# Financial Planners should take some blame!



## Dot41 (27 November 2008)

My portfolio has decreased in value by almost 50% since July 2007. I am a 67 year old widow that relies entirely on my investment income. My Licensed Financial Planner knew that I relied on my investment income to survive. He asked me many questions, including quite personal questions, in our first meeting so I know he is well aware of my circumstances.
Obviously he was well aware of my financial situation as well as the warning signs in the market. He knew that I was not in a position to accept the level of volatility and that I required less risky investments however he did not advise me to adjust my portfolio.
Last week I found a company, Phoenix Global, who are assessing my claim that my Financial Planner has been negligent and whether I have a case for compensation. I relied on my professional adviser but the service he provided was not what he promised.


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## Sean K (27 November 2008)

Dot41 said:


> My portfolio has decreased in value by almost 50% since July 2007. I am a 67 year old widow that relies entirely on my investment income. My Licensed Financial Planner knew that I relied on my investment income to survive. He asked me many questions, including quite personal questions, in our first meeting so I know he is well aware of my circumstances.
> Obviously he was well aware of my financial situation as well as the warning signs in the market. He knew that I was not in a position to accept the level of volatility and that I required less risky investments however he did not advise me to adjust my portfolio.
> Last week I found a company, Phoenix Global, who are assessing my claim that my Financial Planner has been negligent and whether I have a case for compensation. I relied on my professional adviser but the service he provided was not what he promised.



Dot, I am really sad to hear about your predicament. There may be many others in your situation right now. I know because my parents are your age and have lost quite a lot in the past 6 months. 

You obviously need to wait on what your lawyer says but I think the fine print in any agreements you had with a financial advisor will be legal proof.

You also need to understand that the overall market has lost over 50%. Most have lost, and there's potential for it to get worse. 

I don't think many regular planners thought that we would see 50% wiped off, unlike some of the posters here who have hedged, or got out early, or too early, and saved capital. 

I am not making excuses for planners, because I think they are generally on the level of a leach in the food chain, but we all need to assess the outlying factors to such events.

I hope your case has some merit, or the market holds and your plan finances you through the coming years.

All the best,
kennas


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## clayton4115 (27 November 2008)

i suppose your portfolio was well allocated when the market was going up over the last five years

its easy for people to complain when the market falls, however not a word when the markets are heading higher and higher.


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## Mofra (27 November 2008)

clayton4115 said:


> i suppose your portfolio was well allocated when the market was going up over the last five years
> 
> its easy for people to complain when the market falls, however not a word when the markets are heading higher and higher.



The first ethos for financial planners is to "know your client". If the planner has not properly adjusted a portfolio or tailored his/her advice to take into account a client's risk profile, than that is negligence.


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## Sean K (27 November 2008)

clayton4115 said:


> i suppose your portfolio was well allocated when the market was going up over the last five years
> 
> its easy for people to complain when the market falls, however not a word when the markets are heading higher and higher.



Yeah, fair point clayton. My folks got into the CBA float with a significant amount of money and are now complaining it's halved. It's hard to watch that much money disappear from the screen.


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## sinner (27 November 2008)

Mofra said:


> The first ethos for financial planners is to "know your client". If the planner has not properly adjusted a portfolio or tailored his/her advice to take into account a client's risk profile, than that is negligence.




Which asset class would you have advised her financial planner to take refuge in? "Hi Dot, due to economic volatility I've put the majority of your holdings into USD and JPY, you now have negative growth as yields do not cover my fees." 

or

"Hi Dot, due to economic volatilty the value of your portfolio is currently half, but this is not a fixed-in-stone number it may fluctuate further, down or UP."

Let's face it, the planner is probably long the same stocks as Dot, and none of these losses will be actualised unless she requests he sell the shares and go into cash (which is also down 40%!).

Dot, you did not tell us which asset class you are invested in and if it is in the stock market, whether or not your dividend yields have decreased yet if at all? Perhaps your financial manager was wise enough to pick stocks which can afford to continue paying dividends during this time.


