Christina Economic n Finance

The eligibility limitation to Fannie/Freddie loans is only on the refinancing program (HARP), not the modification program. HAMP will apply to all mortgages originated before January 1, 2009. No loans originated after that date will be eligible. New borrowers will be accepted until December 31, 2012. Program payments will be made for up to five years after the date of entry into the HAMP. Monitoring, however, will continue for the life of the loan.

General Qualification Terms:

1. The home must be owner-occupied, single family 1 to 4 unit property (including condominium, cooperative, and manufactured home affixed to a foundation and treated as real property under current state law).
2. The home must be the primary residence (verified by tax return, credit report, and other documentation such as utility bills).
3. The home may not be investor-owned.
4. The home may not be vacant or condemned.
5. Borrowers in a current bankruptcy case are not automatically eliminated from consideration for HAMP.
6. Borrowers in active litigation regarding the mortgage loan can qualify for a modification without waiving any legal rights.
7. First lien loans must have an unpaid principal balance (prior to capitalization of the arrears) equal to less than:
a. 1 Unit—$729,750
b. 2 Units–$934,200
c. 3 Units–$1,129,250
d. 4 Units–$1,403,400

Pending Foreclosures:

Any foreclosure action will be temporarily suspended during the trial HAMP period, or while borrowers are considered for alternative foreclosure prevention options. In the event that HAMP or the alternative foreclosure prevention options fail, the foreclosure action may be resumed.

Loan to Value Ratios (LTV):

For HAMP borrowers, there is no minimum or maximum Loan to Value (LTV) ratio for eligibility purposes. Borrowers, however, can only exercise one modification of their mortgage under HAMP. If the HAMP modification fails, then there are no additional HAMP options.

Debt to Income Ratios:

Front-End DTI is the ratio of the Principal, Interest, Taxes and Insurance Payments (PITIA) to the Monthly Gross Income. PITIA is defined under the program as principal, interest, taxes, insurance (including homeowners insurance and hazard and flood insurance) and homeowners association and condominium fees. Mortgage insurance premiums (PMI Insurance) are excluded from the PITIA calculation.

The Front-End DTI Target is 31%. The Standard Waterfall step that results in a Front-End DTI closest to 41%, without going below 31%, will satisfy the Front-End DTI Target. There is no restriction on reducing Front-End DTI below 31%, but any portion of the reduction below 31% will not be covered by the Payment Reduction Cost Share offered by the Treasury.

Home Valuations:

The Servicer may use, at its discretion, either one of the government sponsored enterprises’ (GSEs) automated valuation models (AVM)-provided that the AVM Renders a reliable confidence score-or a Broker Price Opinion to determine the Property Value for the DTI Test.

As an alternative, the servicer may rely on the AVM it uses internally provided that (I) the servicer is subject to supervision by a Federal regulatory agency, (ii) the servicer’s primary Federal regulatory agency has reviewed the model and/or its validation and (iii) the AVM renders a reliable confidence score.

If the GSE or servicer AVM is unable to render a value with a reliable confidence score, the servicer must obtain an assessment of the property value utilizing a property valuation method acceptable to the servicer’s Federal regulatory agency, e.g., in accordance with the Interagency Appraisal and Evaluation Guidelines (as though such guidelines apply to loan modifications, or a Broker Price Opinion (BPO).

In all cases the property valuation may not be more than 60 days old.

Verification of Income:

The borrower’s income will be verified by requiring a signed Form 4506-T (Request for Transcript of Tax Return) and obtaining the most recent tax return on file for each borrower on the note. For wage earners, the two most recent pay stubs for each wage earner on the note will also be required. For self-employed borrowers or for non-wage income borrowers, the borrower’s income will be verified by obtaining other third-party documents that provide reasonably reliable evidence of income. Borrowers must also represent and warrant that they do not have sufficient liquid assets to make their monthly mortgage payments.

Monthly Gross Income:

The borrower’s Monthly Gross Income (MGI) is the amount before any payroll deductions and includes wages and salaries, overtime pay, commissions, fees, tips, bonuses, housing allowances, other compensation for personal services, Social Security payments, including Social Security received by adults on behalf of minors or by minors intended for their own support, annuities, insurance policies, retirement funds, pensions, disability or death benefits, unemployment benefits, rental income and any other income.

