SecretGreenOffers

As an In-House Tax Strategist for a “Wealth Management” office, I had the unique perspective of watching and observing the gyrations a wealth advisory team will go through in order to “land a client”. My job, of course, was to bring value added services to the existing and potential clientele. Well, not exactly. I had the mindset of that purpose but in truth, it was just one more way for the “financial advisor” to get in front of another new prospect. In fact, that one purpose “get in front of another prospect” was the driving force in every decision. Think about it this way. A Financial Advisory Firm will make tens of thousands of dollars for each new client “they land” versus a few hundred dollars more for doing a better job with their existing clientele. You see, depending on how a financial advisory firm is built, will dictate what is most important to them and how it will greatly affect you as the client. This is one of the many reasons why Congress passed the new DOL fiduciary law this past spring, but more about that in a latter article.

When a financial advisory firm concentrates all of their resources in prospecting, I can assure you that the advice you are receiving is not entirely to your benefit. Running a successful wealth management office takes a lot of money, especially one that has to prospect. Seminars, workshops, mailers, advertising along with support staff, rent and the latest sales training can cost any size firm hundreds of thousands of dollars. So, as you are sitting across the glossy conference table from your advisor, just know that they are thinking of the dollar amount they need from the procurement of your assets and they will be allocating that into their own budget. Maybe that’s why they get a little ‘huffy’ when you let them know “you have to think about it”?

Focusing on closing the sale instead of allowing for a natural progression would be like running a doctor’s office where they spend all of their resources how to bring in prospective patients; how to show potential patients just how wonderful they are; and the best way for the doctor’s office staff to close the deal. Can you imagine it? I bet there would be less of wait! Oh, I can just smell the freshly baked muffins, hear the sound of the Keurig in the corner and grabbing a cold beverage out of the refrigerator. Fortunately or unfortunately, we don’t experience that when we walk into a doctor’s office. In fact, it’s quite the opposite. The wait is long, the room is just above uncomfortable and a friendly staff is not the norm. That is because Health Care Providers spend all of their time and resources into knowing how to take care of you as you are walking out the door instead of in it.

As you are searching for financial advice, there are a hundred things to think about when growing and protecting your wealth, especially risk. There are risks in getting the wrong advice, there are risks in getting the right advice but not asking enough of the right questions, but most importantly, there are risks of not knowing the true measure of wealth management. The most common overlooked risk is not understanding the net return on the cost of receiving good financial advice. Some financial advisors believe that if they have a nice office with a pleasant staff and a working coffee maker they are providing great value to their clients. Those same financial advisors also spend their resources of time and money to put their prospective clients through the ‘pain funnel’ to create the sense of urgency that they must act now while preaching building wealth takes time. In order to minimize the risk of bad advice is to quantify in real terms. One of the ways to know if you are receiving value for your financial advice is to measure your return backwards.

Normally, when you come to an agreement with a financial advisor there is a ‘management fee’ usually somewhere between 1% and 2%. In fact, this management fee can be found in every mutual fund and insurance product that has investments or links to indexes. The trouble I observed over and over again as I sat through this carnival act, was that management fees, although mentioned, were merely an after-thought. When presenting their thorough portfolio audit and sound recommendations, the sentence used to the unsuspecting client was that the market has historically provided an average of 8% (but we’re going to use 6% because we want to be ‘conservative’) and we’re only going to charge you 1.5% as a management fee. No big deal, right?

Let’s discover why understanding this management fee ‘math’ is so important, and how it could actually save your retirement. This could actually keep you from going broke using a financial advisor simply by measuring your financial advice in reverse. Let’s look at an example to best demonstrate a better way to look at how good your financial advisor is doing.

Now, before we begin, I have always understood that whoever gets paid first wins. We only have to look at our paycheck to see who gets paid before we do to understand that perspective. It is equally important to know that management fees are taken out first, unless you are lucky enough to have the income, the assets and a willing financial advisor to only get paid when they make you money. Funny though, this is exactly how you should review your own historical performance with your financial advisor and if they should be fired. Let’s say you have investable assets of $250,000 as you sit down with a wealth management team. They have just provided you with PowerPoint presentations, marketing materials and a slideshow on their 50″ HD Computer Screen in their freshly redecorated conference room showing that you can make 8% and they’re only going to charge you 1.5% annually (quick math $3,750 every year). You see in their presentation your investable assets appreciating over the next 10 years all the way up to $540,000. Sweet!

Now, this is not the article on why using the “Average Rate of Return” is absolutely the wrong measurement to use because it uses linear math when it is more appropriate to use geometric math in Compound Annual Growth Rate which incorporates time… But let’s look at how fees have a depreciating element to your investments.

After consideration, you agree to a 1.5% annual management fee to be paid quarterly. The financial advisor needs to get paid first so your portfolio’s management fees come out first. Consequently, your $250,000 becomes $249,000 and at 8% average annual rate of return, your assets after the first quarter are now $254,000. After the first year? Your assets are now worth $266,572 after fees of $3,852.

Financial Advisor Portfolio or Self-Managing ETF Portfolio

Self-Management Portfolio

I’d like to take this time to explore the differences in doing your own portfolio built on buying two ETFs (SPY and AGG). For the purposes of this illustration we will be allocating 80% to the S&P 500 (SPY) and 20% Barclay’s US Bond Aggregate (AGG). This is the time to say, I am not recommending any specific investments: this is for illustrative purposes only. The actual average rate of return for this allocation for the past 10 years is 4.24%, so without considering fees, an initial investment balance accumulates to $381,292. These ETFs have an embedded annual management fee of.15% (SPY) and.08% (AGG) with an aggregate of.14% for this allocation producing $4,178 in total ‘out of pocket’ fees over the 10 years. If we understand that our portfolio appreciated $130,319 and it cost you $4,178 for a Net Gain in your portfolio, then your NET COST of FEES is 3.21%. But it doesn’t end there, to truly quantify how fees eat away at your portfolio we must take this process a step further. The TRUE COST of FEES is calculating the difference of your portfolio with and without fees, in this case is $5,151 and comparing that to the Net Gain in your portfolio or 4.1%. In other words, over a ten year period, the cost of having these investments was 4.1%, $381,292 (without fees) versus $376,141 (Ending Balance with fees).

Financial Advisor Portfolio

For the sake of this illustration we are going to assume the financial advisor does better over the same 10 year period, about 6% annual average rate of return. You agree to let them take a 1.5% annual management, paid quarterly. Your $250,000 portfolio accumulates to $392,308 over 10 years with ‘out of pocket’ fees of $47,108, or $4711 per year. Your portfolio’s NET COST, or the fees of $47,108 to gain $189,416 in your portfolio, is almost 25%. More than that, your TRUE COST of Financial Advice is 44.7%. Plainly, your Financial Advisor’s portfolio is $63,617 less than if you had no fees and it accumulated to $455,926. As expected, your portfolio realized an average rate of return of 5.69%. In this illustration, the financial advisor portfolio did ‘out-perform’ the DIY portfolio of ETFs by $16,167 by outpacing the average rate of return by.61% annually.

Utilizing our proprietary software and a hundred test cases, we wanted to see how much better does a financial advisor need to realize to bring value to the client advisor relationship? This number is dependent on a number of factors: amount of investable assets, length of time, management fees charged and of course, the rate of return. What we did experience, is that the range went from its lowest to 1.25% to as high as 4%. In other words, in order to ‘break-even’ on bringing value to the client-advisor relationship, the financial advisor must realize at least a 1.25% higher net gain in average rate of return.

Please know, that we are not trying to dissuade anyone from utilizing the services of a financial advisor. We would be making our own clientele pretty unhappy. Instead, we want to present more transparency on how to measure the competency level of your financial advice. Heaven knows an experienced, knowledgeable advisor brings much more to the relationship than can be quantified by a number, but we do want the ability to truly measure the cost of this financial legacy. Just like most things in life, the line between success and failure is razor thin. In the above illustration, if the financial advisor portfolio’s ending balance was lowered by just $25,000 that would mean the annual average rate of return lowers.5% resulting in a lower ending balance than the self-managed account by $6,527. What if we changed the allocation to 70/30 allocation split? The Financial Advisor’s portfolio underperforms by $12,144 while still costing the client almost $60,000 in fees over the 10 years.

One final thought as we wrap things up here. You may be interviewing for a new advisor now or possibly in the near future. One of the most important questions you would want to ask and most of them do not want to answer or know how to answer is, “How good is your historical performance?” Now, this is usually where you get the song and dance from the wealth management team. They will extol the virtues of “every portfolio is different” or “all circumstances and risk tolerances inhibit us from ‘projecting’ rates of return” or, my favorite, “It’s about the plan! Your dreams and goals will be much different than anyone else, even if they have the same amount assets, income and risk assessment.” These of course are all true statements, but it does not preclude a wealth management team from the ability to show past performance of how they manage money. Going out on a limb, isn’t that why you are interviewing advisors? To see if they can do better than what you are currently doing either on your own or with your soon-to-be-ex financial advisor?

A Look Behind the Curtain

What most financial advisors won’t tell you is just how similar the construction of each client portfolio really is. I can’t tell you how many multi-million dollar firms have every client’s portfolio look pretty identical from one another. It’s usually made up of “3 Buckets”. Now these have different meanings for different advisors such as “Soon – Not so Soon – Long Term Money” or the “Safe – Moderately Safe – Risky” purposes for your investable assets. Believe me when I say this, most advisors pay a lot of money and spend a lot of their time on how to tell this story, to get the client to change their mindset of what they have been taught all along since childhood from their parents. It is not necessary for financial planning to be this complicated, unless of course, there is salesmanship going on. We learned from an early age and then proactively budgeted our entire adult lives to make more than we spend, save as much as we can so we can live off of what we have accumulated. But somehow, wealth advisors have created this sales system to get people to worry (“The Pain Funnel”) that they will outlive their money or worse, not be able to keep the lifestyle clients so richly deserve. You see, in sales, you create pain, step on it and then provide a solution. I believe we can be a lot more honest here and focus our advice transparently without resorting to ‘scare tactics’. Building an investment portfolio, retirement income strategy or legacy plan should be as comfortable as they are obvious.

