View more on these topics

Pete Matthew: Advisers with flash cars are like dentists with bad teeth

Matthew-Pete-2012-700.jpg

In 2012 I published a video explaining how to buy a car without using finance. The principle is that instead of paying interest on loans, you make do with a lesser car to start with, bank the money you would be paying on a finance payment and trade up each year. In the example, I started with a £2,000 car and ended up in five years with one worth £20,000, paying no interest and a fraction of the depreciation along the way.

Today, four years after posting that video, I got an email asking if I had stuck to my principles and not taken out any car finance. I was pleased to be able to reply that I had not. I make public my views about how money works and how I think personal finances should be managed. It is only fair I should practice what I preach and be held to account for that. We should organise our own finances in the way we advise clients to manage their own.

And yet I see many examples of advisers making stupid financial decisions. The example of car ownership is a classic case in point. What universe do you have to live in where it makes sense to pay interest to buy a depreciating asset? I go to seminars and conferences where the car parks are filled with flash cars. I do not have an issue with that per se but it is madness to go into debt to buy them.

I can hear you now: “But I have the income to sustain the payments.” OK, but if you saved the monthly payments instead and bought with cash, you would save the interest. Why would you pay to make someone else rich when you can increase your pension contributions instead?

“But my clients expect me to have a nice car.” Where to start with this one? When I bought a Skoda some years ago one adviser I know told me my clients would disapprove. The opposite was true. Another told me he has “always been highly geared”, which actually means he has a lot of debt and has never knuckled down to clear it. He could probably retire 10 years earlier if he was not paying so much in interest payments.

Do we expect our clients to do as we say but not as we do? Being a few stone overweight, it would be a bit rich if I started giving anyone dietary advice. Likewise, how can I look my clients in the eyes and advise them to do something I am not doing myself?

So I invest in the same way I advise my clients to invest (passively, and using multi-asset funds, in case you are interested). I would never invest in anything I did not fully understand and I do not advise my clients to either. I recommend my clients organise their finances exactly as I do my own, with the inevitable tweaks for different life stages.

Yes, I would love to drive an Audi, but I do not want to be the adviser equivalent of a dentist with bad teeth. So I will continue to pootle about Cornwall feeling smug in my Seat Ibiza (£8,000 – bought for cash), while ramping up my pension contributions.

Pete Matthew is managing director of Jacksons Wealth Management 

Recommended

16

Brexit wounds: How firms are coping with prospect of EU divorce

The financial services industry has been left reeling following the UK’s shock vote to leave the European Union. As politicians, regulators and policymakers grapple with the looming question of “what next?”, financial services firms have been among those seeing dramatic falls in their share price as the markets digest the outcome of the referendum. Providers, […]

India GDP surprise

By Kunal Desai, head of Indian Equities, Neptune Kunal Desai, manager of the Neptune India Fund, comments on the strength of India’s latest GDP figures. Click here for more Important Information Investment risks The Neptune India Fund may have a high volatility rating and past performance is not a guide to future performance. The value […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 40 comments at the moment, we would love to hear your opinion too.

  1. A very strange article – there are plenty of advisers giving fantastic advice to their clients, changing their lives, making a real difference, who are financially independent, mortgage free, maximising pension funding, could retire tomorrow – why shouldn’t the adviser treat themselves to a ‘flash car’? There clients should congratulate them and feel smug that their adviser is doing well!

    • A case of reacting to the headline (which Matthew didn’t write) and not the article. Matthew was not talking about buying flash cars per se but buying flash cars with debt, on which point he is entirely right.

  2. Very interesting, Mr Matthew! I, too, have seen too many “flash cars” at seminars, many leased, no doubt. Indeed, many years ago, I just avoided a black eye when I put a sign in a colleagues car window saying “with grateful thanks to all my clients”; needless to say, he (and it is almost always a man) moved on to selling something else like windows as far as I know.

    Straw poll time? I drive a 6-year old Renault Clio, bought for cash, and it gets me to meetings in the same time as the IFA in his “flash car”.

    What do other IFA’s drive?

  3. It is clear that you do not like cars. Spending money on things that you enjoy does not make you a bad financial planner. People “waste” money on things they enjoy. Are you suggesting we take enjoyment out of life just you can be smug?

    • Au contraire, I love cars. I hate paying interest on a depreciating asset. So I don’t. I’m not as smug IRL about this as the article puts across. I’m all for YOLO and all that, but throwing money away (on INTEREST, not on the car) makes no sense to me.

