29 May 2011 | Small Business
In these troubled economic times’s business owners and investors more than ever need to find sources of quality advice. Too often business owners do not know where to get the advice, while investors are bombarded with offers of help from product floggers masquerading as advisers.
For investors the best source of advice will often come from advisers that charge a fee for service that do not work for an investment company, stock broker or a bank. Advisers that are employed by financial institutions often have a reduced number of financial products to recommend. Also their advice can be weighted to the products of the company that either pays their wages or pays the biggest commissions.
You can also find when using a specialist adviser for financial advice, such as a stock broker or a real estate agent, that their advice is slanted in favour of the investment where they make the most money. This was made evident to me recently when I reviewed a couples investments and found they had 80 per cent of their superannuation investments were in shares.
Their adviser was not surprisingly a stock broker who had supposedly classified them as a balanced investor. When questioned the stock broker said they were balanced investors because, after taking into account the value of their home, they had a balanced investment allocation between shares and property. Even a very inexperienced financial planner should know that a person’s home is a lifestyle asset, and not an investment asset, and therefore does not get counted.
The most important part of providing financial and tax planning advice is getting the strategy right. This means most of the work and resulting fee should relate to the advice and not the products being recommended. After the strategy it is important that the types of investments recommended best suit your personal situation and risk profile, rather than the investments that give the adviser the highest commission.
A good way of assessing this is to ask the adviser, on the basis of the amount being invested, exactly how much the plan will cost and how much it will cost to make the changes and place the investments. Too often these costs are hidden deep in statements of advice and people are fooled into thinking they are getting good cheap advice, only to find they lose large amounts of the funds being invested in ingoing commissions.
Product oriented advisers often will also not recommend direct investments, such as shares or property, or investing directly into wholesale managed funds that do not pay commissions. Care should also be taken to check that upfront commissions have not been reduced and replaced with relatively high ongoing trail commissions
If the adviser you are thinking of using does not focus on strategy, and can only recommend a limited number of investment products and superannuation administration platforms, you may need to question whether they are going to give you the best advice.
When it comes to business owners, trying to navigate their way through these troubled economic times; a primary source of assistance for should be their accountant. The problem is how a business owner knows if they are using an accountant or are instead using a tax agent.
A tax agent is only interested in preparing and lodging tax returns and the other forms and statements required by the ATO. They tend to only look backwards and are often not interested in offering advice.
An accountant however not only prepares and lodges the forms but also provides advice on ways to help improve the financial performance of a business and its owners. They also offer help and advice that is proactive resulting in tax being paid but at the lowest possible tax rate.
It has been my experience that many business owners put up with a sub standard accountant for a lot longer than they should. This is often caused by a belief that a new accountant would find it too hard to understand their tax affairs and how their business works.
Any good accountant should be able to easily take over the financial and tax affairs of a business after looking at the most recent financial and tax information. If you decide that you want to change your accountant a good way to start looking is by talking with business associates. In most cases it should not take long to get a recommendation of an accountant that will work with you to help improve and grow your business.
If you cannot get a recommendation for a new accountant phone one and ask to have an initial meeting with them. If they do not ask many questions and are not interested in your business or they way it is organised they are probably a tax agent. If on the other hand they ask lots of questions, seem interested in what your business does, and offers some preliminary ways to improve your situation, they will more than likely be an accountant and worth using.