Monthly Net Income (MNI) can be used for preliminary screening and qualifications. If used, the servicer will need to multiply net income by 1.25 to get an estimate of Monthly Gross Income (MGI).

Back-End DTI:

The Back-End DTI is the ratio of the borrowers’ total monthly debt payments (such as Front-End PITIA, any mortgage insurance premiums, payments on all installment debts, monthly payments on all junior liens or mortgages, alimony, car lease payments, aggregate negative net rental income from all investment properties owned, and monthly mortgage payments for second homes) to the borrower’s MGI. The servicer must validate each monthly installment payment, revolving debt and secondary mortgage debt by pulling a credit report for each borrower or a joint report for a married couple. The servicer must also consider information obtained from the borrower orally or in writing concerning incremental monthly obligations.

Borrowers who otherwise qualify for the modification under this program, but who would have a post-modification Back-End DTI greater than or equal to 55%, will be provided with a letter stating that they are required to work with a HUD-approved counselor and the modification will not take effect until they provide a signed statement indicating that they will obtain such counseling.

Reasonably Foreseeable/Imminent Default:

Every potentially eligible borrower who calls or writes in to their servicer in reference to a modification must be screened for a hardship. This screen must ascertain whether the borrower has had a change in circumstances that causes financial hardship, or is facing a recent or imminent increase in the mortgage payment that is likely to create a financial hardship (e.g., payment rate shock). If the borrower reports a material change in circumstances, the servicer must ask about current income and assets, and current expenses as well as the specific circumstances relating to the claimed financial hardship. Each of these elements shall be verified through documentation.

If the servicer determines that that a non-defaulted borrower is facing a financial hardship is in Imminent Default and will be unable to make his or her mortgage payment in the immediate future, the servicer must apply the NPV Test.

The NPV Test:

A Standard NPV Test will be required for each loan that is in Imminent Default or is at least 60 days delinquent under the MBA delinquency calculation. This NPV Test will compare the net present value (NPV) of the cash flows expected from a modification to the net present value of cash flows expected in the absence of a modification. If the NPV of the modification scenario is greater, the NPV result is deemed positive.

The NPV Test applies to the Standard Waterfall only and does not require consideration of principal forgiveness. However, the servicer may choose to forgive principal if the servicer determines that principal forgiveness improves the likelihood of loan performance and the value of the modification. Required parameters for the NPV Test will be published in a few weeks.

If the NPV Test generates a positive result when applying the Standard Waterfall, the servicer is required to offer a HAMP to the borrower. If the NPV Test generates a negative result, modification is optional, unless prohibited by the service contracts. The monthly payment reduction incentive is available for any HAMP, whether or not NPV is positive, that meets the eligibility requirements and is performed according to the Waterfall described below.

If the NPV Test result is negative and a HAMP is not pursued, the lender/investor must seek other foreclosure prevention alternatives, including alternative modification programs, deed-in-lieu and short sale programs.

Loan Modification and Standard Waterfall:

Servicers will follow the Standard Waterfall described below to reduce the monthly payments to 31% Front-End DTI Target defined below. The initiative will reimburse lenders/investors for one half of the costs of reducing monthly mortgage payments from a level consistent with a 38% Front-End DTI Ratio (or less, if the unmodified DTI is less than 38%) down to a level consistent with a 31% Front-End DTI Ratio. This Payment Reduction Cost Share can last for up to five years from the HAMP modification effective date.

Principal Reduction Option:

There is no requirement to use principal reduction under HAMP: however, servicers may forgive principal to achieve the Front-End DTI Target.

Principal forgiveness can be used on a standalone basis or before any step in the Standards Waterfall process. If principal forgiveness is used, subsequent steps in the Standard Waterfall may not be skipped. If principal is forgiven and the rate is not reduced, the rate will be frozen at its existing level and treated as a modified rate for the purposes of the Interest Rate Cap.

In the event of principal forgiveness, the Repayment Reduction Cost Share continues to be based on the change in the borrower’s monthly payment from 38% to 31% Front-End DTI Ratio and is limited to five years.

Modification Terms:

Interest Rate Floor: THE IRF for modified loans is 2%.

