The Fee Trilogy Part II - Walking a Mile in Their Shoes

For those of you who are regular readers of the wisewomen blog, you may remember me having a little hissy fit via this blog over financial planning fees and commissions, how they were basically one and the same despite the different name. For those of you who haven’t read this diatribe click here to get you up to speed. Ok, everyone with me – read on.

With the passage of time (all 6 weeks of it!) and in the interests of walking the talk (my children often have a very eloquent lecture on learning to see things from someone else’s perspective in disagreements to develop their empathy – a key ingredient in harmonious relationships) I have decided to put on my financial planning hat to see the other side of the story. Well I think it’s an eloquent lecture – more often than not I am met by blank stares or groans that they are about to hear another of my life lesson lectures.

In my previous blog I offered no great solution for financial advice and a “one size fits all” approach to charging for such advice. I sill believe that an hourly rate, fee for service model is a good start but having delved a little deeper I think there is room to move on a fee structure which recognizes the sometimes irregular way that financial advice is undertaken and what efforts are behind that advice.

With financial advice, it is not straightforward when working out the time spent on a client’s interests. There is the face-to-face meeting to exchange information. Following that, there is a certain number of hours required for evaluating solutions, writing up the advice and of course, implementation. Often this time is in a block but it also can be rather piecemeal.

If the adviser monitors a portfolio then she can be looking at it on a regular basis, which makes it difficult to charge 10 minutes per day. Hence a regular payment (via a monthly retainer or yes, a percentage of assets under management fee model) can be a good way to overcome these inconsistencies. This ongoing fee can cover asset monitoring, annual reviews, client queries and administrative tasks rather than the need for constant billing.

The aim must be for clients to be satisfied with the cost. This happens when people feel happy they are getting value for money based on levels of service, the amount of work being done on their behalf and also effectiveness of the advice.

No doubt there are good and bad operators out there in financial planning land. The challenge has always been to find a “good” one and it is a request Nicky and I are often faced with – do you know a good financial planner? The most common way to find an adviser is through referrals….and even then your experience may not mirror the referee’s for many different reasons.

The industry continues to evolve. The government is in the last stages of bringing out final recommendations on reforms to financial advice (which may well form the basis of another blog – let’s call it the finale of my trilogy on fees). There is intense lobbying going on at both ends of the spectrum – by advisers wanting to protect their livelihoods and consumer groups interested in ensuring that advice can be affordable for ordinary Australians. Stay tuned for my third instalment!

Though a little irreverent I hope you enjoy this quote I found by comedian Jack Handey on criticism and seeing things from other’s perspective.

“Before you criticise someone you should walk a mile in their shoes. That way when you criticise them, you are a mile away from them and you have their shoes”

Have a great week.

The V Word...how do we cope?

The people of Japan have felt the earth shift under their feet in so many ways over the last few weeks. A devastating record-breaking earthquake shifted their entire land mass a few metres and the resultant powerful tsunami, graphically captured on video, washed away any object in its path. Explosions at a nuclear power plant and fears of radiation seeping invisibly across their country, and possibly abroad, sparked fears of a nuclear catastrophe that was barely imagined possible.

When events such as these occur they turn people’s worlds and expectations upside down. Aside from the massive human toll, which reverberates as grief throughout communities for very long periods, the sense of safety and certainty that they may have enjoyed is ruthlessly stripped from their psyche.

As the ripple effect from this mammoth tragedy unfurls across the globe, mainly through financial markets, we too must again grip tight and hold on for the ride. The V word is back – volatility.

By its very nature, stock markets move up and down. Sometimes these movements are dramatic, not unlike the quake, which along with political unrest in Libya, has fed into this latest round of share market jitters.

How quickly we are lulled into a false sense of security and sameness. Over the last 6 months or so, we have had a period of relative market stability and rising, albeit moderately, stock prices. In a few short weeks we are thrust back into an unknown world with uncertain outcomes.

Investing in the stock market means coming to terms with these ups and downs just like we come to terms with the highs and lows in our lives. Being slightly more risk averse than men, we can take time to be at ease with the value of our superannuation and portfolios jumping up and down over the year. Through educating ourselves on the nature of shares and markets, by having an asset allocation appropriate to our risk appetite and ensuring we understand our investing horizon with respect to our pools of savings we can reduce this fear.

There are many things in this life we cannot control. The people of Queensland, Christchurch and now, Japan have all had stark reminders of this in recent times. We do, however, have control over ourselves. The ability to calm and soothe ourselves in difficult times when the future seems precarious and to aim for balance when the rug is pulled from under our feet is the mark of someone prepared to face their fears.

