With math this bad would you trust this adviser?

Yesterday I received an e-mail message from financial services firm [name removed*] pre-promoting a “big event” they’re holding in October.

The following is part of their big sell:

Too right that’s not pretty reading.

Mr [name removed*]  has used simple math of dividing $1 million by $6,464.10 to come up with “154.7 years to become a millionaire”

That’s such B.S. (Yet the decimal point makes it seem so precise and legit.)

In fact it’ll take just under 35 years to accumulate $1 million if you are smart enough to invest your regular savings.

Here’s the assumptions in my calculation:

  • You invest your regular savings and earn a conservative  5% per annum net after-tax
  • The average wage grows at around 4% per annum
  • The regular saving is increased each year in line with the increase in wages so that you always save 10% of the average wage

You too can verify the calculation. Use this Future Value of Growing Annuity formula.

(Of course in 35 years the buying power of $1 million will be a lot less than now.)

The number’s don’t lie

The ironic thing is that the subject line of the e-mail was “Ouch! Numbers don’t lie…”

I agree that saving just 10% of your wage probably won’t make you rich. (In fact last year I reported on some research that estimated you need to save around 20% to achieve just a comfortable retirement.)

But using such sloppy projections to promote a wealth creation event is misleading, in my opinion. The numbers may not lie but…

It makes me wonder what other trickery may be included during this big event to encourage you to part with your hard earned?


* I really wanted to name the firm and event promoter but my wife made me remove it. (Excuse me while I go and make her lunch.)

Risky SMSF borrowing advice from real estate agents

The Institute of Chartered Accountants of Australia (ICAA) superannuation specialist, Liz Westover recently wrote of her alarm at some marketing material she received from a real estate agent promoting borrowing within a self managed superannuation fund (SMSF) to buy property.

Westover wrote: “I was surprised and somewhat alarmed that some of the information provided was technically wrong and misleading, particularly in relation to the tax measures.”

Remember that Real Estate agents are NOT licensed financial advice providers.

Real Estate agents are licensed facilitators of a real estate transaction.

And in the current property climate it seems that some will do whatever they can to get more transactions occurring.  Don’t allow yourself to be misled – get financial advice only from licensed financial advisers.



Beware of industry super fund advice

I’m annoyed! But rather than pointlessly vent,  this soapbox article is an attempt to turn my recent annoying experience into a useful lesson for all.

Many people I meet are wary of going to their bank to get financial advice. They say they don’t want to just be sold the bank’s products.

The Industry Super Fund Network loves criticising financial advisers on the same issue and a related issue about commissions.

Well a financial adviser from a major industry super fund just disclosed that his job is to keep accounts within his employer’s product. (Like bank advisers he wouldn’t be authorised to advise on anyone else’s product anyway.)

The lesson here is to have your eyes wide open if you get advice from the advisers tied to your industry superannuation fund. It could be just as restricted as if you get advice from your bank.

Don’t assume the advice will be in your best interests having considered all available options.

I say that last bit because it was a discussion about the limitation of his employer’s product that led the adviser to the inadvertent disclosure. He was annoyed at the product’s limitation which could ultimately result in $500,000 dollars flowing out of the product to a retail superannuation fund. (And it wasn’t even a fancy facility I was looking for – just something pretty simple.)

So my mind wonders…do the industry super fund’s advisers not recommend certain actions to clients because their product couldn’t facilitate it?

I err on the side of trust in people’s positive intent and assume the industry super fund advisers don’t consciously make such limited recommendations. But maybe their brains are so accustomed to the limitations that their brains no longer even flag the alternate strategies for consideration? Hmm…

So beware – the advice from industry super funds may be cheaper in fee but costly in consequence. Importantly don’t assume it is any less conflicted or limited than the advice from your bank that you are so wary of.

Misleading marketing finally acknowledged

I shudder whenever I see the big newspaper and magazines advertisements of companies that purport to teach people how to easily & profitably trade shares and derivatives (like options, warrants & CFDs). They promise so much confidence and certainty of gains.

According to their website (accessed 20 April 2011) the business Safety In the Market (operated by The Hubb Organisation Pty Ltd) has “assisted thousands of Australians [to] discover how they can trade the financial markets safely and profitably” since 1989.

That’s over 20 years of big promises.

Finally the regulator ASIC has reigned in their promises by obtaining court orders preventing Safety In The Market from making or publishing misleading or deceptive representations about its trading methodology.

ASIC’s concern was about claims that the methodologies were “proven”. A nice piece of marketing bollocks you will read in lots of adverts.

This kind of grandiose marketing can go on for years before the regulator gets around to taking action – as you can see by SITM’s longevity. So just because an organisation has been around for years don’t interpret that as being evidence of a basis to their big claims.

As always be aware and ask yourself if you have what it takes to be one of the minority with the intelligence and discipline to consistently make a profit.


B.S. from GE Money

I just heard on the radio the latest advert for the GE Money Personal Loan. It claims to give you more money to enjoy the things that matter. A lovely marketing tug on your emotions but total B.S.!

I just heard on the radio the latest advert for the GE Money Personal Loan. It claims to give you more money to enjoy the things that matter.

A lovely marketing tug on your emotions but total B.S.!

After you’ve blown the loan amount you’ll have lots of interest to repay – at a rate not much lower than credit cards. So a personal loan such as this will actually give you LESS money to enjoy the things that matter (for a long time).

Save for the significant. Minimise the insignificant.

If you really want to ensure you have enough money for those things that really matter to you follow this process:

  1. Identify those things that matter most
  2. Work out how much money you need for them, and when you’ll need it.
  3. Establish automated saving and cash flow management plans to ensure that money is there when those things that matter occur.
  4. Enjoy life with the peace of mind you’ll have the money to enjoy what really matters most.
  5. If there is any money left over you can spend it on insignificant things suchs as impulses and indulgences.

If you need a personal loan (or credit card) to fund experiences and items that matter to you take it as screaming alarm bells that your cash flow control is on fire. Run away from the lenders and towards a financial counsellor or decent financial planner.

Learn more about my cash flow coaching here.