Most wealth management teams will start with the same basic “financial plan” for your assets: short-term money that has no volatility (this is where you have your emergency/vacation/play money); then you will have near-short term money (usually about 3 – 7 years of very little volatility; and then the last division of your assets is long term money (10 years or more) with a lot of volatility (managed money). Please be aware that this is the exact moment where financial advisors practice in order to “land the prospect”. They will have you write in the percentage of how much your assets you want in the first, second and third ‘buckets’ according to your “Risk Tolerance”. I’ll explain in a later article why this entire methodology is mathematically inhibitive to long term financial success. In lieu of writing in percentages, you’ll better served to focus on two facets: the fees for the first two ‘buckets’ (your rate of interest is generally very low so any fees will have a higher detrimental effect) and the entrance and exit strategy for your managed money held in the last bucket. They will tell you that “long term growth is omnipotent to the success throughout your retirement years. So, if that’s the case they had better ‘show you the money’!

Bottom line: There is a historical performance of your wealth management team that can be shown… so ask for it. Oh, another hint, make sure it is actual performance and not ‘back tested” performance. The financial industry now has software programs that allow us to take a computer-based allocation model and utilize financial data of domestic stocks and bonds for the past 20 years to show a simulated historical performance within a 3% margin of error. I don’t know about you, but I would want my money manager to have more than a couple of years of experience no matter how pretty their brochures are or wonderful their office smells.

So, how are We Really Doing?

Earlier, we compared what an average financial advisor (giving them the benefit of the doubt that they indeed performed better over a 10 year period) did compared to a Do-It-Yourself portfolio made up of S&P 500 and Barclays US Bond Aggregate ETFs. But how did the same portfolio do against the Nasdaq (QQQ) over the same time period? Given the same 80/20 allocation, the QQQ Portfolio gained an average of 12.73% annually versus the 6.05% for the Financial Advisor. The Nasdaq (QQQ) plus Bonds (AGG) gained over $471,000 more in assets over that same time period, or roughly $47,000 per year. Now, I need to point out that if we looked at QQQ returns of 2000-2009 then the portfolio would have lost an accumulated 9.12% of value in assets. The QQQ ETF Net Average Annual Rate of Return since 2000 is 2.38%. Our focus in putting together client portfolios is to minimize inhibitors like fees, taxes and risk since those are in our control (can’t control the market). When viewing portfolios and net worth statements of our clients through this prism and then bringing it through our proprietary software, we can grade ourselves as well as our portfolio managers with real, audited data. For example, one of our money managers has a computer-based, moderate growth portfolio (70/30 allocation split) that has a 12.68% average rate of return over the same time period as all 3 portfolios. Loosely translated, this Moderate Growth Portfolio outperformed the S&P 500 ETF Portfolio by $342,000. When it comes to the accumulation portion of our client’s financial plan, we can ascertain what is working and what isn’t by quantifying the NET performance.

With so many choices, it is difficult to ascertain subjectively who you should trust as a financial advisor, if you should trust one at all! As a consumer, when we purchase just about anything, we constantly compare the price versus the benefit of ownership with an understanding the sliding scale of risk associated with owning whatever we are buying whether it’s buying a gallon of milk, a haircut or a piece of furniture. The higher the price, usually higher the risk, the more we want to weigh the attributes of doing something or doing nothing; measure the value of hiring it done or doing it yourself. The legacy of ownership greatly effects the amount of risk involved in getting the right information in order to act on the right advice for results that are satisfactory to your needs and expectations. Our purpose for creating this proprietary software was to come up with a simple ‘report card’ to measure between advisors and to affirm the decision to have someone else manage your investable assets and your financial future. We believe that as financial advisors, we should be held to a measurable account definitive to always doing what is best for the client’s interest. The largest service we provide is inherently, producing a higher net rate of return on the overall net worth of our clients than if they simply could manage their own financial assets. In today’s financial environment, we cannot afford to make any mistakes no matter how minuscule. This is why having the ability to simply, clearly quantify the value of your advice is truly omnipotent to your financial success.

If you would like a confidential report card on your financial advisor, simply send us an email at chuckyourtaxes@outlook.com with your beginning and ending balances (please include a net accumulation of withdrawals and deposits); month and year for your start date, and then the general percentage split in your investment allocation between stocks (equities) and bonds (fixed income). You will get back a one page report that will show you definitely if you are getting your money’s worth out of your financial advisor.

The State of Financial Markets in the Southern African Region

Up to the end of 1994, there were 14 stock exchanges in the entire African continent. These were Cairo (Egypt), Casablanca (Morocco), Tunis (Tunisia) in North Africa; Abidjan (Côte d’Ivoire), Accra (Ghana), and Lagos (Nigeria) in West Africa and Nairobi (Kenya) in Eastern Africa. In the Southern African region, they were Windhoeck (Namibia), Gaborone (Botswana), Johannesburg (South Africa), Port Louis (Mauritius), Lusaka (Zambia), Harare (Zimbabwe) and Mbabane (Swaziland). In 2005, most of other countries in Southern Africa have developed their own stocks exchange markets. They are Maputo (Mozambique), Dar-Es-Salam (Tanzania) and Luanda (Angola).

With the exception of the Johannesburg Stock Exchange, and at a different level, the Zimbabwe Stock Exchange and the Namibia Stock Exchange, these markets are too small in comparison to developed markets in Europe and North America, and also to other emerging markets in Asia and Latin America. At the end of 1994 there were about 1150 listed companies in the Africa markets put together. The market capitalization of the listed companies amounted to $240 billion for South Africa and about $25 billion for other African countries.

In the countries under review, stock markets are particularly small in comparison with their economies – with the ratio of market capitalization to GDP averaging 17.3 per cent. The limited supply of securities in the markets and the prevailing buy and hold attitudes of most investors have also contributed to low trading volume and turnover ratio. Turnover is poor with less than 10 percent of market capitalization traded annually on most stock exchanges. The low capitalization, low trading volume and turnover would suggest the embryonic nature of most stock markets in the region.

We have gathered considerable information on the current state of financial markets in Africa in general, and due to a limited time frame, it was not possible to collate, analyze and harmonize them. The format of this article cannot allow to take into consideration all the data. From the latest information, it becomes clear that with the ongoing reforms within the financial sectors in the countries under investigation, a lot of progress has been achieved in terms of regulatory and institutional capacity building. We could expect more results with the promotion of more open investment regulations, allowing more financial flows in the region.

The Experience of Financial Markets Regulation in the Southern African Countries

The financial systems of Southern African countries are characterized by high ownership structure resulting in oligopolistic practices which create privileged access to credit for large companies but limited access to smaller and emerging companies. The regulatory framework must take into account all the specific characteristics of these systems, and at the same time keep the general approach inherent to every regulatory instrument.

Financial systems in Southern Africa are also noted for their marked variations. Some systems, such as those in Mozambique, Angola and Tanzania were for a long period, dominantly government-owned, consisting mostly of the central bank and very few commercial banks. Up to date, Angola has not developed a money and capital market, and the informal money markets are used extensively. Other systems had mixed ownership comprising central banks, public, domestic, private and foreign private financial institutions. These can be further sub-divided into those with rich varieties of institutions such as are found in South Africa, Mauritius and Zimbabwe, and others with limited varieties of institutions as are found in Malawi, Zambia, Swaziland, etc.

Regulatory authorities in most of these countries have, over the years, adopted the policy of financial sector intervention in the hope of promoting economic development. Interest rate controls, directed credit to priority sectors, and securing bank loans at below market interest rates to finance their activities, later turned out to undermine the financial system instead of promoting economic growth.

For example, low lending rates encouraged less productive investments and discouraged savers from holding domestic financial assets. Directed credits to priority sectors often resulted in deliberate defaults on the belief that no court action could be taken against the defaulters. In some cases, subsidized credit hardly ever reached their intended beneficiaries.

There was also tendency to concentrate formal financial institutions in urban areas thereby making it difficult to provide credit to people in the rural areas. In some countries, private sector borrowing was largely crowded-out by public sector borrowing. Small firms often had much difficulty in obtaining funds from formal financial institutions to finance businesses. Finally, the tendency of governments of the region to finance public sector deficits through money creation resulted not only in inflation but also in negative real interest rates on deposits. These factors had adverse consequences for the financial sector. First, savers found it unrewarding to invest in financial assets. Second, it generated capital flight among those unable or unwilling to invest in real assets thereby limiting financial resources that would have been made available for financial intermediation. Coupled with this was the declining inflow of resources to African countries since the 1980s.

A viable financial market can serve to make the financial system more competitive and efficient. Without equity markets, companies have to rely on internal finance through retained earnings. Large and well established enterprises, in particular the local branches of multinationals, are in a privileged position because they can make investments from retained earnings and bank borrowing while new indigenous companies do not have easy access to finance. Without being subjected to the scrutiny of the marketplace, big firms get bigger.

The availability of reliable information would help investors to make comparisons of the performance and long term prospects of companies; corporations to make better investments and strategic decisions; and provide better statistics for economic policy makers. Although efficient equity markets force corporations to compete on an equal basis for the funds of investors, they can be blamed for favouring large firms, suffer from high volatility, and focus on short term financial return rather than long-term economic return.