Interest Rate Cap: The modified interest rate must remain in place for five years, after which time the interest rate will be gradually increased by 1% (100 basis points) per year or such lesser amount as may be needed until it reaches the IRC. The IRC for a modified loan is the lesser of the fully indexed and fully amortizing original contract rate or the Freddie Mac Primary Mortgage Market Survey rate for 30-year fixed rate conforming mortgage loans, rounded to the nearest 0.125%, as of the date that the modification document is prepared. If the modified rate exceeds the Freddie Mac Primary Mortgage Market Survey rate in effect on the date the modification document is prepared, the modified rate will be the new note rate for the remaining loan term.

Principal Forbearance: No interest will accrue on the forbearance amount. If the option to forbear principal is selected, the servicer shall forbear on collection the deferred portion of the Capitalized Balance until the earlier of the maturity of the modified loan, the sale of the property, or the pay-off or refinancing of the loan.

Redefaulting Loans: A loan will be considered to have redefaulted when the borrower reaches a 90-day delinquency status under the MBAS delinquency calculation. Redefaulting Loans will be terminated from the program, and no further payments of any kind will be made to the lender/investor, servicer, or borrower. Redefaulting Loans should be considered for other loss mitigation programs prior to being referred to foreclosure.

Trial Period Required. Successful completion of the Trial Modification Period and entry into program agreements between the Servicer and the Treasury’s financial agent are prerequisites for any payments to the lender/investor, servicer or borrower.

Modification is effective on the first calendar month following the successful completion of the Trial Period. Successful completion means that the borrower is current (under the MBA delinquency calculation) at the end of the Trial Period.

Borrowers in foreclosure restart states will be considered to have failed the Trial Period if they are not current at the time the foreclosure sale is scheduled.

No payments under the program to the lender/investor, servicer or borrower will be made during the Trial Period. No payments under the program to these parties will be made if the Trial Period is not completed successfully. NO payments under the program to these parties will be made unless and until the servicer has entered into the program agreements with the Treasury’s financial agent.

Length of Trial Period: The Trial Period will last for 90 days (three payments at modified terms) or longer if necessary to comply with investor contractual obligations in the Pooling and Servicing Agreements. The borrower must be current at the end of the Trial Period to obtain the HAMP modification.

Escrows: Servicers are required to escrow for modified borrowers’ real estate taxes and mortgage-related insurance payments immediately if they have the capability of processing these payments or are already using a third-party vendor for this purpose. Servicers who do not have this capacity must implement an escrow process within six months of the program agreement.

Counseling Requirements: For borrowers with a Back-End DTI of 55% or higher, the servicer must inform the borrower of the availability and advantages of counseling and provide a list of local HUD-approved counselors. The servicer must provide the borrower with a letter stating that counseling is a requirement of the modification terms. The letter may be required by counselors in order to begin counseling. The modification will not take effect until the borrower represents in writing that he or she will obtain counseling.

Assumable: If the solidified loan was assumable prior to modification, a HAMP modification cancels this feature.

Unpaid Late Fees: Unpaid late fees will be waived for the borrower. These include late fees prior to the start of the Trial Period and accrued during the Trial Period.

Credit Report: The servicer will cover the cost of the credit report.

Servicer Compensation: Upon modification following a successful Trial Period, and contingent on signing the program servicer agreement, the servicer will receive an incentive fee of $1,000 for each eligible modification meeting HAMP guidelines. Servicers will also receive Pay for Success fees payable each 12 months for three years at $1,000 per year. Servicers will not receive Pay for Success fees for Redefaulting Loans. For loans modified while still current under the MBA delinquency calculation, the Servicer will receive a Current Borrower One-Time Incentive of $500 following successful completion of the Trial Period. Lenders that service their own (portfolio) loans are eligible for these incentives. The term servicer means the party that is responsible for performing the modification activities. Similar incentives will be paid under the HARP Program.

Borrower Cash Contributions: The investor may not require the borrower to contribute cash for eligibility or execution of a Trial or Permanent modification.

Lender/Investor Compensation: Lenders/investors will be compensated only in the event that the Front-End DTI Target or a lower Front-End DTI is achieved. Lenders/investors will follow the Standard Waterfall specified above to reach a monthly payment that satisfies the Front-End DTI Target. As described above, Treasury will provide compensation based on one half of the dollar difference between the monthly payment for a 31% Front-End DTI Ratio and the lesser of (i) the monthly payment for a 38% Front-End DTI Ratio or (ii) the borrower’s current monthly payment. This compensation will be provided for up to five years or until the loan is paid off.