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## awg (27 November 2008)

Hi Dot

If yr planner is from a reputable organisation, they would have had to complete a "risk profile" when you first invested. 

there should be a written record of this. You should have a copy of this.

basically it shows what asset allocation proportions are appropriate.

you have not told us how long u have held the portfolio?

generally you also are entitled to an annual review.

as an older person, generally a higher proportion is allocated to "cash products"

your 50+% loss suggests you were allocated mainly to shares/trusts.

if you have held your portfolio for 3-5 years or more, then you probably dont have too much cause for complaint ( due to rises in that time).

having said that, it would be nice if they would advise when changes are appropriate (my gripe)


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## skyQuake (27 November 2008)

Taking account of your age and risk profile/cash flow needs, they would have been professionally negligent to allocate you in pure equities without any cash component; don't know what contract you have signed but it seems that he may have breached a duty of care of some sort.


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## Dot41 (27 November 2008)

clayton4115 said:


> i suppose your portfolio was well allocated when the market was going up over the last five years
> 
> its easy for people to complain when the market falls, however not a word when the markets are heading higher and higher.




I wouldn't know about the last 5 years as I only went to a planner early last year after my husband past away. He took care of our investments and told me I should get help when he was gone. I wish I had the gains you talk about over the past 5 years and then it wouldn't be 50% of our hard earned money that was gone.


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## It's Snake Pliskin (27 November 2008)

Dot41 said:


> My portfolio has decreased in value by almost 50% since July 2007. I am a 67 year old widow that relies entirely on my investment income. My Licensed Financial Planner knew that I relied on my investment income to survive. He asked me many questions, including quite personal questions, in our first meeting so I know he is well aware of my circumstances.
> Obviously he was well aware of my financial situation as well as the warning signs in the market. He knew that I was not in a position to accept the level of volatility and that I required less risky investments however he did not advise me to adjust my portfolio.
> Last week I found a company, Phoenix Global, who are assessing my claim that my Financial Planner has been negligent and whether I have a case for compensation. I relied on my professional adviser but the service he provided was not what *he promised*.




Hi Dot,

I am sorry to hear of your situation. If it makes you feel any better I have a stock which has lost very close to 98% ish in price. This was my own choice to continue holding and will hold. This was my choice not that of an adviser. We all make mistakes and are at times not on the ball. 

Did he promise or did you interpret it that way?

Unfortunately the onus is on people to be diligent in dealing with advisors so a dual approach of a proactive advisor and investor should help.   

I hope you can sort your situation out and get some ease from the result. 

Take care.
Snake.


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## awg (27 November 2008)

Hi again Dot,

My understanding is that a risk profile is MANDATORY.

have u got copies of the original documents your FP prepared? (also mandatory)

If these were not prepared, my opinion is that yr FP can be sued under there professional indemnity (also mandatory)

are they from a reputable organisation with insurance?

anyone in your position put mainly in equities last year, was inappropriately advised, no question about that!

I still have the 100+ page document of initial advice my FP prepared, complete with full PDS...this is CRITICAL for you to have!!


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## Dot41 (27 November 2008)

kennas said:


> Dot, I am really sad to hear about your predicament. There may be many others in your situation right now. I know because my parents are your age and have lost quite a lot in the past 6 months.
> 
> You obviously need to wait on what your lawyer says but I think the fine print in any agreements you had with a financial advisor will be legal proof.
> 
> ...




I apologise if in any way I sounded like I thought I was the only one in this predicament. I know there are many people in the same boat and my tears fall for them as well. 
I haven't gone to a lawyer. I can't afford that. Phoenix Global is an investigation company that I heard about and they are assessing many people's individual cases of Financial Planner negligence.
I told my planner I needed income to live on and I was very scared about investing as I had not had to look after the money when my husband was alive. He knew that I wanted security. I even said to him that it was all so confusing and that I think I should leave it in the Bank. He told me that he would monitor my investments and I need not worry as he would do the worrying for me. Obviously he didn't worry too much.
The majority of what is left is in a fund that has stopped paying distributions so I don't have the income that I need. I am not savvy and never claimed to be. I just don't understand how a Financial Planner can charge such high fees and give you a plan that is supposedly tailored to my individual needs but at the end of the day, the "plan" has lost most of my money and ignored my need for security and income.