In various countries where domestic bond markets exist, these are generally dominated by government treasury funding which crowds out the private sector needs for fixed interest rate funding. With minor exceptions, the international fixed rate bond markets have been closed to African corporations. Thus the development of an active market for equities could provide an alternative to the banking system.

The development of financial markets could help to strengthen corporate capital structure and efficient and competitive financial system. The capital structure of firms in Southern African countries where there are no viable equity markets are generally characterized by heavy reliance on internal finance and bank borrowings which tend to raise the debt/equity ratios. The undercapitalization of firms with high debt/equity ratios tends to lower the viability and solvency of both the corporate sector and the banking system especially during economic downturn.

Case studies in selected countries of Southern Africa

In all countries under study, both the historical background, the level of financial system development and the importance of financial markets structure and operations have considerably affected the nature of the regulatory framework. However, there are few countries whose objectives of financial market liberalization were the basis for the development of a modern regulatory system. Mauritius and Botswana are examples which, together with South Africa and Zimbabwe, have developed some of the most developed and diversified financial markets systems in Sub-Saharan Africa. There is no doubt that economic and financial conditions of the economies of individual Southern African countries have played significant roles in shaping their financial market’s regulatory framework.

1. Financial Markets in Botswana

An informal stock market was established in 1989, managed and operated by a private stockbroking firm (Stockbrokers Botswana limited). In 1995, a formal stock exchange was established under the Botswana Stock Exchange Act. The BSE performed remarkably well in terms of the level of capitalization, the value of the shares and the returns to the shares. The BSE contributed to the promotion of Botswana as a destination for international investment.

In 2004, the number of domestic companies listed was 18 while foreign companies listed were 7, and two in the venture capital market. The Bank of Botswana introduced its own paper, BoBCs, since 1991, for liquidity management purposes, and there is a growing secondary market for the instrument. In 1999, the Central Bank introduced an other instruments, the Repos (Re-purchase Agreements) and the National Saving Certificates with the objective to develop local money market and to encouraging savings. In 1998, the International financial Services Centre (IFSC) was established to promote world quality financial services.

2. Financial Markets in Mauritius

The Government of Mauritius has decided as a priority, to modernize and upgrading the financial system of Mauritius and recently took measures to strengthen the financial sector and to further integrate it with both the domestic economy and the global financial market.
Thanks to a well developed network of commercial domestic banks, offshore banks, non financial institutions and financial institutions, the financial system is one of the most vibrant in the Southern African region.

The Stock Exchange of Mauritius (SEM) started its operations in 1989, with only five listed companies. In 2004, more than 44 companies were listed, and the range of activities has expanded, state-of-art technology is being used in the dealings.

In September 2001, the settlement cycle on the SEM was reduced from five to three days, to be in line with major international stock markets. The short settlement cycle has since helped to improve liquidity and turnover on the market as investors are able to sell their securities three business days after buying the, thus reducing risks and bringing better integration to global markets through strict adherence to international standards.

3. Financial Markets in Mozambique

In 1978, all private banks operating in Mozambique were nationalized and merged into two state owned institutions, the Banco de Moçambique (Central Bank) and the Banco Popular de Desenvolvimento (BPD). After the adoption of a new economic orientation in 1992, the Government implemented an economic reform programme including the financial sector reform. Foreign banks were allowed to invest in Mozambique and the regulatory and commercial activities of the Central Bank BDM were separated. Banco de Moçambique assumed the Central Bank function while Banco Comercial de Moçambique BCM led the commercial banking sector.

The financial sector liberalisation policy allowed new institutions. Apart from the already operating Standard Bank, new banks licensed since 1992 or resulting from liquidation of existing institutions include the Banco Internacional de Moçambique, the Banco Comercial de investimentos, Banco de Fomento, Banco Austral, African Banking Corporation ABC, BMI, UCB, ICB, Novo Banco, etc. There are also investment banks, leasing companies and credit cooperatives. This increased number of financial and non financial institutions resulted in the development of an active financial sector.

In October 1999, the stock market of Mozambique (Bolsa de Valores de Moçambique BVM) was inaugurated. Its regulatory agency is the Central Bank BDM and its operations are still limited. With the technical support of the Johannesburg Securities Exchange JSE and the Lisbon Stock Exchange, plans are underway to develop an international financial services centre, including a state-of-the art information technology system.

4. Financial Markets in Namibia

The Namibian Stock exchange NSX is governed by the Stock Exchange Control Act of 1985. Amendments to the Act have been recently adopted in order to bring the national laws in line with international standards.

The NSX was established in October 1992 and is the most technically advanced bourses in Africa, and also one of few self regulated financial markets in Southern Africa. The Namibian Stock exchange Association, a self regulatory, non profit organization, is the custodian of the license to operate the NSX. It approves listing applications, licenses stockbrokers and operates the trading, clearing and settlement of the exchange. Since 1998, the NSX has used the most technically advanced management tools available on the continent, which enable better surveillance and detailed client protection.

5. Financial Markets in South Africa

The South African Financial Markets system is the most sophisticated and complex with the vibrant Johannesburg Securities Exchange (JSE), the Bond Exchange of South Africa (BESA) and the and the South Africa Futures Exchange (SAFEX).

The Johannesburg Stock Exchange JSE was established in November 1887. Currently, it is governed by the Stock Exchanges Control Act of 1985 [amended in 1998 and 2001]. The JSE is the largest stock exchange in Africa and has a market capitalization of more than 10 times that of all the other African markets combined. The JSE provides technical support and capacity building, skills and information to the following exchanges in the region: Namibia, Mozambique, Mauritius, Tanzania and others in Africa (Nigeria, Ghana, Egypt, Uganda and Kenya). Since 1999, the JSE harmonized its listing requirements with the stock markets of Botswana, Malawi, Namibia, Zambia and Zimbabwe.

The BESA was licensed in may 1996 under the Financial Markets Control Act of 1989 [amended in 1998], and the SAFEX was established in 2001 as a Financial Derivatives Market and agricultural Products division of the JSE.

In June 1996, the JSE introduced the fully automatic electronic trading system known as Johannesburg Equities Trading (JET) and since May 2002, is using the Stock Exchange Trading System (SETS).

6. Financial Markets in Swaziland

The Swaziland Stock Market (SSX) was established in 1990 to promote local investment opportunities. In 2002, five companies were listed. The SSX has developed new listing requirements in line with new international regulatory standards. A new security Bill has been approved in 2002, and should be in force by now. It will allow the licensing and regulation of all securities markets, operations and participants.

7. Financial Markets in Tanzania

The Dar-Es-Salaam Stock Exchange (DSE) was incorporated in September 1996 under the Capital Markets and Securities Act of 1994. Its operations however did not start until April 1998 with the listing of the first company. In October 2002, foreign companies were allowed to operate on the DSE. Its regulatory agency is the Capital markets and securities Authority (CMSA). Plans are underway to facilitate the securing of increased financial resources from global markets.

8. Financial Markets in Zambia

The Lusaka Stock Exchange (LuSE) was created in February 1994 under the 1993 securities Act. It is controlled by the Securities and Exchanges Commission (SEC). Its operations were boosted by the successful issue of the Zambian Breweries, which raised up to US $ 8.5 million to refinance a loan secured for the acquisition of the Northern Breweries in 1998. Most of the listings were the result of the country’s privatization program.

A Commodity Exchange, the Agricultural Credit Exchange was also established in 1994, as an initiative of the Zambia National Farmers’ Union, after the liberalization of the prices of agricultural commodities. The Exchange provides a centralized trading facility for buyers and sellers of commodities and inputs. It provides also updated prices and some market information for both local and international markets.

9. Financial Markets in Zimbabwe

The Zimbabwe Stock Exchange ZSE, is one of the oldest and most vibrant stock exchanges in Africa. It was established in 1890, but had sporadic trading until 1946. In 2002, it had 76 listed companies. The ZSE operates under the Stock exchanges act, which is being amended to take into consideration new technological requirements and to align its contents with international standards (improve the security of share trading, transparency, central depository system, etc.).

The ZSE is open to foreign investors, who can purchase up to 40 percent of the equity of listed company, a single investor can purchase a maximum of 10 percent of the shares on offer. Foreign investors can invest on the local money market up to a maximum of 25 percent per primary issue of government bonds and stocks, and a single investor can acquire a maximum of 5 percent. Foreign investors are however not allowed to purchase from the secondary market. These investments qualify for 100 percent dividend and interest remittance.

Financial Markets Regulation in Southern Africa: which way ahead ?

The major issue in financial market regulation lies in the fact that the legal and institutional framework of most countries is still inadequate to support modern financial processes. Examples of such inadequacy include outdated legal systems leading to poor enforcement of laws. The following challenges are very interesting for further research opportunities.

A cohesive and comprehensive legal framework is required under the proactive approach in order to use the contracts that clearly define the rights and obligations of all intervening operators. Such a framework should encourage discipline and timely enforcement of contracts, fostering responsibility and prudent behavior on both sides of the financial transactions. Prudent and efficient financial intermediation cannot operate without reliable information on borrowers, and some legislation on accounting and auditing standards, which also ensures honesty on the part of financial institutions, Similarly, for a country’s financial markets to develop and operate efficiently, legislation should fully incorporate rules of trading, intermediation, information disclosure, take-overs and mergers.

Because of the role of financial institutions and markets in the development of a sound financial system, additional legislation is normally needed for their operations to complement company law. These are prudential regulations, especially for banks and similar financial institutions that hold an important part of the money supply, create money and intermediate between savings and investment. Company law is an example of the kind of legislation needed. It not only governs the operations of business enterprises but also protects the interests of company stakeholders. Thus, public disclosure of information on the company’s activities should be made mandatory on company management in the appropriate section of the Companies Act. Such information, especially that relating to finance and accounting, should also be statutorily required to be subsequently verified and attested to by auditors.