Upon a modification becoming effective following successful completion of the Trial Period by a borrower who was current prior to the start of the Trial Period, lenders/investors will be paid a $1,500 Current Borrower One-Time Incentive, subject to certain de minimis constraints (discussed below). No monthly lender/investor payments will be made during the Trial Period. Monthly lender/investor payments will begin after the Trial Period is successfully completed, the servicer signs a service agreement with Treasury, and formal modification begins. No monthly lender/investor payments will be made if the Trial Period is not completed successfully.

Borrower Compensation: Borrowers will be eligible to accrue up to $1,000 each year in Pay-for-Performance Success Payments for up to five years, a total of up to $5,000 over five years, subject to certain de minimis constraints (discussed below). Accruals are based on on-time payment performance. The first annual principal balance reduction will be effective 12 months after entering the Trial Period as long as the borrower is not terminated from the program. In any given month, the borrower’s mortgage payment must be made on time, accounting for standard servicer grace periods, in order to accrue the monthly Pay for Performance Success Payment. The borrower will receive information on a monthly basis regarding the accrual of these payments.

The payment will be directed to the servicer, who will reduce the principal balance by the payment amount (but not by more than $1,000 per year) for five years if the borrower continues in the program. Payments are to be applied directly and entirely to reduce the principal balance, and any applicable prepayment penalties on partial principal prepayment made by the government must be waived. The equivalent of three months of Pay-for-Performance Success Payments will be made upon successful completion of the Trial Period, contingent upon the servicer signing a service agreement with the Treasury.

Borrowers who are terminated from the program lose their right to outstanding accruals.

De Minimis Constraint: To qualify for servicer Pay for Success payments and borrower Pay for Performance Success Payments, the modification must reduce the monthly payment by a minimum of 6 %. The monthly payment is the PITIA payment, as used in defining DTI, with the loan fully indexed and fully amortized.

When paid, servicer annual Pay for Success payments and borrower Pay for Performance Success Payments will be the lesser of (i) $1,000 or (ii) half the reduction in the borrower’s annualized monthly payment.

The de minimis constraint does not apply to the up-front Servicer Incentive Payment, the Payment Reduction Cost Share, or the Home Price Depreciation Reserve Payment.

Disclosure: When promoting or describing loan modifications, servicers should provide borrowers with information designed to help them understand the modification terms that are being offered and the modification process. Servicers also must provide borrowers with clear and understandable written information about the material terms, costs, and risks of the modified mortgage loan in a timely manner to enable borrowers to make informed decisions.

Fair Lending: Servicers’ modifications under this program must comply with the Equal Credit Opportunity Act and the Fair Housing Act, which prohibit discrimination on a prohibited basis in connection with mortgage transactions. Loan modification programs are subject to the fair lending laws, and servicers and lenders should ensure that they do not treat a borrower less favorably than other borrowers on grounds such as race, religion, national origin, sex, marital or familial status, age, handicap, or receipt of public assistance income in connection with any loan modification. These laws also prohibit redlining.

Consumer Inquiries and Complaints: Servicers should have procedures and systems in place to be able to respond to inquiries and complaints relating to loan modifications. Servicers should ensure that such inquiries and complaints are provided fair consideration, and timely and appropriate responses and resolution.

Home Price Depreciation Payments. To encourage lenders/investors to modify more mortgages, compensation will be provided to partially offset probable losses from home price declines. This will be structured as a simple cash payment on each modified loan while the loan remains active in the program.

Payments for Short Sales and Deeds-in-Lieu: Compensation will be provided to servicers and borrowers in order to facilitate short sales or deeds-in-lieu in those cases in which borrowers either fail the net present value (NPV) test (described above) or fail to qualify for, or default under, the modification program.

Second Line Elimination Payments: To reduce the borrower’s overall indebtedness and improve loan performance, additional incentives will be provided to extinguish junior liens on homes with first-lien loans that are modified under the program.

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Here’s the irony…the most powerful gender has in fact historically had the least amount of control, entitlements and freedom. Clearly women were viewed as threatening. And, the dominator rather than the partnership model for the most part has driven societies. The partnership model requires collaboration, cooperation, and is supported by inclusiveness rather than focusing on the differences between entities. The dominator model is very self focused and thrives on competition creating a singular winner verses team victory.

