Legal crimes: are you being fleeced?

Australians are now waking up to the harsh reality that for years their financial planner has been skimming a percentage off the top of their wealth... whether the investment rises or falls.

It should be reasonably straight forward: all investors want is for their advice to be delivered without some hidden agenda.

"Give me advice without the sales pitch or locking me into some service I don't need."

It's as fresh an issue today as it was when I first entered the profession nearly 20 years ago. But is it getting better?

Take Peter, for example, whose voicemail said he’d just received some financial advice, that it seemed like a good idea, but wanted me to take a quick look at it before he pulled the trigger. What Peter couldn’t see buried in the advice was that he was about to nearly treble the costs of managing his life savings ...

The phone message from Peter went like this:

“Can you take a quick look at some advice we’ve got from a financial planner? Tanya and I went to a seminar that this group advertised in the paper about DIY super. It all looks pretty good but before we pull the trigger we just wanted a second opinion.”

Peter, 42 and self employed, and Tanya, a 45yo public servant, have 3 kids and have nearly paid off the home. They’ve got an investment property and about $300k in super between them. They want to improve their prospective retirement and reduce tax in the meantime.

They received a 40 page document labelled ‘Statement of Advice’, produced by a high profile financial planning firm which promotes itself as “independently owned” (it’s illegal to claim to be independent when you still pocket commissions). They are allegedly specialists in DIY super.

The ‘advice’ set out a compelling argument for Peter and Tanya to roll their money into a DIY fund that the planning firm would set up. The reasons for the recommended changes were all emotive:

“by doing this you will have much more flexibility and control over your investments plus you won’t have to pay expensive fees to fund managers to underperform”.

What Peter and Tanya had paid for was nothing more than a sales pitch masquerading as advice.  Because if they had taken that advice they’d be replacing their low cost, low maintenance industry super funds with a sexy new DIY fund, at a cost of nearly 2.5 times what they are currently paying. To say nothing of the extra hassle and paperwork (that this financial planner would kindly handle for them).

But we haven’t got to the scary part yet: this advice was totally legal!

The sinister motive

Whereas it complied with the law and was supposedly serving the client’s interests, it hid a sinister motive. It was signed off by the author, a financial planner associate, and by a compliance manager, yet the advice was designed to do nothing more than line the financial planner’s pocket by scoring a new client who would pay several thousand a year in unnecessary admin and management fees.

It’s for this reason that the “Financial Services” industry is criticised as hardly being a service industry at all -- more like a “self-service” industry. Whether the reputation is deserved or not, it’s hardly surprising that four out of five Australians have been managing their finances completely on their own. Not necessarily because they love finance but because they believe they’ve got no choice.

After work and on weekends they pour already scarce hours into dredging through the internet, trying to distinguish between fact and fiction. They consult friends and relatives, read newspapers and magazines, and even interview disappointing financial planners. All in the hopes of trying to avoid being fleeced.

Sound familiar? It doesn’t need to be like this though. Options do exist now and you need to know about them.

The Gold Standard Test of Independence

What if you could find genuinely conflict-free, impartial advice from an experienced financial adviser who could appraise your situation and tell it like it is? An adviser who you simply answered your questions and gave you the advice you were looking for, without trying to ‘hook’ you as a client or flog you some product.

These advisers are rare but they do exist. The Independent Financial Advisers Association of Australia, for example, offers a way of working out whether your planner passes the “Gold Standard Test of Independence” at  www.ifaaa.com.au. Use it to work out what an impartial financial advisory professional looks like and what they do for you, and whether your current planner fits the bill.

Whether you use us or not, you owe it to yourself to get a second opinion from an impartial professional with no hidden agenda before you go any further. If Peter and Tanya had gone ahead with the advice they’d been given – even though it was 100% legal – it was recommending the client nearly triple the costs to manage the life savings he had invested in their superannuation.  

Brocktons Independent Advisory is a founding member of the Independent Financial Advisers Association of Australia ... give us a call for a quick chat about whether it’s worthwhile getting some advice or whether there are other, cheaper options to help you get what you want.

Phone us on (02) 6162 2670 anywhere in Australia or email us an enquiry through our website.