Prudential regulations cover such issues as criteria for entry (listings), capital adequacy standard, asset diversification, limits on loans to individuals, permissible range of activities, asset classification and provisioning, portfolio concentration and enforcement powers, special accounting, auditing and disclosure standards adapted to the needs of the banks to ensure timely availability of accurate financial information and transparency. The objective is to enhance the safety and soundness of the financial system.

There is real need for an important legislation relating to financial markets which require not only favorable policies but also legal and institutional infrastructure to support their operations, prevent abuses and protect investors. Investors’ confidence is critical to the development of the markets. Brokers, underwriters, and other intermediaries who operate in these markets therefore have to follow laid down professional codes of conduct embodied in the legislation applicable to such institutions as finance and insurance companies, mutual funds and pension funds.

An other important issue is the independence of regulatory authority, their number and the option to establish self-regulatory agency. All these aspects should take into account the objectives and principles defined by the government, and also the specific development needs in the financial system.

A major challenge concerning the Financial Markets in the Southern African region is the harmonization of the national financial regulation and the compliance with international requirements, including the SADC criteria and the international standards set by international organizations such as the International Organization of securities Commissions (IOSCO), the International Accounting Standards Committee (IASC), the Basel Committee on Banking Supervision (BCBS) and the obligations resulting from the WTO Agreement on financial Services (GATS). These key international instruments are starting to be enforced and individual countries have to keep updating their financial markets regulations and upgrade the technical skills of their staff in charge of regulatory and supervisory operations.

BIBLIOGRAPHY

-Faure, A.P. An overview of the South African Financial System, in the Securities Markets, Johanesbourg, Securities Research, No.3, 1987
-Dougall, H.E. [1970], Capital Markets and Institutions, Second Edition, New Jersey, Prentice Hall ;
-Furness, E.L. [1972] An introduction to Financial Economics, Heinenmann, London.
-Smith, P.F. [1971], Economics of Financial Institutions and Markets, Illinois, Irwin;
-Peltier, F. [1997] Marchés Financiers et Droit Commun, Banque Editeur, Paris ;
-Kolb W. R, and Rodriguez J .R. [1996], Financial Institutions and Markets, 2nd Edition, Blackwell Publishers ;
-Mattout, J. P. [1996] Droit Bancaire International, Banque Editeur, 2e Edition, Paris;
-Schmidt R H and Wrinkler A. [1999], Building Financial Institutions in Developing countries, Working Paper Series, Finance and Development no. 45, JW Goethe University, Frankfurt am Main ;
-Falkena H. Bamber R. Llewellyn D. and Store T. [2001], Financial Regulation in South Africa, SA Financial Sector Forum, 2nd Edition, Rivonia ;
-Mishkin, F. S. [2004] , The Economics of Money, Banking and financial Markets, Seventh Edition, Addison-Wesley, Boston, MA
-Fanelli`J.M. and Medhora R. [1998] , Financial Reform in Developing Countries, IDRC Mac Millan Press Ltd, Hampshire ;
-Banco de Mozambique [2005] , Annual Report, May 2005.
-SADC [2004], The official SADC Trade, Industry and Investment Review, 8th Edition, SADC Secretariat, Gaborone ;

The author, is a lecturer and an International Consultant in Trade and Investment, Director of InterConsult Mozambique and is the Representative of Emerging Market Focus (Pty) in Mozambique. This insight paper is aimed at advising investors and business people involved in international trade by providing them with accurate legal data on the institutional and legal framework of Mozambique and the Southern African region.

While we take the utmost care to verify the information we provide, we do not endorse any responsibility for undesired or unpredictable consequences arising from decisions made on the basis of this article. Commentaries are encouraged; to contact the author send mail to interconsultgroup@yahoo.ca For professional legal assistance on specific issues, please visit EMF website at [http://www.emergingmarkets.co.za]

The success of the financial sector is a key component for economic development

The financial markets sector is one important area of public concern in Africa. The need for adequate regulation and supervision of Financial Markets as an important mechanism for the promotion of economic development in African countries cannot be overemphasized. Financial markets regulation remains a very sensitive and complex activity when it comes to governmental policy development, with relation to defining strategic options pertaining to financial regulation. This article reviews the current status of financial farkets, the legal and regulatory frameworks in the Southern African region, with a special focus on selected countries.

The topic under investigation relates to the regulation of financial markets by governments within the Southern African countries both at national and international levels. It attempts to grasp its rationale, objectives, approaches and the practical ways of defining a regulatory framework for a modern African financial market and system. At a time many experts are calling for liberalization of financial services in Africa, it is important to analyze what are the rationale, advantages and implications of financial markets regulation for Southern African countries under the light of new international instruments and standards, such as the Basle II Framework and the WTO Agreement on Financial Services of 1994, whose operational modalities are is still under negotiations on various key aspects.

This paper attempts to examine the institutional and regulatory framework for the financial markets operations in order to understand the underlying principles of financial markets regulation development; to develop a concise outline of financial markets regulation framework within the South African countries; and provide as much as possible a clear understanding of policy development, key issues and challenges relating to the regulation of financial markets in the Southern African region.
The terminology used in the financial markets jargon is considered to be highly technical and can some times be confusing. While we attempt to keep a non technical language through out this paper, it is quite impossible to avoid the specific concepts used in the financial profession. For some key concepts, a concise glossary of most of the technical words is provided at request by the author.

The Southern African region: geographic coverage and scope

The broad Southern African Region considered under the present study is defined with reference to the SADC membership, currently comprising 14 countries, i.e. Angola, Botswana, Congo (the Democratic Republic of), Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. However, our scope is limited by the criteria of readily available data, and the level of financial markets development in the countries under investigation. Angola and the Democratic Republic of Congo are emerging from long wars and are still rebuilding their economies and financial systems. Both have no formal financial market. Accurate and reliable data is very limited on their systems. The study covers a period of 10 years (1994-2004).

Background overview on Financial Markets

The regulation of Financial Markets, taken as a broad concept, is the process that encompasses regulation, (i.e. the establishment of specific rules of behaviour), the monitoring (i.e. observing whether the rules are respected) , the supervision (a more general observation of the behaviour of financial institutions and operators), and the enforcement (ensuring that the rules are complied with) of the established laws.

The ultimate economic function of financial markets is to mobilize and allocate resources through financial intermediation in order to accelerate the process of economic growth. This function is performed through two distinct but interrelated components of the financial markets, i.e. the money market and the capital market. It provides channels for transferring the excess funds of surplus units to deficits ones. They constitute the mechanism that link surplus and deficit units, attracting funds from savers in the surplus sector and channeling these to borrowers for the purposes of profitable investment.

For the purpose of providing a clear understanding of this topic, it is profitable to present a wide overview of a typical financial system and the place of the financial markets holds within this framework. As a practical illustration, we provide in a table of Annex I, the Conceptual Framework of a typical financial market system (the Case of South Africa).

Financial Systems and Financial Markets development

The financial system in the Southern African region consists of providers and users of financial services. The typical financial system consists of a variety of institutions, instruments and markets that facilitate the flow of financial resources between borrowers and lenders. The financial institutions include moneylenders, banks, insurance companies, leasing companies, venture capital funds, mutual funds and pension funds, brokerage houses, investment trusts and stock exchanges.

Financial instruments involved range from currency notes and coins, cheques, mortgages, corporate bills, bonds and stocks to futures, swaps and other complex derivatives. The markets for these instruments may be organized or may be informal. The users of the markets may be households, businesses and the government. Compared to those of developed countries (Europe, Asia and America), the typical financial markets in the Southern African region are characterized by the absence or a limited number and quality of the financial services providers, the absence of many of the instruments and the lack of depth in the markets.

Financial Markets typology and structure

The financial markets play a very important part in the economy of a country and the well-being of every person. They interact with other markets and have an influence on issues such as wealth, inflation and economic stability in a country. The financial markets have their own characteristics and to be able to regulate them or operate in them, it is important to comprehend these characteristics.

Classification of Financial Markets

Financial Markets can be classified into different categories depending on the characteristic of the market or instrument used to create categories. There exist two ultimate distinctions of financial markets. The primary market, i.e. for the sale of new markets, and the secondary market for already existing securities. The capital market, which is the market for the issue and trade of long-term securities, on one hand and the money market, i.e. the one of short-term securities, on the other hand,
In general terms, the money market is the market where liquid and short-term borrowing and lending take place. The lending of funds in this market constitutes short-term investments. In a certain sense all bank notes, current accounts, cheque accounts, etc. belong to the money market.
In financial market terms, the money market exists for the purpose of issuing and trading of short-term instruments, that is, instruments where the term remaining from the date when trading takes place to the date of redemption of the loan represented by die instrument (commonly referred to as the “term to maturity”), is of a short-term nature. In theory, this term for classification as a money market instrument is given as one year. In practice, however (especially in South Africa), instruments with a term to maturity of three years or less are normally classified as money market instruments although this is not a hard and fast rule.
For the purpose of regulation, the classical typology of Financial Markets recognizes the following major distinctions :

• the inter-bank and credit markets
• the Money Market ;
• the Equity Market ;
• the Foreign Exchange Market ;
• the Bond Market (for Government bonds, Corporate bonds, Eurobond market, structured bonds, etc.) ;
• the Derivatives Market: ( for Futures, Swaps and Options)

Apart from the above mentioned categories, an other important distinction is established between the domestic financial markets and the international financial markets.