Is it any surprise then that some of the most famous women in history, who had power, had an untimely death.
All of our societies have been shaped by men evoking spiritual powers emanating from ritual knowledge that then crossed political means, creating and fostering male bias. That male bias has marginalized women throughout history.

So, it’s not so much that women have financial concerns as much as the root of disproportionate power that then gets displayed into the arena of money. How do women manage their shame about money when the underlying issue is about ultimate control, a lack of entitlements and the fear of loosing their current freedoms?  Reducing the financial shame is the benefit of building self-awareness. Gaining actual tools for financial concerns is a step in the right direction.

Financial workshops for women are few and far between. Having debt elimination tips only deals with the surface. To achieve true financial stress relief, one must dig under the surface.

Sometimes financial management workshops will include a section on how to pick a financial advisor for women. These suggestions often make me wary because of the inherent gain a financial planner might garnish. Whereas hiring someone who is remunerated not by commission, but by retainer I think makes better sense.

But, a financial advisor for women really needs to understand what is going on under the surface. Long term financial management women will very often understand the issues faster than their male counterparts….but, as I call it: “Bankspeak”, is not a relegated to men only.

Understanding the premise that one’s self-esteem can be directly connected to one’s handling of money, the only way to gain financial stress relief is to heal the underlying damage. That takes courage, honesty and accountability. This is the best financial problem solution for women.

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We have noticed however, a real resistance in the Australian consumer to the fee for service model.  Whilst it is true that the well-informed client comes to us specifically to seek fee for service advice because they believe it is better, there seems to be a large proportion of clients who have become so used to the commissions model, that when faced with the prospect of paying their financial adviser for their advice many baulk at the prospect.  Whilst it’s true that the commission-model client ends up paying more in premiums etc to cover the cost of the commission to their adviser, there is something more challenging in the prospect physically handing over your own money to pay for advice.  In the lead up to the fee for service transition in 2012 this poses some concerns.

In a recent study conducted by GESB, they found that 44% of Australians believe that a five-year financial plan should cost less than $500.  When you consider that the time it takes for a financial planner to meet with a client, research and formulate a financial plan, write a financial plan, then consult and implement that plan is as a minimum 8 hours work that is well below what a financial planner could possibly afford to charge if they want to stay in business!

Why is it that many Australians aren’t prepared to pay a reasonable sum for financial planning advice?  Perhaps it is because the true cost of advice has been hidden from consumers by commissions for so many years.

With the profession transitioning to fee for service by 2012 this raises a concerning issue.  Unless consumers change their stance toward paying a realistic amount for the cost of a financial plan, we believe there will be a significant decline in the number of people who will seek professional financial advice.  This is of course worrying for the viability of the financial planning profession, but of greater concern is the prospect that the overwhelming majority of Australians will not have a financial planner to help them.

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What is fee for service financial planning?

Fee for service financial planning is where a client pays their financial adviser a fixed fee for the services and advice they provide.  Much like you would pay your mechanic to service your car.

Currently in Australia there are two main ways that financial planners are paid Commissions and Fee for Service:

Commissions – this is the most common form of remuneration for financial planners in Australia.  It is where product providers or financial institutions pay financial advisers a commission when their client invests or purchases their product or investment.  There are generally two types of commission that are paid:
- Upfront commissions which is a larger lump sum amount paid to the financial adviser when the product or investment is first set up.  This lump sum amount varies depending upon the arrangement with the provider but is generally around 4%
- Trail commissions which is a smaller ongoing commission which is paid to the financial planner usually on a monthly basis for the life of the investment or as long as the client retains the product or advises the provider that they have transferred to another financial planner.  The average trail commission is around 0.8% per year.
Fee for Service – this is a less common form of remuneration for financial advisers where instead of receiving payment from the product provider, the client pays their financial planner directly for their time and advice.  Often there will be a set fee either based on an hourly rate and/or packaged based where you can choose to pay for particular services such as a full Statement of Advice or setting up of a Self Managed Super Fund.
Which financial planning payment style is better?  Commission vs fee for service?