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## Dot41 (27 November 2008)

awg said:


> Hi again Dot,
> 
> My understanding is that a risk profile is MANDATORY.
> 
> ...




Thank you for being so nice. I have all the paperwork that was given to me. Phoenix is going to look at it and assess if I have a claim. I am astounded at the number of people that have had their world turned upside down by so called professionals.


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## Glen48 (27 November 2008)

One thing this mess has taught me that not many know whats going on and no may know how to fix it. I am now more confident my own Judgement/idea is just as good of better than hearing some TV jurno  rabbiting on.
When this is finished it will be a new World.
Now if only i could make some money.


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## mattlaw (27 November 2008)

Hi Dot,

If you wanted security and income why did you go and see a financial planner as you would have had security and income from the bank. There wasnt much use in going to a FP to get him to put you in fixed interest investments (as you wanted security and income that is what he should have done)and then pay him 1% of your balance of funds. It also seems a bit unreasonable that you didnt understand the risks of owning shares.


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## sam76 (27 November 2008)

caveat emptor


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## awg (27 November 2008)

Dot41 said:


> Thank you for being so nice. I have all the paperwork that was given to me. Phoenix is going to look at it and assess if I have a claim. I am astounded at the number of people that have had their world turned upside down by so called professionals.





quite ok Dot,

I only recently moved away from a (partial) FP to my own (complete) management.

The people on this forum who imagine the average 67 yr old widow can manage her own finances, are naive at best, trolls at worst.

Most of the users of this forum have a level of financial sophistication that allows them to be capable of doing so, bear that in mind.

I spend quite a lot of time most days studying shares/investments and managing my SMSF.

I am surprised how ignorant most people are about financial matters, there is no way they can do it themselves, without considerable initial and ongoing research.

Most FP are 50% salesman, it is Cavaeat Emptor, unfortunately.

Having said all that, plus my previous posts re FP, I must say, they do face very difficult situations recently, and I do not envy them. Most I talk to are very professional and caring about their clients

Most investors would have very damaged portfolios in the last 12 months, advised or not! (excluding certain ASF posters who we know about!)

It will come down to what is in your "risk assesment"

I would further state you should phone Centrelink and make an appointment with a Financial Information Service Officer. If the wait time is too long, see one of the ordinary Pension Officers first, you may be eligble for "asset hardship deprivation". Dont delay on this, they cant usually backdate


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## Temjin (27 November 2008)

Unfortunately, as a financial planner wannabe one day (if I could make the career change), I would also place a bit of blame on the financial planner of yours. 

Judging by how much you have lost thus far, I could tell your FP was recommending you to go 100% or at least close to into shares. However, being a retiree like you who is entirely dependent on investment income, there is no way I would have, if I was a FP anyway, recommend you to do that. This is regardless of your risk profile.

That FP of yours is just like many others who are giving this profession a bad name. That is, all they care is about putting your money into the highest commission possible products and have little regards of your risk profile and/or personal circumstances. 

Finding an independent and unbiased financial planner is hard, but they are out there and some are truly sincerely about helping you. 

Regardless, I'm so sorry to hear about your losses.  Like others have said, you are not the only one who have lost a lot of money and most people could not have predicted such an event anyway. (except for a few ppls who were blamed as gloom and doomers prior to the financial crisis) 

There "may" be some merits in your financial planner being negligent and you "may" have a case for compensation. Like I said before, the investment portfolio you were recommended was clearly not in align with your goals and objectives, and your personal risk profile. It's simply crazy to go full 100% in shares with your retirement fund given your circumstances. 

The financial planner must have either deliberately did it to gain more commission or have simply be forced be his/her company to make more "sales".


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## Sir Osisofliver (27 November 2008)

Hi Dot,

My condolences on your circumstances, I know that what I am about to say will probably not help you terribly much with your current circumstances but here goes....