  4. Well said Pete. I’ve always said that new car sales was the greatest sales achievement of the 20th and 21st century. If you were trying to sell anything that costs £20000, will be worth £10,000 in 3 years time and has cost you £6,000 per annum to run in the meantime no one in their right mind would go for it with the exeption of a car! Bonkers!!

  5. Am I the only one thinking that north of 40 you should be able to afford more than an £8k car? Sorry but if all you can afford is an £8k car – you can keep your advice

    • Hi Muse. Oh, I can afford more than an 8k car, but I choose not to because I haven’t yet paid off my mortgage. When I have I’ll spend more on a car, but I won’t pay interest on a car loan

  6. Is this meant to be light relief from Brexit or something?!!! 🙂

  7. I was once told, “you buy an appreciating asset and you rent a depreciating one.” I cannot read this and be convinced of anything different.

    If this is to be adopted then there is absolutely no place for finance in this world, in fact why bother with mortgages we may as well just save up for everything.

    The fact is, the virtues of an adviser borrowing for something as frivolous as a flash car aside, if someone is prepared to pay for something on tick and can afford the payments then that is their choice and I don’t think it should, or has, any bearing on their ability to provide good quality financial advice.

  8. Not forgetting the spend it or loose it situation in tax planning. I can imagine all the bills with the 8 year old car not being factored in and the delay due to breakdown or MOT failure. Er no thanks time is money!

  9. Whilst I would agree that turning up in a seriously flash car, might give clients the wrong impression. I would also note that turning up in a “cheap” car may well also give the wrong impression, that your not very good, because your not very successful.

    Most clients will never say anything, but first impressions count and in that respect, portraying the right image will make a big difference.

    Plus there is the fact that clearly your not a petrolhead, which many are. But I bet you spend plenty of money on the things you do enjoy and would probably feel patronised if someone basically said you were stupid because you did…..

  10. My GP engages in extreme sports. Does that make him a poor GP because he risks his life in the pursuit of personal enjoyment? Life is not a rehearsal & if some choose to spend their earnings on a decent car, then so be it.

    • The writer doesn’t disagree with you. You need to read the article properly. His issue is with regards to paying interest on a depreciating asset i.e a car. It’s not spending money on a car it’s spending money on interest.

  11. I am a committed ‘petrol head’. However I have never bought a car on finance. Yes, I have had some pretty flash cars over the years that I have been in financial services. I bought them because I could afford them. However I was careful not to let certain clients see (for example) the Maserati – so on those occasions I also had a small Peugeot GTI to buzz around in. However for certain other clients is was not unreasonable to see me in the flash car. They knew that they weren’t getting ripped off and at least they could see that I was not a man of straw.

  12. Richard Singleton 29th June 2016 at 4:28 pm

    i regard the Seat as being abit flash!

  13. Oh BTW. Firstly it isn’t that bonkers if you are self-employed. You are allowed amortisation against your tax. If you keep the car in good condition for (say) at least 4 years and don’t do a huge mileage and presuming you have chosen a decent model in the first place, then depreciation isn’t a major factor. Unfortunately I have done this too well on a couple of occasions and the trade in was more than the right down value and an extra tax bill ensued. It was not unusual for the car salesman himself to purchase my trade in for his own use. (Sorry if this makes me look a clever clogs – that is not intended)

  14. Better idea may be to park the car and jog around the block!!

  15. I follow exactly the advice I give my clients, life is too short enjoy it. If you can afford something with comfort then do it, there are no prizes for being the richest man in the grave yard. Maybe that’s why I took delivery 2 weeks ago of my new ‘flash’ BMW which actually costs little more than the Fiesta it replaced.

    Clients only this morning passed comment that they were pleased to see me doing well and that my business is thriving. Now if I’d turned up in a Ferrari I guess that might have been different but my car is no more flash than theirs and they were more interested in the deal I got and if they could get something similar when their leases expire later in the year. Both are debt free and well on track to retire in the next 5 years before age 60 so why not enjoy their money a little with a nice car if that’s what they, and I, want.

  16. Interesting article… and brave! I won a good relationship with an accountant introducer years ago because he didn’t want to use an adviser that would turn up to see his clients in “a shiny suit and a big BMW”. I guess people perceive these things very differently, some see a big shiny auto as a sign that the adviser is giving good advice and runs a successful business, some as a sign that they’re charging too much, and others that they’re wasting money on something unimportant. Perhaps it’s best not to judge.

  17. Considerablyricherthanyou 29th June 2016 at 5:31 pm

    @ Muse Inngs: Precisely.

