two financial plans out of a total of 124 were considered "very good". Sixty-three plans (51 per cent) were graded "borderline" to "very poor".
Between July and September last year, 53 people from across Australia, recruited through ACA's Choice magazine, were sent to planners to get a comprehensive financial plan – the foundation stone in the advice-giving process. It is supposed to lay down a financial strategy based on the client's needs and objectives.
"Consumers would not accept such poor performance in any product they buy and it's unacceptable in buying financial advice," says Louise Sylvan, the chief executive officer of the association.
"It is a bit like buying a fridge where the chances are 50/50 that it is not going to work."
The survey, released yesterday, noted "too many planners put their own interests ahead of those of their clients" and that planners behaved more like "sales people for fund managers than impartial financial guides".