Getting Started with Personal Loan Tips And Guide

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Fee For Service Financial Planning

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

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

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

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

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

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

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How Much Will I Have to Pay Each Month to Do a Debt Management Plan?

Debt management plans are one of the most popular solutions for managing personal debts. We investigate how much you will need to pay each month if you want to start a DMP.

A debt management plan (DMP) allows to you reduce the payments you make to your unsecured debts so that they fit within an amount that you can afford.

This frees up cash so that you always have enough to pay your essential living expenses and do not have to continually borrow more to make ends meet.

One of the key advantages of the DMP is that it is a flexible solution. This means that there is no minimum or maximum payment required to start the plan. The amount you pay is based on what you can afford.

One of the main things you need to bear in mind when starting a debt management plan is that you still have to pay all of your debt.

Your creditors are agreeing to reduce the payments they receive from you each month. They are not agreeing to write any of your debt off.

As such, using a DMP will mean that it takes you much longer to pay your debt off and become debt free than if you were able to maintain your normal payments.

The total time it takes to pay off your debt will depend on the amount that you pay back each month. For this reason, the key to making the plan work is to ensure that you are paying as much as you can afford based on your income and reasonable living expenses.

The amount that you pay into your debt management plan each month is called disposable income.

Disposable income is the amount you have left each month from your total monthly income after deducting all of your reasonable living expenses.

Remember, your monthly income is the total of all of your sources of monthly income such as your wages after tax, any benefits you receive and any other money you have coming in.

Your living expenses are all the expenses you have to pay each month to live but not including payments to your unsecured debts.

See the Debt My Debt DMP living expenses guide for more information about living expenses.

When you are calculating your living expenses, try to make sure that the expenditure figures you use are kept to the minimum you can afford.

You need to include enough to cover all of your household debts and bills as indicated in the living expenses guide.

Always bear in mind that the higher your expenses are, the less disposable income you will have left at the end of the month to pay into your debt management plan and the longer it will take to repay the debts that you owe.

Having said this, it is very important that you try to include a budget in your living expenses under sundries and emergencies to cover unexpected expenditures such as the washing machine breaking down.

Make sure that you open a savings account so that this money can be saved each month to ensure it is available if and when the unexpected happens.

Once you have calculated your disposable income, it will be divided between each of your creditors as per your debt management plan.

Each creditor will be paid proportionally from your disposable income based on what they are owed.

Some of your creditors will accept the payments they are offered. However, it is possible that some will not and will reject the offer you make.

If your creditors have not agreed to your payments, they cannot stop you from paying them. However in these circumstances they may not agree to freeze the interest charged to your accounts meaning that your balances may continue to increase.

This is not an ideal situation. However, you should not allow yourself to be pushed into increasing your payment offer.

If you have correctly calculated your disposable income the fact is you simply cannot afford to pay more. If you try to do so, you will struggle to make your DMP payments and your agreement will start to fall apart.

Whether your creditors agree to your payment proposals or not, the golden rule with a debt management plan is to pay them as per your DMP proposals anyway.

Ultimately a debt management plan enables you to reduce the payments you make to your creditors to an amount that you decide you can afford.

The amount you pay should be based on your disposable income which in turn is based on a reasonable living expenditure budget. You are ultimately in control of this budget and therefore the level of DMP payments you make.

Having said that you must remember that if you believe you need to spend more each month than your creditors think is reasonable, they may reject your DMP proposal.

Nevertheless as long as your offer is based on the maximum you can afford, you should pay your creditors as per your proposal until such time as you feel you can comfortably increase the payments you make to them.

If you are interested in reading more news and expert articles about DMPs, please click on the following link:

http://www.beatmydebt.com/forum/viewforum.php?f=49

Our vibrant forum gives free access to industry experts and others who have suffered with debt problems.
Useful guides, calculators and information are also available designed to help you understand how to manage and resolve debt problems.