As Mark Twain said so eloquently – “Courage is resistance to fear, mastery of fear – not absence of fear”.

What Should I Tell My Daughters?

Help me with this? My 2 daughters aged 11 and 13 are turning into young women. They are reaching the age when you start discussing futures, dreams and goals for the future. They both want to be mothers. No surprises there. They want to do other things too, but of course they talk of babies and marriage. Spurred on by Nicky’s contribution last week about what professions support women who wish to continue their careers after having children, I have put fingers to keyboard to get down my thoughts on a topic close to my heart.

My conundrum exists because from where I sit at 43, having been through a divorce and re-entered the workforce after a long absence, my perspective (and reality) has changed from the young woman I was when I married at 24.

I have friends whose parents separated when they were younger, who tell some pretty eye opening stories about their mothers repeatedly giving them the message that they should always have independence/their own money/a run away fund in case things fall apart. (Contrast this with my mother’s advice when my children were tiny and I was tearing my hair out, that as long as I had a hot meal on the table for my family things would be all right. God bless my dear departed Mum whom I loved beyond reason, but she really was a dinosaur).

My mind hesitates in sending this message of self-preservation and caution too harshly and overly often. My girls should be allowed to make their own decisions and learn things for themselves rather than being influenced by what has transpired in my life. And yet…I AM their mother and my job description says provide guidance (it does, really, didn’t you read that in the fine print in the contract you signed as they wheeled you out of the delivery room??). Even if it is a sliver of a message about retaining a sense of self when your life seems to be all about your children and husband, isn’t it important to use my hard earned wisdom to help them in their lives? I know the difference it makes in your life (and not just financially) when you balance all the competing demands in your life with having a job to go to/study to undertake/home business to start – whatever it is that can be “your” thing.

Overriding this, let’s face it; are they really going to listen to me at this point? Somehow I can’t quite see them saying, yes, Mum, I will always keep a hand in my career, spend and save wisely, have my own bank account and money separate from my husband and be conversant in all details pertaining to my joint finances. Methinks not. Heavens above, they both still love Sleeping Beauty – who am I kidding?

I am far from a card carrying feminist but I want my daughters to carry a more realistic view of what may happen in their lives. I want them to agitate for changes in the workplace to allow greater participation by women, I want them to “have it all” – love, marriage, career, babies, and be able to face the inevitable ups and downs of life with a degree of equanimity knowing they can always look after themselves (and their children). I want them to know the joy of personal achievement.

So I opened with a plea for your help. What message (if any) would you give your daughters about marriage, money, children and career? Don’t be shy…we would love to hear your opinions.

Wouldn’t it be luvverly?

My daughter’s favourite film is My Fair Lady – and when Eliza Dolittle sings the lyrics:

“Someone’s head resting on my knee, warm and tender as he could be,

Who’ll take good care of me, Oh wouldn’t it be luvverly?”

…I know that is what she dreams of, and at some level, will come to expect. Not encouraged by me I might add but not particularly unusual either. I think most of us dreamt of it in our youth, some achieved it for a while, others still have it. But as we’ve seen by our own experiences or those around us, the rug can be pulled out from under our feet so quickly and unexpectedly, it’s dangerous ever to take it for granted.

We have to prepare our girls to take care of themselves. I spend time pondering and observing what career paths are the most conducive to combine mothering and re-entering the workforce to contribute as secondary or, in many situations, primary breadwinner of the family.

I’ve come up with the following criteria:

1. Professional qualification: eg: teacher, nurse, physio, accountant, doctor. These professions are always in demand and no matter what, chances are you will be able to go out and earn money.

2. Flexible arrangements possible: In the professions listed above, you can generally elect to work less than a 40 hour week and still hold down a worthwhile job and receive commensurate reward. This seems to be harder to achieve in the fields of marketing, communications, advertising, PR, investment banking.

3. Skills remain relevant: obviously things move on to some degree, but in the end the human body is essentially the same this decade or next so your physio degree will remain marketable, after a quick brush up on new techniques.

4. Pay is competitive: Ok you’re not necessarily going to be rolling in cash, but any of the above can bring in sufficient income to support you and your children.

We have to ask ourselves why? As women, we should have the freedom to compete effectively and make our way in any career we choose. But as Elizabeth Broderick points out, in Sydney the culture is one of long hours. "The 'ideal' worker is available 24/7, has no visible caring responsibilities and by extension is usually male," she says. Structural change is necessary at the core.

Lots more to be said on this subject. What are your thoughts?