# A Betrayal of Trust



## ROE (6 March 2013)

http://www.abc.net.au/4corners/stories/2013/03/04/3700673.htm


----------



## seamisty (6 March 2013)

http://www.leadingcompany.com.au/co...e-too-big-to-do-its-job-properly/201303053863


----------



## ROE (6 March 2013)

They need to disband asic and start over again...they are hopeless and always behind...

I think the public has lost faith and trust in them, when that happen just like company you get rid of
the current structure and bring in fresh blood...


----------



## McLovin (6 March 2013)

ROE said:


> They need to disband asic and start over again...they are hopeless and always behind...
> 
> I think the public has lost faith and trust in them, when that happen just like company you get rid of
> the current structure and bring in fresh blood...




It's not ASIC's fault. They have such a small budget for what they are supposed to regulate. I think getting rid of AFSL's would be a great start toward fixing the problem.


----------



## Andrew Newman (6 March 2013)

I agree with you McLovin about it not being ASIC's fault.

However, can you expand on how getting rid of AFSL's would be a great start toward fixing the problem?


----------



## McLovin (6 March 2013)

Andrew Newman said:


> However, can you expand on how getting rid of AFSL's would be a great start toward fixing the problem?




Because AFSL's come out of cereal boxes but the average punter believes there is some sort of regulation of license holders, or even worse guarantee. From what I've seen financial planners, generally, don't have the requisite skill-set to understand and then recommend complex products.


----------



## Andrew Newman (6 March 2013)

I don't believe getting rid of AFSL's would fix the problem. Just because something is not working, does not mean you have to get rid of it. Financial advice in Australia needs to be fixed starting with better regulations. The process has started and will take some time. 

I can appreciate why the public has distrust for financial advisers. However, there are some, although not many honest financial advisers, who provide value for money and conflict free advice. 

For conflict free advice, your financial adviser should satisfy the following 3 criteria:

1. They don't have ownership links or affiliations with any product manufacturers. (I have read that about 80% of the financial planners in Australia are affiliated with a product manufacturer) 

2. They don't receive commissions or incentive payments from investment products. (can be rebated)

3. They don't charge a percentage of your assets. (this is really a commission disguised as a fee)


----------



## skc (6 March 2013)

Andrew Newman said:


> I don't believe getting rid of AFSL's would fix the problem. Just because something is not working, does not mean you have to get rid of it. Financial advice in Australia needs to be fixed starting with better regulations. The process has started and will take some time.
> 
> I can appreciate why the public has distrust for financial advisers. However, there are some, although not many honest financial advisers, who provide value for money and conflict free advice.
> 
> ...




The bigger problem imho is that financial advisers by and large are regular human beings and are in no posiion to generate excess return. An adviser meeting your criteria will not fleece your money... that's a great start but I can say the samething about my pet cockatiels.

Here's my suggestion. Make every financial adviser make available public their client returns (average return or some other metric)... that will sort out the good and the bad in no time.


----------



## Andrew Newman (6 March 2013)

Hi skc

I agree that most financial advisers are unable to recommend investments that can beat the market.

However, when you talk about financial advisers, I feel you may be confused with investment advisers.

To clear up any confusion, allow me to explain what financial planning advice is? 

Financial planning advice helps you make the most of what you have while you create a comfortable future for yourself and your family. It's based on your goals and dreams, and includes tax planning, investments and your financial security. 

There are many ways financial advisers can add value including saving tax, accessing government benefits, protecting your wealth, assisting with budgeting, managing debts, building wealth through regular saving, providing peace of mind and recommending investments.

A good financial adviser is someone who can add value as detailed above and provide conflict free advice.


----------



## Trembling Hand (6 March 2013)

Andrew Newman said:


> A good financial adviser is someone who can add value as detailed above and provide conflict free advice.




Thats what the marketing spiel says but thats not what people go to turn up to your office for in the main. They are looking for return on capital. And you offer advice on such matters. Its wholly reasonable that you should publish your returns.