    But then in Cornwall it’s not uncommon to have two cars: one “for town” which is taxed & insured, and another “for the country” which isn’t. (And runs on farmer’s red diesel) !!!

  18. I’d prefer my A8 to your Ibiza on my weekly 200mile commute!

  19. jonathan gamlin 29th June 2016 at 10:52 pm

    Sounds like your investments are likely to be as average and exciting as your car choice ! However each to his own , I have personally never bought a new car and mine is 9 years old ! It is however , 2 door , convertible and sports a growler on the bonnet

  20. Well you would probably pay that for a watch in London. Its ‘horses for courses’ and if you’re in the far corner of the provinces then an expensive car would probably be a put off to clients.

  21. Absolutely the best article by a financial adviser ever written. So disappointing previous commenters focus on the glitzy asset and not the underlying message – spend your money wisely, and don’t go into debt for something you don’t need.

    Here’s another straw poll – if you lost your job today, how many months could you keep up all your contractual repayments and still put food on your family’s table? That what you NEED, anything else is gravy. It’s a philosophy that stands the test of time – Philippians 4:12.

  22. I haven’t owned a car for 10 years or so.

    I lease mine and change my car every 2 or 3 years on a low budget most of the time less than £200 per mth

    Its a throw away world, little or no servicing, little or no tyre’s, no MOTs, no repairs, and I have had some nice cars, Seat, Fiat, Renault, Vauxhall, Saab, and in Aug this year I take delivery of a nice Nissan.

    And I agree with Chris Clare above, buy what will increase in value, rent what will decrease in value……

  23. Thanks for your comments, all. It really wasn’t my intention to be judgemental, rather to highlight the (to my mind) hypocrisy of making an objectively bad financial decision, when we’re meant to be financially astute!
    Money Marketing give me free reign with these columns, and it so happens that this was on my mind when I came to write.
    Life is for living, for sure. If cars make you happy, then fill your boots. I’m sure plenty would object to my refusal to buy anything other than Apple computers. But I’ve never bought one on tick…
    Life is also about decisions. You choose one thing, you are often NOT choosing an alternative. I choose a small, second-hand car and in doing so choose not to pay interest to a finance company. That’s my call. If you want to do the opposite, that’s your call.

  24. It’s interesting that so many are seemingly missing the point (and arguably a nation with high debt is testament to it!) – you could replace ‘car’ with 55″ TV and any other depreciating luxury.

    Using debt to fund expenditure is dangerous – (simplistically) you can’t control debt.

    I drive a Kia estate (I run a junior football team so it takes a fair amount of knocks) and don’t have finance or debt other than a mortgage which (like Pete) I’m trying to pay down whilst also funding for an independent financial future.

    We live within our means and the vast majority of my clients (many of which lived through the war/post war years) do the same and it’s interesting how they don’t have any monetary worries!

  25. What about ‘flash’ ties or ‘flash’ pocket handkerchiefs or ‘flash socks’ all more expensive than the ones from LIDL or ALDI. “Objectively bad financial decisions?” Peter, you will probably be the richest ever person in the graveyard. Incidentally, where are you, the only Peter Matthews I can find is in the West Country but he doesn’t look like you?

    • Hi Ted. There’s no ‘s’ on the end of my surname, and I never use the ‘r’ on the end of my first name. Google ‘Pete Matthew’ and you’ll find that I have won the internet! 😉

  26. Anthony Fallon 30th June 2016 at 6:41 pm

    All this obsession with the “price” – considering the amount of time we spend in our cars – probably more time in this, especially if you are on the road to see clients most of the time, than any other single room/office – a bit of comfort, a bit of “luxury” etc. may come at a price but definitely worth it – definitely not “flash”.

    Totally agree – I never borrow money to buy a car – always cash up front.

  27. Andrew Devonshire 1st July 2016 at 3:59 pm

    A successful financial planner in their 40s or 50s should be able to buy a high quality car for cash – it depends on the clients you seek to engage with but my clients would be horrified if the person who was providing them with advice as to how to invest their life savings turned up in an old Seat. That would indeed be like a fat fitness trainer or dentist with bad teeth.

  28. Andrew

    Spot on. Exactly right.

  29. Julian Stevens 5th July 2016 at 4:55 pm

    I drive an 8½ year old Volvo S60 D5, now with 93,000m on the clock and, as I’ve looked after it (garaged every night and only main agent servicing), it still goes like a bird and looks nearly new. I bought it new on 3 year lease/purchase (tax efficient as I’m self employed). I’ve been thinking about buying a C Class Merc but somehow I can’t seem to get sufficiently enthused about it to ditch my Volvo.

Leave a comment