Always Seek Expert Advice

by Byron Murphy Munro Finance & Investment Solutions

Recent client experiences have highlighted the need to seek advice from experienced and qualified financial professionals before you sign agreements or purchase any asset, even a car.

The names and details have been changed to protect the innocent.
Example 1- Refinancing loans
We recently prepared the tax returns for a client who moved interstate for a new job. We noticed they must have decided to buy a new home. In the process they refinanced their existing investment loans to the new lender and paid substantial break costs to payout the original lender. The old loans were on a fixed rate that was more than 1.2% pa less than any new loan they could get, so there was no obvious benefit to justify refinancing of the loans. A call to our advisers would have raised the question of fair value in the new finance and whether there was a smarter and cheaper way to do things.

The new lender/bank cannot give advice about different loans. They obviously think their loan (the only loan they can sell) is the best loan for the client. Our advisers would have considered questions about substitution of security and split finance as alternatives to refinance of their entire loan portfolio by another lender. We would do this because it is fundamental to our core belief that clients receive advice appropriate to their personal circumstances, not in the interests of the lender.

Unlike a bank, mortgage brokers and financial planners have legal and ethical obligations to consider a range of alternative products and strategies available in the market place. Bank lenders and branch staff do not offer advice, they only offer the in-house products they think will suit your needs.

Good advice may cost you less than  D.I.Y
In this instance, we believe our advisers could have potentially saved the clients several thousand dollars in break costs and higher interest rates just in the first year of the loan, let alone over the longer term.  And it probably would not have cost the client a cent for any of that advice, except the price of the phone call.

Similar experiences have been observed with clients doing their own consolidation of superannuation accounts. It is widely accepted that having a single superannuation account is less expensive than having multiple accounts and all funds offer simple and free support to help you consolidate into their account.  As professionals, we consider a range of factors before recommending consolidation including fees, returns, product suitability and insurance cover.

Example 2 Consolidating Super
A recent client experience demonstrated why good advice is always cheap. The client sought advice about superannuation and risk protection (life insurance). Just weeks before contacting us they rolled 6 separate superannuation funds into a single industry fund. In the process they lost $400,000 in life and TPD (total and permanent disability) insurance without realising it. Due to recent medical conditions, the client could only replace that lost cover by paying significant loadings on their new insurance premiums.

Their new superannuation fund would increase their insurance cover under the group scheme in the fund, but because the client now has pre-existing conditions they are not covered by the new super fund insurance cover, i.e. they cannot make a claim for anything related to these pre-existing conditions for another 7 years.

Our advice would have been to protect their existing insurance cover, even if it meant retaining multiple super funds that we would not normally recommend. The cost of replacing the insurance far exceeds any apparent additional costs of holding multiple funds and the client could have avoided some medical underwriting requirements also. Our advice may not have been free in this instance, but it would have provided excellent value to the client.

©Byron Murphy 2011