The institutional framework for the regulation of Financial Markets.

A financial system cannot be effective without an adequate regulatory framework. For a financial system to be effective and promote healthy economic development, it is important to put in place a sound legal and institutional framework. Various strategies and approaches are generally considered by experts for the development of financial systems. Two major strategies commonly considered are the “evolutionary” and the “proactive” approaches. Other experts have made a distinction between the “go slow” versus the “big bang” approach.
The pro-active strategy provides legal, regulatory and prudential framework which accelerates financial market development through mechanisms, institutions and financial instruments set up for this purpose. This strategy is considered as the appropriate approach for African and other developing countries for three main reasons:

• Inadequate neutral incentive environment and market forces that are insufficiently strong for financial markets to develop by themselves.
• Lack of institution-building capacity to determine the pace and strength of financial markets development.
• Need for flexibility to allow for the use of the most efficient institutional set-up, required training infrastructure and choice of technology that is most suited to the local conditions and level of development.

The Rationale, Principles and Objectives of Financial Markets Regulation1. The necessity for a Financial Market Regulation

Why regulate Financial markets? This question is central to the subject under investigation in this paper and before we attempt to grasp the rationale and objectives of financial markets regulation, it is important to understand why such regulation should exist in the first place. The necessity for a financial market regulation finds its basis in the same principles applied to the financial sector in general. Borrowing and lending of money create certain risks, namely :
• That the borrower will not be able to repay the money ;
• That the lender is receiving a fixed rate on his investment while market rates fluctuate in such a way that the yield on his initial investment is now below current market related rates ;
• That the value of the capital invested could decrease due to movements in the market. In order to clearly define the rights and obligations of investors, borrowers, operators and intermediaries involved in a financial system and who operate under contractual relationship, it is of the highest importance to develop a cohesive and comprehensive legal and regulatory framework.

The stakes involved in the running of a country’s financial markets are very high and it would be deeply irresponsible to apply the rule of “laisser-faire” in this very sensitive sector. In case some thing would go wrong or the financial system could undergo a serious crisis, it would result into a total collapse of the entire economy.

Such a framework should encourage discipline and timely enforcement of contracts, fostering responsibilities and prudent behaviour on both sides of the financial transaction. For a country’s market to develop and operate efficiently, the legislative and regulatory framework should incorporate rules on trading, intermediation, information disclosure as well as strict sanctions against defaulters and cheaters.

2. The Rationale of Financial Markets Regulation

The rationale underlying the financial market regulation is the general philosophy and ideological background pertaining to a specific country’s economic orientation, and the type of economic system adopted by the country’s leadership. At present, most of the countries covered by the study are characterized by a “market oriented ” economy. However, some of these countries have been under a centrally planned economy until the 1990s when they dramatically changed their economic orientation. It is the case of Tanzania, Mozambique and Angola. The changes were particularly due to persistent deficits in public budget and their inability to support the considerable burden of state owned companies unable to achieve the target economic performance. This new orientation facilitated the development of more diversified and active financial systems, leading to the creation of Financial markets in Tanzania and Mozambique. Financial Markets have their own unique characteristics and financial operators differ from one country to an other. The financial market framework should facilitate rather than impede the efficient operation of the financial system.

The Principles of RegulationIn theory, there is a distinction between general and specific principles. The following general principles are widely recognized for the formulation of an effective regulatory process:

• Every regulatory arrangement should be related explicitly to one or more objectives identified;
• All regulatory arrangements should be justified with respect to their cost-efficiency;
• The cost of regulatory arrangements should be distributed equitably ;
• All regulatory arrangements should be sufficiently flexible, in the sense of being amenable to changes in markets, competition and the evolution of the financial system ;
• Regulatory arrangements should be practitioners- based.

Specific principles are identified as follows:

a. Principles related to the regulatory structure:
What is the adequate structure for financial markets regulation. One major issue in Financial markets regulation relates to the number of regulatory and supervisory agencies involved. The issue of the choice between a single regulatory authority or multiple specialized agencies is generally resolved according to the following principles:
• there is a need to adopt a “functional” as well as an “institutional” approach ;
• the coordination of regulation by different authorities and agencies will help to achieve consistency ;
• there should be a presumption in favour of a limited number of regulatory agencies /authorities.

In practice, the institutional and functional approaches need to be employed in parallel because regulatory authorities are concerned with the soundness of institutions, as well as the way in which services are provided.

b. Principles related to the market efficiency :

These are principles designed to contribute to the promotion of a high level of efficiency in the provision of financial services. They are :
(a) the promotion of a maximum level of competition among market participants in the financial system, and (b) the securing of competitive neutrality between actual or potential suppliers of financial services. Competitiveness is likely to enhance market efficiency, which in turn causes the removal of restrictive practices that could impair trading in financial assets and the rationalization of market activity.

c. Principles related to market stability :

These principles are expected to contribute to the promotion of a high measure of stability in the financial system and an appropriate degree of safety and soundness in the financial institutions. There should be incentives for proper assessment and management of risk. It is necessary to impose acceptable minimum prudential standards to be observed in respect of risk management by all financial market participants.

d. Principles related to conflict conciliation :

Conflict conciliatory principles are designed to resolve potential conflicts arising between regulatory principles themselves. They would involve an integrated approach, aiming at the simultaneous achievement of regulatory objectives, and a target-instrument procedure for the selection of key regulatory instruments in order to facilitate the implementation of an integrated approach.

The Objectives of Financial Markets RegulationFor a Financial Markets system to perform to its highest capacity and level, regulation need to be both effective (i.e. to achieve its objectives) and efficient (i.e. to be cost effective in the use of its resources).

The economic dimension of a financial markets system requires that regulation should not impose unwarranted costs on the economy and consumers, nor impair the efficiency of financial markets. It is therefore necessary to consider a cost-benefits analysis exercise to assess the regulatory requirements.

The more complex a financial market is and more business operators increase, the regulatory process becomes more demanding and requires more specific objectives. Efficient financial regulation requires a multi-dimensional approach and a more optimizing process.

1. The overall objective of financial markets regulation:

The ultimate objective of financial markets regulation is to achieve the highest degree of economic efficiency and the best consumer protection in the economy.

2. Specific objectives:

The following Specific objectives can also be highlighted:
• to secure the stability of the financial system.
  It is important for a country’s economy to run smoothly and the financial sector must be protected against internal or external shocks which might be caused for instance by ineffective or inefficient trading clearing and settlement systems or a major lack of market liquidity ;

• to ensure institutional safety and soundness.
  The regulatory framework should be extremely cautious and avoid to impose obstacles or barriers that would impair the safety and soundness of financial institutions, which need to be profitable and have sufficient capital to cover their risk exposure and face global competition ;

• to promote consumers’ protection:
  It is crucial for a financial market to impose integrity, transparency and disclosure practices in the supply of financial services.

Concluding RemarksIn all Southern African countries, as it is in all countries of the world, the financial system is more regulated than any other industry. On the consumer protection grounds and others highlighted in this study, it is universally accepted that this should be so. Existing empirical evidence suggests that regulatory arrangements have a powerful impact on the size, structure and efficiency of financial systems, the business operations of financial institutions and markets, and on competitive conditions in the systems.

The success of a financial markets regulation depends basically on the capacity of the regulators to define the objectives of the regulation and also on the way the regulatory arrangements are related to their objectives.

Some of the countries in the Southern African Region which were able to promote a dynamic and effective regulatory framework, such as Botswana, Namibia, Mauritius, Zambia, Zimbabwe and in particular South Africa, are benefiting from the positive development of financial markets, with an unprecedented flow of capital from foreign investors.

However the financial systems in the region are still limited, in terms of the number of operators, quantity and quality of instruments and the depth of the systems. And there is still need to develop regulatory institutions, structures and mechanisms that can maximize the explicit objectives of regulation while minimizing the costs of services.

The author, is an International Consultant on Trade and Investment, Director of InterConsult Mozambique and is the Representative of Emerging Market Focus (Pty) in Mozambique. This insight paper is aimed at advising investors and business people involved in international trade by providing them with accurate legal data on the institutional and legal framework of Mozambique and the Southern African region.

While we take the utmost care to verify the information we provide, we do not endorse any responsibility for undesired or unpredictable consequences arising from decisions made on the basis of this article. The ideas and opinions expressed herein do not represent the position of Interconsult or of EMF. Commentaries are encouraged, by contacting the author at interconsultgroup@yahoo.ca. For professional legal assistance on specific issues, please visit EMF website at [http://www.emergingmarkets.co.za]

There is a simple but undeniable truth in the financial consulting and wealth planning industry that Wall Street has kept as a “dirty little secret” for years. That dirty little, and nearly always overlooked secret is THE WAY YOUR FINANCIAL ADVISOR IS PAID DIRECTLY AFFECTS THEIR FINANCIAL ADVICE TO YOU!

You want, and deserve (and consequently SHOULD EXPECT) unbiased financial advice in your best interests. But the fact is 99% of the general investing public has no idea how their financial advisor is compensated for the advice they provide. This is a tragic oversight, yet an all too common one. There are three basic compensation models for financial advisors – commissions based, fee-based, and fee-only.

Commission Based Financial Advisor – These advisors sell “loaded” or commission paying products like insurance, annuities, and loaded mutual funds. The commission your financial advisor is earning on your transaction may or may not be disclosed to you. I say “transaction” because that’s what commission based financial advisors do – they facilitate TRANSACTIONS. Once the transaction is over, you may be lucky to hear from them again because they’ve already earned the bulk of whatever commission they were going to earn.

