Get the right advice from the right people

Noel Whittaker writes exclusive weekly blog updates for the Ban Tacs Group, with IN8 Business Advisory, a member of that group. Here, he talks about why people should talk to legitimate financial advisers in order to get the right advice.

Taking calls on talkback radio is a great way to find out what is bothering listeners. And it also highlights the need for financial advice. Last month I did a broadcast for ABC Sydney – here is a sample of the issues raised.

One call was from a woman who had won a financial consultation with an “adviser” in a “lottery”. She was 55, had no investment experience whatsoever, and was happily invested in one of the better performing superannuation funds. This “adviser” urged her to start a self-managed super fund and transfer her existing super to it. When I asked her what his reasoning was, she said he told her she could get better returns than her fund was getting. I warned her against it: this kind of advice has red flags all over it! The fact that she “won” the consultation in a so-called lottery is highly suspect, and any advice to start a self-managed fund should be treated with suspicion, unless the client is experienced in financial matters, and is keen, and able to do their own thing.

Another call was from a 68-year-old woman who told me she was worried sick. Apparently late last year she withdrew $84,000 from her superannuation fund, and lent it to a good friend. The good friend dutifully paid it back with a cheque, but her super fund refused to accept it as a contribution because of her age. I had good news for her – that was last year’s problem. Since 1 July, when the superannuation rules changed, anybody can contribute to superannuation to age 75 without passing the work test, unless they had more than $1.7 million in superannuation. Problem solved.

Another caller was keen to help his son buy his first home. He figured that he and his wife could be partners in the purchase, which would enable their son to buy the property. I pointed out that this would most likely cause problems down the track, as owning a substantial share of an appreciating asset could hinder and possibly even prevent their eligibility for the age pension when it was time to apply for it. Furthermore, there could be substantial capital gains tax to pay when they decided to transfer the property to the son. The other factor is that even if they made a gift of their equity in the property to the son, it would be held by Centrelink as a deprived asset for five years, which could have a big impact on any pension. A much better option would be to guarantee their son’s loan – it should still enable him to qualify for a loan if all of the other conditions were satisfactory, and they would not suffer the problems mentioned above.

Naturally, there were many calls asking whether to hold off making contributions to superannuation until the market had improved. I pointed out that trying to time the market is a mugs’ game, and that the biggest rises in share markets normally come very quickly when the bottom has been reached. These days people can expect to live well past 85 – superannuation is a long-term investment in which you keep assets in a low tax, or even zero tax, environment. Good superannuation funds have averaged 8% per annum for many years – but this is not a straight line return. More likely it is 15% one year, 6% in another and even a negative return in some years. When markets are down, continuing to contribute offers a great opportunity to boost your superannuation when assets are selling at bargain prices.

These are all common questions, and as you can see, the answers vary in complexity. There are a few simple principles though. Remember that people offering you “free” advice expect to get a generous payback, or they wouldn’t bother. Check your superannuation rules before you make any changes to it – your fund should have someone you can talk to. Don’t try to time the market: invest regularly, or whenever you can. And last but not least, for something more complex, like helping someone buy property, or setting up an SMSF, you need to find a reputable financial adviser. Their advice will cost you, but it should save you their fee, and then some.

Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noel@noelwhittaker.com.au

1 August 2022

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