There has been a lot of debate in the media about which style of remuneration provides is better for clients.  The overwhelming majority of financial advisers in Australia are still commission based but our opinion is that fee for service financial planning is much better for clients as it lessens the risk of a conflict of interest.  When a financial adviser is paid by a product provider we believe that they are inclined to work for the commission rather than work for the client.  This can result in clients being “sold” into products which may not necessarily be the 100% best option for their needs.  Say your financial planner has 2 options of where to recommend you invest.  One is better for your needs than the other, but the lesser alternative happens to pay the adviser a larger commission.  You can see where the conflict for commission based financial planners arises.

In addition is the problem where most financial advisers in Australia don’t offer advice in areas such as budgeting, savings, and tax structuring as because they aren’t placing their client into a product they don’t get paid.  Many people need this grassroots financial advice from a professional and aren’t getting it for this reason.

At Financial Spectrum, we believe that fee for service financial planning is the way forward.  We know that we are in the minority of financial planners in Australia but we believe that this payment structure offers the best service to our clients and enables us to give advice to our clients in all areas of financial advice.  At the end of the day, it is our clients who pay us for our service and advice, and it is our client that we are working for.

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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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Financial planning

Who we are or how much we earn is of less concern as long as we can manage and plan our finances wisely. A pauper can become rich and a rich man can suddenly lose his wealth if his financial planning is improper. Usually people blame their stars for their misfortune. They go in search of astrologers who will live out of them by changing their names and houses. They find solace in blaming others be it God or stars for their backdrop. Insecurity and thoughts of one’s future might lead to depression and frustration.

“Make hay while the sunshine’s” as the popular saying goes is the golden rule every human being should definitely follow. We earn to live happily with comforts but we forget to pay ourselves for all the hard work we put in. we pay for everything in this world, do we pay ourselves for the service we do to our family, nation and society.

In the western countries they make it a habit to save 10% of their personal income for their own future use, a millionaire once said, “I am glad I am worth at least 10% of what I earn”.

Better late than never, just sit with a planner and take stock of where you are now. Jot down your financial position as of today. Set long time and short time goals in life and set a imeline to achieve that goal in time. Then carefully think about how you can achieve the goal and what you can do to go where you want to go. Attitude is very important in any major life changes that you might ncounter. Thus set your attitude as if you are planning a vacation. So you first decide the vacation spot, and then set out to make reservations, then pack

your bag and then leave.

Financial planning is just like your vacation planning. First you should fix your target, then make certain changes in your life style, like cutting down your pizza or sacrificing your cigars, then pack up or wind up your extra expenses and start the savings plan when that is dome just relax and enjoy the fruits of your unparallel and diplomatic achievement. Your money will start growing and so will your self-esteem and self-confidence and finally you are efficient and capable to finance your kids higher studies or retire peacefully with the recurring income from the timely savings.

Financial planning provides the reassurance that your future in Canada and all around the world that secures you to live in the comfort as you would like.

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your current situation - before meeting a financial planner, get a good idea of where you’re currently at financially.  You might like to use these free online calculators to help you get started: Free Financial Position Calculator  Free Budget Calculator
your goals – What are your financial goals in the short, medium and long term?
what do you want a financial adviser to do for you? There are lots of options when it comes to financial advice.  Some people just want help with a specfic area of concern (eg divorce), or at a particular life stage (eg retirement).  Other people want to get financial advice in all areas to help them get ahead financially – the choice is yours.

You should take your time and do your research before you choose your financial adviser.  Some things you might like to think about before you decide on one are:

are they properly licensed? In Australia, financial advisers should be the holder of or authorised under an Australian Financial Services Licence.
do they have appropriate experience? Are they experienced in all the areas you identified you want financial advice in?
are they recommended? Do you know anyone who has had experience with this financial adviser?  Do they come recommended?
how do they charge? Some advisers receive commissions from product providers.  Others charge the client directly for their time (known as fee for service).  Do you know and are you comfortable with how this adviser charges?  Be aware that financial advisers who charge commissions may have an added conflict of interest as they receive payment when selling you a product
who are they owned by/affiliated with? Sadly in Australia, the overwhelming majority of financial advisers work for or are affiliated with larger financial institutions and banks.  This poses a problem where many of these groups impose restrictions on the types of products and advice that these financial advisers can offer their clients.  If this concerns you, you should seek out the advice of a financial adviser from a privately owned financial planning firm.  Remember that this information must be disclosed in the Financial Services Guide (FSG) so be sure to read the fineprint.

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