Since these advisors are paid commissions which may or may not be disclosed, and the amounts may vary based on the insurance and investment products they sell, there is an inherent conflict of interest in the financial advice given to you and the commission these financial advisors earn. If their income is dependent on transactions and selling insurance and investment products, THEY HAVE A FINANCIAL INCENTIVE TO SELL YOU WHATEVER PAYS THEM THE HIGHEST COMMISSION! That’s not to say there aren’t some honest and ethical commission based advisors, but clearly this identifies a conflict of interest.

Fee Based Financial Advisor – Here’s the real “dirty little secret” Wall Street doesn’t want you to know about. Wall Street (meaning the firms and organizations involved in buying, selling, or managing assets, insurance and investments) has sufficiently blurred the lines between the three ways your financial advisor may be compensated that 99% of the investing public believes that hiring a Fee-Based Financial Advisor is directly correlated with “honest, ethical and unbiased” financial advice.

The truth is FEE-BASED MEANS NOTHING! Think about it (you’ll understand more when you learn the third type of compensation), all fee-BASED means is that your financial advisor can take fees AND commissions from selling insurance and investment products! So a “base” of their compensation may be tied to a percentage of the assets they manage on your behalf, then the “icing on the cake” is the commission income they can potentially earn by selling you commission driven investment and insurance products.

Neat little marketing trick right? Lead off with the word “Fee” so the general public thinks the compensation model is akin to the likes of attorney’s or accountants, then add the word “based” after it to cover their tails when these advisors sell you products for commissions!

FEE ONLY Financial Advisor – By far, the most appropriate and unbiased way to get financial advice is through a FEE-ONLY financial advisor. I stress the word “ONLY”, because a truly fee ONLY financial advisor CAN NOT, and WILL NOT accept commissions in any form. A Fee-ONLY financial advisor earns FEES in the form of hourly compensation, project financial planning, or a percentage of assets managed on your behalf.

All fees are in black and white, there are no hidden forms of compensation! Fee-Only financial advisors believe in FULL DISCLOSURE of any potential conflicts of interest in their compensation and the financial advice and guidance provided to you.

Understanding the conflict of interest in the financial advice given by commission based brokers enables you to clearly identify the conflict of interest for fee-based financial advisors also – they earn fees AND commissions! Hence – FEE-BASED MEANS NOTHING! There is only one true way to get the most unbiased, honest and ethical advice possible and that is through a financial advisor who believes in, and practices, full disclosure.

Commission and Fee-Based financial advisors typically don’t believe in or practice full-disclosure, because the sheer magnitude of the the fees the average investor/consumer pays would surely make them think twice.

Consider for a moment you need to buy a truck specifically for towing and hauling heavy loads. You go to the local Ford dealership and talk to a salesperson – that salesperson asks what type of vehicle you’re interested in and shows you their line of trucks. Of course, to that salesperson who earns a commission when you buy a truck – ONLY FORD has the right truck for you. It’s the best, it’s the only way to go, and if you don’t buy that truck from that salesperson you’re crazy!

The fact is Toyota makes great trucks, GM makes great trucks, Dodge makes great trucks. The Ford may or may not be the best truck for your needs, but the salesperson ONLY shows you the Ford, because that’s ALL the salesperson can sell you and make a commission from.

This is similar to a commission based financial advisor. If they sell annuities, they’ll show you annuities. If they sell mutual funds, all they’ll show you is commission paying mutual funds. If they sell life insurance, they’ll tell you life insurance is the solution to all of your financial problems. The fact is, when all you have is a hammer… everything looks like a nail!

Now consider for a moment you hired a car buying advisor and paid them a flat fee. That advisor is an expert and stays current on all of the new vehicles. That advisor’s only incentive is to find you the most appropriate truck for you, the one that hauls the most, tows the best, and is clearly the best option available. They earn a fee for their service, so they want you to be happy and refer your friends and family to them. They even have special arrangements worked out with all of the local car dealerships to get you the best price on the truck that’s right for you because they want to add value to your relationship with them.

The analogy of a “car buying advisor” is similar to a Fee-Only financial planner. Fee-Only financial advisor’s use the best available investments with the lowest possible cost. A Fee-Only financial advisor’s only incentive is to keep you happy, to earn your trust, to provide the best possible financial advice and guidance using the most appropriate investment tools and planning practices.

So on one hand you have a car salesperson who’s going to earn a commission (coincidentally the more you pay for the truck the more they earn!) to sell you one of the trucks off their lot. On the other hand, you have a trusted car buying advisor who shops all of the vehicles to find the most appropriate one for your specific needs, and then because of his relationships with all of the car dealers can also get you the best possible price on that vehicle. Which would you prefer?

Truly unbiased financial advice and guidance comes in the form of Fee-Only financial planning. You know exactly what you’re paying and what you’re getting in return for the compensation your Fee-Only financial advisor earns. Everything is in black and white, and there are no hidden agenda’s or conflicts of interest in the advice given to you by a true Fee-Only financial advisor!

The fact is unfortunately less than 1% of all financial advisor professionals are truly FEE-ONLY. The reason for this? There’s a clear and substantial disparity in a financial advisor’s income generated through commissions (or commissions and fees), and the income a financial advisor earns through the Fee-Only model:

Example #1 – You just changed employment and you’re rolling over a $250,000 401k into an IRA. The commission based advisor may sell you a variable annuity in your IRA (which is a very poor planning tactic in most cases and for many reasons) and earn a 5% (or many times more) commission ($12,500) and get an ongoing, or “trailer” commission of 1% (plus or minus) equal to $2,500 per year. The Fee-Only financial advisor may charge you a fee for retirement plan, an hourly fee, or a percentage of your portfolio to manage it. Let’s say in this case you pay a $500 retirement plan fee and 1.25% of assets managed (very common for a Fee-Only financial advisor in this situation). That advisor earns $500 plus $3,125 ($250,000 * 1.25%) or TOTAL COMPENSATION of $3,625 – FAR LESS THAN THE $15,000 THE COMMISSION (or Fee-Based) financial advisor earned! In fact it takes the Fee-Only financial advisor over four years to earn what the commission (or fee-based) advisor earned in one year!

Example #2 – You’re retired and managing a $750,000 nest egg which needs to provide you income for the rest of your life. A fee-based financial advisor may recommend putting $400,000 into an single premium immediate annuity to get you income and the other $350,000 into a fee-based managed mutual fund platform. The annuity may pay a commission of 4% or $16,000 and the fee-based managed mutual fund portfolio may cost 1.25% for total compensation of $20,375 first year (not including the “trailer” commissions). The Fee-Only advisor would possibly shop low load annuities for you, possibly put the entire portfolio into a managed account, possibly look at municipal bonds, or any other variety of options available. It’s hard to say how much the Fee-Only advisor would earn as their largest incentive is to keep you the client happy, and provide the best planning advice and guidance possible for your situation. BUT, in this case let’s just assume that a managed mutual fund portfolio was implemented with an averaged cost of 1% (very common for that level of assets), so the Fee-Only financial advisor earns roughly $7,500 per year and it takes that financial advisor THREE YEARS to earn what the fee-based financial advisor earned in ONE YEAR!

The prior examples are very common in today’s financial advisory industry. It’s unfortunate that such a disparity in income exists between the compensation models, or there would likely be many more truly independent and unbiased Fee-Only financial advisors today!

Now consider for a moment which financial advisor will work harder for you AFTER the initial consultations an planning? Which financial advisor must consistently earn your trust and add value to your financial and investment planning? It’s obvious the financial advisor with the most to lose is the Fee-Only advisor. A Fee-Only financial advisor has a direct loss of income on a regular basis from losing a client.

The commission or fee-based financial advisor however has little to lose. You can fire them after they’ve put you in their high commission products, and as you can see from the examples they’ve already made the majority of the commissions they’re going to make on you as a client. They have little to gain by continuing to add value to your financial and investment planning, and little to lose by losing you as a client.

Wouldn’t you prefer a financial advisory model where your financial advisor must continually earn your trust and add consistent value to your planning?

It’s clearly more difficult to earn a living and run a profitable financial advisory firm through the Fee-Only financial planning and guidance model. For this reason, most financial advisors take the easy way and sell products for commissions and charge fees on assets managed – that way they can make a nice living on your investment portfolio and still have an ongoing stream of revenue every year. For this reason also, less than 1% of financial advisors are truly Fee-Only, yet it’s that 1% that is truly objective and unbiased, and that 1% whose only incentive is to manage your financial plan, investments, and overall wealth to accomplish the goals you wish to achieve!

The real “dirty little secret” Wall St. has is the undeniable truth that the commission and fee-based financial advisory model has inherent conflicts of interest, and your advisor may be “selling you investment products” rather than “solving your financial problems”!

Greg Phelps is a CERTIFIED FINANCIAL PLANNER (TM) and Retirement Financial Advisor in Las Vegas and Henderson, Nevada focused on delivering clients exceptional financial advice and guidance on a Fee-Only basis. Greg has 14 years of financial advisory experience and is an accomplished advisor, author, and speaker. Greg has worked for two of the largest investment banking firms on Wall Street – Morgan Stanley and Goldman Sachs, as well as serving as the Regional Manager of Wealth Management at the 5th largest accounting firm in the country – RSM McGladrey.

Something greater than financial advice

Earlier this year and shortly before I surrendered my Financial Services Authority permission to provide financial advice I met Bruce and Theresa, my long standing clients of some thirty years. The meeting was arranged to say farewell and to close our professional (but not social) relationship, and to finalise their plans for their retirement.