Since any mug can be a financial advisor we the poor punter need some way to discern if you're sitting behind the desk because you cannot make money out of what you are advising yourself or because you do it so well that you actually make a packet out of selling valued (read profitable) advice.


----------



## McLovin (6 March 2013)

Andrew Newman said:


> I don't believe getting rid of AFSL's would fix the problem. Just because something is not working, does not mean you have to get rid of it.




So, what then is the point of the AFSL. It tells me very little about the competence of the adviser. All I know is he that he can fill out a form and put it in the mail. I'd hazzard most people are completely unaware of what "training" their financial adviser has. I guarantee you, if there were no restrictions on who could provide advice people would be far more careful about who they entrust their life savings to.



Andrew Newman said:


> I can appreciate why the public has distrust for financial advisers. However, there are some, although not many honest financial advisers, who provide value for money and conflict free advice.
> 
> For conflict free advice, your financial adviser should satisfy the following 3 criteria:
> 
> ...




The problem with conflict free advice is that it could still be rubbish.

I've found a decent accountant is far more valueable than someone waving glossy brochures in front of you.


----------



## Andrew Newman (6 March 2013)

Trembling Hand said:


> Thats what the marketing spiel says but thats not what people go to turn up to your office for in the main. They are looking for return on capital. And you offer advice on such matters. Its wholly reasonable that you should publish your returns.




I can appreciate your feeling of how do I know if the financial adviser can recommend investments that can beat the market. My first thought is to ask the financial adviser if he can and if so how?

PS. I am comfortable with providing actual client returns to potential clients, so they can see for themselves.


----------



## Andrew Newman (6 March 2013)

McLovin said:


> The problem with conflict free advice is that it could still be rubbish.




That's true and the key is value for money, so ask the financial adviser to demonstrate why you should pay them?


----------



## odds-on (6 March 2013)

McLovin said:


> So, what then is the point of the AFSL. It tells me very little about the competence of the adviser. All I know is he that he can fill out a form and put it in the mail. I'd hazzard most people are completely unaware of what "training" their financial adviser has. I guarantee you, if there were no restrictions on who could provide advice people would be far more careful about who they entrust their life savings to.
> 
> 
> 
> ...




Valueable - You have just made Roger's brand manager very happy!


----------



## ROE (6 March 2013)

Andrew Newman said:


> 1. They don't have ownership links or affiliations with any product manufacturers. (I have read that about 80% of the financial planners in Australia are affiliated with a product manufacturer)
> 
> 2. They don't receive commissions or incentive payments from investment products. (can be rebated)
> 
> 3. They don't charge a percentage of your assets. (this is really a commission disguised as a fee)





On pure number this CAN NOT work, say you charge $100-$150 an hour for financial advice
most people don't need more than 5-10 hour of advice a year for their planning and switch investment or
tax .... so you are making say around $1000-$1500 a year for paid service per client...

to be viable each FA need 100 plus clients that commit to this sort of thing on an annual basis.
the maximum a FA can really have is 180 Clients ...10 hours a year ...1800 is a normal working hour
for a person per year...and that just to pay FA salary, then you got management on top, rent and a whole
lot of other stuff...and most has to opt in for you to get money I say 20-30% probably drop off after a while...

without the fees and other stuffed that eats into people nest eggs where are they getting the money from???
the whole system is broken with so many people dependent on fees..these fees just keep eats away each year
without their knowledge and most people don't know how to opt out or can opt out...

Most people with average brain now wake up to it and hence the explosion in SMSF, they grow at double digit rate for a while now and doesnt look like there is a slow down...from AFR article a day or two ago

"Could you run your own do-it-yourself superannuation fund? Every week 600 to 800 funds are set up by those who believe they can.

These new funds are added to the more than 500,000 self-managed super funds (SMSFs) already established, which among them manage investments worth more than $475 billion."

Most people better off not seeing once because the odds stack up against them regardless of what ever law they put in they will have some hidden fees some where to make it work....