1) Most (almost all) financial planners are salesmen. The best way for them to make money is to make a list of products (managed funds), from which they then take a trailling commission. You should find out if your planner took a trailing commission in addition to any up front fee for service. (It should be contained in your statement of advice). Unfortunately the KYC "know your client" legislation uses in it's legal definitions terms like "reasonable".  Was your investment into managed funds a "reasonable" investment at the time. This is in place because planners do not possess perfect crystal balls that tell them that the market will be going downhill by over 50%. I doubt that your circumstances would be seen as extraordinary enough - many other people were placed into similar "reasonable" investments.

2) I loathe managed funds.  I've ranted about them before on these boards, but the reasons for my loathing is the lack of control that you have over your money, and the fees (and negative compounding effects) that incur as a result. You would be much better off in the future if you are able to invest in income producing equity (be it shares, property or fixed interest) yourself.

3) Any financial planner _should have_ diversified your portfolio, given your age and what you have said about your risk profile. You say the remainder of your funds are in a single Managed Fund that is no longer paying distruibutions?  This _may_ be an avenue for professional negligence claim if you were improperly diversified across asset classes and products. (You don't put all your eggs in one basket). I'd also find out if the fund is allowing redemptions at this time. If so you should carefully consider whether the managed fund operator has or is likely to close redemptions on the fund.  I've seen people who are locked into various funds that are not paying distributions and then a little time later, stop redemptions and a little time later, call in the liquidators. You may be better off to crystallize that loss and end up with some money rather than be an unsecured creditor in a wind-up scenario.

4) It's been my experience that most people do not plan well for the future and can really only last a few weeks without income coming in. You should definately get in contact with Centrelink and appraise them of the situation.  Sources of emergency money are available to you under the right circumstances.

5) If you were sitting across from me at my desk at this point (and lately I seem to be counselling a lot of people who've been monstered by the financial crisis), I'd suggust you do some self examination on what your current expenses are and ways that you can cut back.  If the situation is dire you may need to look at your current vehicle, current accomodation and other _necessary_ assets and determine whether it is appropriate to consider downsizing these assets (smaller car, smaller home, sell unused household items etc).

6) Finally (because I should be getting home), you should try and do (or get someone to help you) a cash flow analysis of your current circumstances.  If you haven't run out of cash flow already, this will tell you how long you have before you start using credit you don't have to simply get by. This will at least give you a timeframe and allow you to plan some strategies (like the above) to try and curb your expenses and increase your cash flows.

Good Luck

Sir O


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## cutz (27 November 2008)

mattlaw said:


> Hi Dot,
> 
> If you wanted security and income why did you go and see a financial planner as you would have had security and income from the bank. There wasnt much use in going to a FP to get him to put you in fixed interest investments (as you wanted security and income that is what he should have done)and then pay him 1% of your balance of funds. It also seems a bit unreasonable that you didnt understand the risks of owning shares.




Hi,

Unless you’re  into DIY you call in the experts, you know, hot water system breaks down you get a plumber, your car needs a service so you take it to a dealer, you don’t normally get under it yourself, get the drift.

So for someone that not used to handling a large portfolio one would normally see a financial adviser, we are bombarded through the media with companies offering financial advice so when one goes to a bank or an institution to see an adviser you sort of expect that they know what they’re doing and putting a senior lady into a portfolio of 100% stocks was probably not the correct allocation of assets.

How is the general public to know that most financial advice is not worth a pinch of ****.

I hope Dot receives some form of compensation for what seems like dodgy advice and in turn send a message to the financial advice industry to clean up its act.


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## MRC & Co (27 November 2008)

Dot41 said:


> I am astounded at the number of people that have had their world turned upside down by so called professionals.




And isn't that the worst part.

These guys are percieved professionals.  

I have mates who are financial planners for reputable banks, and they wouldn't know a trade/investment if it came up and said hi!

Sorry to hear dot.  I also know many people who have lost a fortune, crying and ask me where to invest their hard earned dollars.  Man Financial in my honest opinion, these HUGE hedge funds also have the best risk strategies in place and can make money no matter what environment.  I think through CBA they also have a capital guarantee (which is as good as any IMO).  Most of my money is in cash or with them.