The meeting lasted for most of the day, and whilst their finances were on the agenda and were dealt with, much of the meeting revolved around how they were going to live in retirement, what they could and should do, how they were going to maintain family ties, decisions about their house and nearly all aspects of life in retirement. We also covered their relationship with money, dealing in particular with how to change their working life attitude of saving and prudence to finding the courage to spend their time and money on making the most of their lives in retirement. Whilst I was able to demonstrate mathematically that their income and assets were more than sufficient to allow them to live a fulfilled life in retirement, we had to deal with some deep emotional blocks to spending, in particular the fear that they would run out of money.

This was far more than financial advice. It amounted to ‘financial life coaching’, a relatively new professional field that treats money and life as intertwined and is truly holistic in its approach. It is an approach I started to adopt in 2006 after training with the Kinder Institute of Life Planning in the US. In truth, most of my client interventions since then have been holistic, coaching interventions. I have found that the coaching element is of far greater value to my clients than arranging financial products, which, within the context of most financial life plans, should be simple, low cost and commoditised.

Financial coaching is for everyone?

I have witnessed the impressive changes that financial life coaching can bring about in clients, and I would argue that everyone needs a life coach. In reality, the service is less suited to what Ross Honeywill and Christopher Norton call ‘Traditionals’ and more suited to what they call the ‘New Economic Order’ (NEO) (Honeywill, Ross and Norton, Christopher (2012). One hundred thirteen million markets of one. Fingerprint Strategies.), and what James Alexander and the late Robert Duvall in their research for the launch of Zopa (the first peer-to-peer lending business) called ‘Freeformers’ (Digital Thought Leaders: Robert Duvall, published by the Digital Strategy Consulting).

Two types of consumer

These distinctions are important in the context of a key concept about money, which I will cover shortly. First, lets consider the differences between the two groups. Honeywell and Norton describe ‘Traditionals’ as primarily interested in the deal, features and status. A sub-group of ‘Traditionals’ is ‘High Status Traditionals’ for whom status is the highest priority. They cite Donald Trump as the epitome of a High Status Traditional.

Honeywill and Norton contrast ‘Traditionals’ with NEOs. According to the authors, NEOs buy for authenticity, provenance, uniqueness and discovery. They are more likely to start their own business, are usually graduates, see the internet as a powerful tool for simplifying their lives, understand investing (money and personally), and are repulsed by conspicuous consumption. They are highly individual and express their own individual values through what they say, buy, do and who they do it with.

Honeywill and Norton discovered NEOs in the US and wrote about them in 2012 but Robert Duvall and James Alexander arrived at a similar concept in the UK in the early 2000s. In their research prior to launching Zopa, Duvall and Alexander identified a group of people they called ‘Freeformers’, a new type of consumer ‘defined by their values and beliefs, the choices they make, where they spend their money. They refuse to be defined by anyone, they don’t trust corporations or the state. They value authenticity in what they buy and they want to lead “authentic” lives.’ Duvall and Alexander saw these people as the core of an IT society based on self-expression, choice, freedom and individuality.

Two attitudes to money

In my own career as a financial adviser, planner and coach I have identified two prevailing attitudes to money. There are those who see money as an end in itself, and those who see money as a means to an end. I cannot admit to having carried out detailed research on this, but I have seen enough to make a reasonable assumption, namely that it is the Traditionals who see money as an end in itself, and it is the Freeformers who see money as a means to an end. (At the risk of upsetting Messrs Honeywill and Norton and conscious that NEOs and Freeformers are not exactly the same, I am going to refer to both simply as Freeformers in the rest of this paper as I feel the word is a better and more evocative description of the species than NEOs.)

In very general terms, Traditionals are intent on making their money go as far as possible by getting the best deals and features. Psychologically, they equate money with ego and status. Conversely, Freeformers use their money to achieve their individuality and authenticity and to express their values. Whilst they do not spend entirely irrespective of cost, their spending criteria are written in terms of authenticity, provenance, design, uniqueness and discovery.

Mapping attitudes to life and money

In my own experience Traditionals respond to financial advice, but not financial planning or coaching, whilst Freeformers only start to value financial advice when it is supported by an individual and unique life and financial plan born out of a deep coaching and planning process.

Putting it another way, Freeformers understand that the link between life and money goes deep, so respond well to coaching that addresses their life and money. Traditionals, on the other hand, do not harbour such a powerful connection between life and money, and are less likely to respond to the concept of ‘financial life coaching.’ Traditionals form the key market for financial services institutions and packaged products, especially those that provide deals (discounts / competitive fees), features (pension plans with flexibility, for instance) and status (high risk, high returns). Freeformers are more likely to select a platform (an online service to aggregate all their investments and tax wrappers) and concentrate on selecting investments to suit their values and goals.

The spectrum of help with personal finances

In the UK and other parts of the world you can now find many different forms of help for your personal finances. Its a wide spectrum with financial advice at one end and financial life coaching at the other. In between, families and individuals can access financial planning, guidance, training, mentoring and education. Of course none of these are mutually exclusive and some firms or organisations will provide a combination so it is important to understand what is available and the limits and benefits of each.

Financial advice

Financial advice is product oriented. In the UK the Financial Conduct Authority (FCA), which regulates personal financial advice, defines financial advice as advice to buy, sell or switch a financial product. Whilst there is a regulatory requirement to ‘know your customer’ and ensure any advice is ‘suitable’, the thrust of financial advice is the sale of products.

A financial adviser must be authorised by the FCA and abide by its rule book.

Financial planning

Financial planning goes deeper than financial advice. It aims to ascertain a client’s short, medium and long term financial goals and develop a plan to meet them. The plan should be comprehensive and holistic. It should cover all areas of the client’s personal and family finances and recommendations in any part of the plan should maintain the integrity of the plan as a whole.

The Financial Planning Standards Board (which sets the standards for the international Certified Financial Planning qualification) defines a six step financial planning process:

1. Establish and define the client relationship
2. Collect the client’s information
3. Analyse and assess the client’s financial status
4. Develop financial planning recommendations and present them to the client
5. Implement the financial planning recommendations
6. Review the client’s situation

Although one of the practices in Step 2 is to ‘Identify the client’s personal and financial objectives, needs and priorities’, the process is primarily about finance rather than life.Certified Financial Planners must also be authorised to provide financial advice by the regulator of the country in which they operate.

(Financial Planning Standards Board: Financial Planning Practice Standards available at https://www.fpsb.org/standards-for-the-profession/framework/ )

Financial life planning

We are beginning to see a number of different style here. Arguably, George Kinder and the Kinder Institute lead the field and Kinder has developed the EVOKE five step financial life planning (or simply ‘life planning’) process consisting of:

1. Exploration: getting to know the client in the deepest sense
2. Vision: working out the client’s life goals, values, projects etc
3. Obstacles: dealing with practical, emotional and financial obstacles preventing the client achieving their vision
4. Knowledge: providing the internal and external knowledge to achieve the client’s goals
5. Execution: coaching the client in the execution of their plan

(Kinder, George and Galvan, Susan. Lighting the Torch: The Kinder Method of Life Planning. FPA Press 2006)There are two important distinctions between financial planning and life planning: life planning takes as its starting point the client’s life rather than their money, and life planning contains the important middle step of dealing with obstacles, which is absent in the financial planning process.

Life planners are usually (but are not required to be) authorised financial advisers.

Financial literacy

Financial literacy is generally poor and there are a growing number of organisations and institutions in the UK dedicated to improving financial literacy. The UK Government has attempted to do this through the Money Advice Service (www.moneyadviceservice.org.UK/en) and in 2014 financial literacy education became part of the National Curriculum in England and should be a compulsory part of every school’s timetable (Long, Robert and Foster, David. Financial and enterprise education in schools. House of Commons Briefing Paper number 06156, October 2016).

Financial literacy is not financial advice or planning, and does not have to be provided by a financial adviser or planner.

Financial guidance

Financial guidance is a relatively new concept, given weight by the Financial Conduct Authority in its review of the financial advice market (HM Treasury and Financial Conduct Authority. Financial Advice Market Review Final Report. March 2016) which defines it as any form of help provided to consumers which is not regulated financial advice. The FCA sees ‘guidance’ as a way to tackle barriers to consumer access to advice, the three key barriers being affordability, accessibility and the threat of liabilities and consumer redress to advisers.

The FCA cites a number of options, including basic advice, simplified advice, streamline advice, general and generic advice and guidance. Some of these will require authorisation, others not.

Financial coaching

There does not appear to be an authoritative definition of financial coaching / financial life coaching. The International Coach Federation definition of coaching is:

Partnering with clients in a thought-provoking and creative process that inspires them to maximize their personal and professional potential.

My own definition of financial life coaching is:

Financial life coaching is a process to help a client move from where they are now to a better personal and financial position as defined by their beliefs, attitudes, values, behaviour, actions and relationship to money.

Personally, I have long believed that you cannot help people move to a better personal position without addressing their finances, and people cannot better their finances without having a clear idea of what their finances are to be used for in the short, medium and long term. I know I am not alone in this opinion. When I have talked to psychotherapists and counsellors about my work I have often been greeted with enthusiasm as so often their clients have been confounded in their best intentions by financial issues.

In practical terms, it is possible and desirable to structure the personal finances of a household so they support and advance the personal goals, values and interests of the household. However, this implies a need to understand what those goals, values and interests are.

This definition makes clear that the process is holistic in the truest sense of the word, covering our thoughts, feelings and actions, dealing with right and left brain activities and working in the entire field of a client’s life. It also deals not so much with money per se, but with our relationship to money. It is our relationship with money that defines how we use it, not how much we actually have or do not have.

Lynn Twist, a global activist committed to alleviating poverty and hunger and supporting social justice describes how the Achuar people, an indigenous group of people from deep in the Amazon rainforest have lived without money for thousands of years (Twist, Lynn (2003). The Soul of Money: Reclaiming the Wealth of our Inner Resources. WW Norton, New York). Not just lived but thrived on the social currency of reciprocity rather than the financial currency of cash.

