Adviser says 'rethink client debt'

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Parinity primary adviser Lance Cheung understands how good debt management can make a huge difference in a client’s life.

Cheung has discovered a way to restructure clients’ debt so that they become more engaged with the budgeting and cash-flow process. Instead of running the common standard home loan and offset account, Cheung and his team establish a portfolio loan with a line of credit.

“Whilst the interest saving is the same in terms of money sitting in an offset account versus money going directly into a line of credit, the psychological effects are vastly different as clients see the loan amount diminishing over time,” he says.

“Most mortgage brokers don't align with this thinking (which may be linked to the reduced commission payable on lines of credit) and as such, not many clients get structured this way from the get go.”

Cheung says that it is also argued that clients pay a higher rate for lines of credit, but that there are facilities out there that charge the same rate as a standard variable home loan, and advisers should not leave all the decisions up to the banks or mortgage brokers.

“I do believe advisers should have a thorough understanding of the current benefits, facilities, and costs of loan products in the market so they can help advise the client in making an informed decision.”

It’s also important for advisers not to make assumptions – not everyone knows how to use a credit card efficiently, and not everyone is comfortable borrowing to buy an investment property, says Cheung.

Another one of his favourite success stories was from a client who had grown up in a household where you live today and don't worry about tomorrow. It meant that personal gratification was justified and there was no sense of delayed gratification normally seen with good savers.

“This client started with approximately $46,000 of personal and credit card debt, had no assets other than two vehicles, and was going backwards. Through our advice, planning and keeping them accountable, they eliminated their debt over a 7 month period and we are now in a position to focus on building the foundations to achieve their next goals.”

Cheung recently received an email from the client, in 216pt red font, with the words ‘I’M TOTALLY DEBT FREE! :)’

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  • Brett Mansfield on 16/09/2013 8:50:29 AM

    I agree with Jon, besides attracting a higher rate of interest, LOC products have proven to be hard for clients to manage and result in a poor outcome. These products have been used by advisors seeking to justify their fees.

  • Papery on 7/09/2013 10:04:27 AM

    I hope Lance is NCCP compliant.....

  • Matthew Ross on 5/09/2013 9:58:43 PM

    Nice work Lance. If I know of someone who has $46,000 of personal and credit card debt and need expert advice in this area I'll refer them on to you.

  • Jon Harding on 5/09/2013 9:59:08 AM

    As a financial planner myself, hands down the most destructive structure for 9/10 clients to manage their debt is a LOC. I have talked dozen's of clients out of this into a simple P&I loan to see the mortgage balance actually fall for the first time in years.

  • Pat Adviser on 5/09/2013 9:45:28 AM

    Its great that Cheung is helping clients pay down debt. As a planner who also is heavily involved in debt management.
    Cheung has to be careful that his clients are staying in this property for the long term, otherwise he has potentially reduced the clients deductable debt if they were to move out of this property and retain it as an investment property

  • Nobby Kleinman on 7/09/2013 9:08:37 AM

    I couldn't aree more that to help a client elimminate their debt position should be a priority.
    In doing so, it establishes credibility, empathy and priority with the client, rather than trying to pursue just investible assets. And it also wins client loyalty.
    It was for these very reasons I devloped a couple of software programs to allow clients to manage their debt elimination so they could then prioritise saving for their futures.
    Advisers are in the best position to make this happen, and it will build a stronger relationship based on respect.

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

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