----------



## Julia (6 March 2013)

ROE said:


> On pure number this CAN NOT work, say you charge $100-$150 an hour for financial advice
> most people don't need more than 5-10 hour of advice a year for their planning and switch investment or
> tax .... so you are making say around $1000-$1500 a year for paid service per client...
> 
> ...



All the above is failing to take into account the inherent belief on the part of most average people that Financial Advisers are highly qualified and possessed of special talents and experience that will make money for them.

We have repeatedly discussed the anomaly of many bright, well educated people, successful in their own field, whose eyes just glaze over when it comes to Super or any kind of investment.  For some reason they seem to regard such matters as so esoteric as to be beyond the capacity of ordinary people.

So they will pay what are to most of us ridiculous sums for financial advice which often turns out to be less than great.  Do they then attribute the loss of profit to the adviser, or rather accept some glib assurance from the adviser that "under present market conditions, it's a good result" or some similar reassurance?

I'm not meaning to be dismissive of the usefulness of a good financial planner for structuring finances, tax minimisation, access to part pensions etc, and do not want to be insulting to those good advisers who genuinely work with their clients' best interests at heart.  It's just unfortunate, I guess, that we hear so much of the rogues whose integrity is sadly lacking.


----------



## Smurf1976 (6 March 2013)

skc said:


> Make every financial adviser make available public their client returns (average return or some other metric)... that will sort out the good and the bad in no time.



OK in principle but I think this may simply encourage them to push clients into high risk / high return investments in order to boost the adviser's figures.

Not every client actually wants a high return. Some would be more concerned about return of their money than return on their money and vice versa.


----------



## Andrew Newman (7 March 2013)

ROE said:


> On pure number this CAN NOT work, say you charge $100-$150 an hour for financial advice
> most people don't need more than 5-10 hour of advice a year for their planning and switch investment or
> tax .... so you are making say around $1000-$1500 a year for paid service per client...
> 
> ...




My advice fees are based on the value I can add to a clients situation and will reflect the complexity of their  situation and the time and effort to prepare my advice for them. 

My standard ongoing advice service fees range from $660 per year to $3,960 per year. 

With my aim to provide ongoing financial planning advice to no more than about 120 clients and as I maintain very low business overheads, to answer your question, it CAN work.

I was looking at a clients Australian share portfolio this week and the total estimated return was 29.4% for the past 11.5 months and 6.0% better than the benchmark All Ordinaries Index. Based on their portfolio that equates to over $20,000 added value.


----------



## Andrew Newman (7 March 2013)

Smurf1976 said:


> OK in principle but I think this may simply encourage them to push clients into high risk / high return investments in order to boost the adviser's figures.
> 
> Not every client actually wants a high return. Some would be more concerned about return of their money than return on their money and vice versa.




Very well said.


----------



## Andrew Newman (7 March 2013)

Julia said:


> I'm not meaning to be dismissive of the usefulness of a good financial planner for structuring finances, tax minimisation, access to part pensions etc, and do not want to be insulting to those good advisers who genuinely work with their clients' best interests at heart.  It's just unfortunate, I guess, that we hear so much of the rogues whose integrity is sadly lacking.




Yes, it is unfortunate. 

It is also unfortunate for honest financial advisers, who provide value for money and conflict free advice.


----------



## MrBurns (7 March 2013)

Name one I'm interested


----------



## McLovin (7 March 2013)

Andrew Newman said:


> That's true and the key is value for money, so ask the financial adviser to demonstrate why you should pay them?




And how will he/she demonstrate that?


----------



## Andrew Newman (7 March 2013)

MrBurns said:


> Name one I'm interested




Well me of course.


----------



## Andrew Newman (7 March 2013)

McLovin said:


> And how will he/she demonstrate that?




This will be different for each client. 

For example, recommending a strategy to save $5,000 per year in tax that the client wasn't aware of.

Another example, recommending a portfolio that outperforms the market to provide $20,000 of value.