I think we have to be careful here and not confuse ‘better’ with ‘more’. Thought leaders such as Lynn Twist and Brené Brown are adamant that scarcity (‘I don’t have enough money / time / sleep / leisure / work / kudos / friends etc) is the root cause of much of the world’s dissatisfaction. But wanting ‘more’ is different from wanting ‘better’. From a moral and ethical point of view, we arguably all have a responsibility to make better not only our own lives, but the lives of others. That, however, is very different from wanting more of anything simply for the sake of wanting more, particularly wanting more in order to stay connected to our peers.

Indeed, I see financial life coaching as a process that helps people deal with the problem of scarcity by helping them to let go of their own excessive demand for whatever commodity they think they are lacking, not by trying to increase the supply of the commodity in the first place.

Others will say that trying to ‘better’ our lives is a futile exercise, that we should just accept our situation as it is. Trying to lead a better life takes energy, is exhausting and requires so much focus on a goal or goals that we cease to be aware of the wider (and probably deeply enriching) environment around us.

The demand for financial life coaching

I built my business, Planning for Life, on the back of demand for advice that went far deeper than financial advice as defined by the FCA. Neither I nor my clients called it ‘financial coaching’. We did not even realise the term existed, but that is what I was doing.

Where did this demand come from, and does it still exist? I would argue more than ever, for many reasons.

‘Life is s**t’

I don’t actually believe this, nor do most people. However, they do recognise that ‘the more the planet is fractured, the more distress individuals feel inside’ as leadership and life coach Danielle Marchant puts it when commenting on the 2016 ICF Coaching Study (International Coaching Federation 2016 Coaching Study Executive Summary available at http://www.coachfederation.org ). This study suggests that there are now 65,000 people working globally as professional coaches, or using coaching in a management or leadership role. The distress Danielle refers to precipitates a demand for a less structured form of help than, say, skills development or financial advice. It creates a demand for someone else to talk to, to be challenged, to brainstorm ideas, to be accountable to, to find meaning in life. In particular, it precipitates a demand for help in overcoming the practical, emotional, professional and financial obstacles to a better life.

Reacting against commoditisation

Honeywill and Norton discuss this at length. They argue that the demand amongst NEOs for a more authentic, genuine, individual life is partly a reaction to the uniformity of commoditisation. Why is this important? First, because in a highly commoditised, globalised world its difficult to actually live the NEO or Freeformer lifestyle and there is a growing demand for help in achieving this. This is not just about money, it is a whole lifestyle issue and if individuals are not achieving their desired lifestyle they will seek appropriate help to get there in the form of life coaching and, by extension, financial coaching.

Second, if you hate commoditisation, you probably hate traditional financial services and look for a more individual, authentic and highly personal form of help which financial life coaching can provide. You will also want to seek help from a like minded individual who shares your ambitions and values, and probably has been through – and is prepared to admit to having been through – life’s downs as well as up. You will seek help from someone whose expertise and provenance is founded more on their own life struggles than on their technical expertise.

The search for meaning

In Western economies many people have reached the pinnacle of Maslow’s hierarchy of needs – self-actualisation. Their physiological and safety needs are met through the purchase of basic commodities. Their needs for love and belonging are met through relationships and brands. Their need for esteem is met through their work or profession. What is left? The search for self actualisation – or meaning and empathy as commentators such as Professor Rowland Smith and Bernadette Jiwa put it.

Maximising your potential or doing the best you can is a little more complicated than building a portfolio, and comes down to answering questions such as ‘Why I am here?’, ‘Who I am?’, ‘What is my purpose and relationship to the rest of the world?’. Identifying gaps and filling them is rich material to work on with a coach and is undoubtedly a key driver of the demand for coaching.

Scope

Financial life coaching has a far wider scope than financial advice. Brendan Llewellyn, a UK commentator on financial services, wrote recently of how ‘for most people, money concerns income, expenditure, borrowing and savings’. He goes on to say that, although the financial services industry concentrates on the last two, ‘for most people income and expenditure are the most important variables.’ Llewellyn goes on to talk about the need for a new type of financial adviser, a counsellor or guide who would help people increase their incomes, look at personal development and retraining, seek new employment opportunities, analyse and improve expenditure patterns.

The focus of our interventions should be on where the client really needs help, namely balancing the work / income and life / expenditure equation. In recent years another layer has been added to this: sustainability. Freeformers in particular are environmentally aware and want to live sustainably. Traditional financial services concentrates on investments and borrowing when what people need is help in controlling their cash flow, spending smarter and doing it sustainably, which is a clear role for financial coaching.

Repairing the divorce between life and money

It is my contention that over the last 30 or so years financial services have become more left brain, commoditised and productised. This has resulted in the steady separation of life and money and a shift in emphasis towards the concept of money as an end in itself, rather than a means to an end. Much financial advertising is based on returns and the efforts investment teams make to be seen as the top performing fund in a sector are phenomenal.

High early surrender and switching rates testify to the fact that financial products tend to be chosen for their short term performance rather than the long term suitability in a life plan.

However, people are beginning to see through this and I was often gratified by how many of my clients appreciated their portfolios being structured round what we term the Cascade, which recognises the pros and cons of the main financial asset classes and allocates money between them based on the client’s short, medium and long term needs for cash, rather than for the maximum returns (which also of course incorporate the maximum risk).

As long as traditional financial services continue to be driven by growth and returns it will not reconnect with life. However financial coaching, which seeks to reunite life and money and build a working personal relationship with money, can do much to repair this divorce.

Dealing with obstacles

Traditional financial services and even certified financial planning do not address the matter of obstacles to achieving a client’s goals or desired lifestyle. We only have to look at our own lives to see that our struggles are usually around dealing with practical, emotional, professional and financial obstacles to achieving a better life. Financial life coaching can fill this gap.

A natural extension

The concept of coaching is becoming more familiar in home life as well as business life. After all, we hire coaches in a number of areas today, including leadership, business, sports, health and life. Dealing with personal finances is no less challenging than, for example, staying fit or building a business and lends itself to coaching. In my experience, clients came to me for this very reason, even if they did not recognise or understand that it was financial coaching rather than financial advice that they sought.

Not the Listening Bank

It used to be said that the average length of time between the start of an adviser / client meeting and the adviser starting to sell a financial product was ninety seconds. Whether there is truth in that I don’t know. However, I do know that individuals shun financial advice because they don’t want to be the subject of a hard sell. What they want is someone to listen to them and to council them objectively and independently.

On many occasions I have sat with couples hardly saying a word, just listening to them talk to me and each other in an empathic, secure environment. At the end they would often thank me and talk about how in all their years of marriage they had never had that sort of deep and meaningful conversation.

People want to be heard, to be able to tell their stories to someone prepared to listen and help them to understand the meaning of those stories.

Go to a financial coach before a financial adviser

Financial products such as savings accounts, loans, mortgages, pensions, and investments fulfil an important part of any family’s financial plan and belong firmly in the field of expertise provided by financial advisers. So, why would you go to a financial coach first? Here are just a few reasons:

• The scope of financial coaching is much wider than financial advice; ultimately it is about getting life right then building a sound framework for financial products
• In spite of those financial ads that tell you a bank account or other financial product is the route to freedom, it is the deep inner journey around life and money that financial coaching will take you on that is the true source of freedom
• Coaching will provide you with new ideas and new perspectives on life; you will brainstorm obstacles and assess different scenarios before committing to financial products
• You will be able to make informed decisions about your life and money and minimise the probability of making serious mistakes
• Your existing norms and attitudes will be challenged
• Limiting beliefs and self-beliefs will be identified and addressed
• Bad financial habits will be identified and addressed
• You will become accountable to someone other than yourself
• You will build a life based on a deep exploration and statement of your most important values
• You will have the opportunity to explore how your money can be used to express your humanity and ideals, how you can make ‘contribution’ your primary driving force instead of ‘consumption’
• Your relationship will be based on trust, authenticity and partnership; you will build a support team to help you on your journey
• A coach will give you a highly personalised service, especially compared to the upcoming alternative of robo-advice
• You will develop a financial framework that supports your life goals which you can either fill with financial products yourself or use as a brief for a financial adviser to do the work for you
• Life will become simpler, different and under control and you will become financially well organised

ConclusionBy coincidence, I find myself finalising this article on Black Friday, 25th November 2016, the day after Thanksgiving Day in the USA. Print, television and online media are awash with adverts and encouragement to go out today and buy, buy, buy. I have no doubt that savings accounts and investment portfolios will be raided, credit cards and overdrafts will be pushed to the limit and for what? The chances are that much of the stuff purchased today will be used once then relegated to the back of a cupboard or attic. By the time we have got through Christmas and New Year and into January many, many people will be suffering from a monumental financial hangover.

This isn’t about money. Its about our relationship to money, our attitude to life and our deep seated hopes and fears about our lives. But these can be addressed and with guidance and coaching they can be changed to ensure people can lead more fulfilled lives in the knowledge that they are the masters of their money and not vice versa. Get to grips with life and financial relationships first, then go to a financial adviser with a clear plan and brief for your money.

Jeremy Deedes is the founder of Living Money. He is passionate about teaching people to master their money and live wholehearted, authentic and compassionate lives. He coaches 35+ entrepreneurial or professional couples bringing up older children and keeping an eye on their parents to determine where they are now, to develop a route map to a better life and to organise their finances to support their lives so they have the courage, power and resources to live their dream without being a slave to money. See http://www.jeremy.deedes.com and http://www.living-money.com