The list goes on....


----------



## Andrew Newman (7 March 2013)

Just going back to the Four Corners documentary "A Betrayal of Trust", if each of the people followed the 3 criteria I provided for conflict free advice, they could have avoided those investments.


----------



## gav (10 March 2013)

Andrew Newman said:


> I don't believe getting rid of AFSL's would fix the problem. Just because something is not working, does not mean you have to get rid of it. Financial advice in Australia needs to be fixed starting with better regulations. The process has started and will take some time.
> 
> I can appreciate why the public has distrust for financial advisers. However, there are some, although not many honest financial advisers, who provide value for money and conflict free advice.
> 
> ...




Personally I'd prefer the financial advisor have what Nassim Taleb refers to as "skin in the game". Instead of just benefiting from the upside, the advisor should also personally suffer from any downside for their recommendations. 

Otherwise, you may as well just watch Jim Cramer.


----------



## tech/a (10 March 2013)

Andrew Newman said:


> I don't believe getting rid of AFSL's would fix the problem. Just because something is not working, does not mean you have to get rid of it. Financial advice in Australia needs to be fixed starting with better regulations. The process has started and will take some time.
> 
> I can appreciate why the public has distrust for financial advisers. However, there are some, although not many honest financial advisers, who provide value for money and conflict free advice.
> 
> ...




Got my vote.

Most Financial Planners aren't as wealthy or financially savvy as some of their clients.

Those that are are so hog tied by regulation that they can't really advise---forever aware of possible litigation at best and failure of their advice and hen failure of business at worst.
Can't think of a worst profession!


----------



## inyaface (10 March 2013)

tech/a said:


> Got my vote.
> 
> Most Financial Planners aren't as wealthy or financially savvy as some of their clients.
> 
> ...




Just met my first financial advisor. He was honest enough that he probably won't be able to come close to what I have been achieving myself. Had a wonderful chat though for 1.5 hour about possible share options and his and my own choices we made so far.


----------



## princeplanet (11 March 2013)

My FA caused me and many others to lose much of their life savings. Some of the others got in first and sued, ending in a payout from the insurance company. By the time I put my hand out the funds had run out and the company pulled a "Pheonix". A couple of law firms said it'd be too risky to try to get compensation.
I always thought that any FA would not dare do anything unconscionable, and that regulators like the ASIC would keep them in line, I don't care how common the problem ended up being, it's WRONG.

When I think of the tens of thousands of hours I worked hard to save for my retirement and realise that a shrewd FA threw it away carelessly whilst still profiting from my huge losses, it naturally makes my blood boil. The fact that it happened to many others doesn't make it any better...

There should be a regulator I can take this complaint to that has the time and resources to compensate me and punish the FA. If someone stole my wallet, even if I walked down a risky dark alley at night, there is somewhere I can go to try to find and punish the offender, and maybe get reunited with my money. What my FA did was 1000 times worse, and he walks free.....  What, you wanna defend _*him?*_


----------



## lusk (11 March 2013)

In that 4 corners report it talks about LM investments using new clients money to 
provide returns for current clients. Isn't that a PONZI


----------



## Andrew Newman (12 March 2013)

gav said:


> Personally I'd prefer the financial advisor have what Nassim Taleb refers to as "skin in the game". Instead of just benefiting from the upside, the advisor should also personally suffer from any downside for their recommendations. Otherwise, you may as well just watch Jim Cramer.




If the financial adviser, his family, friends and clients all had a similar portfolio, would that be reasonable?




tech/a said:


> Those that are are so hog tied by regulation that they can't really advise---forever aware of possible litigation at best and failure of their advice and hen failure of business at worst.




That is exactly why conflict free advice is so important.


----------



## Andrew Newman (12 March 2013)

lusk said:


> In that 4 corners report it talks about LM investments using new clients money to
> provide returns for current clients. Isn't that a PONZI




I was thinking the same thing when I watched the documentary.


----------