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## BradK (27 November 2008)

For anyone else reading this and getting into the market now: A tip

Ask your financial planner about capital protection - buying a put option to protect the value of your investment. 

Ask. 

Brad


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## skyQuake (27 November 2008)

BradK said:


> For anyone else reading this and getting into the market now: A tip
> 
> Ask your financial planner about capital protection - buying a put option to protect the value of your investment.
> 
> ...




Wouldn't put call parity mean its cheaper (from brokerage) to just buy a call?


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## mazzatelli1000 (27 November 2008)

skyQuake said:


> Wouldn't put call parity mean its cheaper (from brokerage) to just buy a call?




Depending on the length of the term of the call this will introduce other Greeks than delta, which for folks seeking professional advice from planners, would not know the implications and how to manage it.


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## peter2 (27 November 2008)

How is an inexperienced person going to know about hedging or options? Be realistic.

The FP should have ascertained the maximum drawdown that the client could tolerate and used a stop loss exit (or implement a fully hedged strategy). I realise that most FP's don't know what a stop loss is. 

It staggers me that they want to be classified (and paid) as financial mgt. professionals.


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## awg (27 November 2008)

Sir Osisofliver said:


> Hi Dot,
> 
> My condolences on your circumstances, I know that what I am about to say will probably not help you terribly much with your current circumstances but here goes....
> 
> ...






MRC & Co said:


> And isn't that the worst part.
> 
> 
> Well actually the worst part is that the FP ( and their employer) still get the FULL COMMISSION if you are in cash products!!!
> ...


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## MichaelD (27 November 2008)

Dot,

My 2 cents;

1. Assume ANYONE and EVERYONE in the financial planning industry you have ever had contact with (including anyone promising a rescue package) is lying, dishonest, incompetent or a combination of all of the above. NOBODY, repeat NOBODY in the industry is working for you - they are all working to enrich themselves.

2. You must AVOID emotional responses at all costs and you need to educate yourself about financial matters and the options available to you at this time. It stinks that you have to do this at this time of your life, but unless you want to get even further into a hole, you're going to have to do it for yourself.


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## wayneL (27 November 2008)

Dot this is such a schmozzle. My own mother is 79 and has the same sort of risk profile. Luckily she has a grizzly bear for a son that has her in 100% cash at the moment... but that is not without some stern talk about the real situation in the world as she has been approached by the bank's FP several times. 

Earlier this year I was approached to join an FP firm so had occasion to do some research on the industry; frankly, I was stunned, appalled, horrified.

The problem is in how FPs are remunerated. i.e. commission. 99% make a living by upfront and trailing commissions from the various 'mutual funds' and suchlike. Therefore, if I was a financial planner, the advice I gave to my mum wouldn't have earned me a cent.

This is problematic for all the reasons the above posters have outlined. essentially, they are commissioned salesmen.

That said, there are some very good planners, but they charge fee for service. The problem is that most people are not prepared to pay FPs in this manner and for some reason I cannot fathom, they prefer the commission system.

On the other hand, should we require FPs to be financial forecasters? What if in 2005 your FP said the world is going to implode and to stay in cash while you watch the index run up 2000-3000 points? You would only be happy with him now that the the world has gone to hell, three years later.

It's an easy gig in a bull market, but very tough in this sort of market. The big question is: Did he match your risk profile with the investments? If not, you might have him by the short and curlies.


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## Julia (27 November 2008)

Dot, I can imagine how upset you must be feeling.   I doubt that it's much comfort to appreciate that you're in the same situation as hundreds of thousands of others who have similarly trusted the smooth talking FP's.

Over the last year, I've read and listened to, with amazement, the multiple so called professionals who've reassuringly said:  "just take the long term view, eventually there will be a recovery.  We've had recessions before and the market has always gone on to make new highs".  This has been trotted out as a blanket piece of advice to all investors regardless of age and circumstance.

I have seen only two pundits suggest getting out as the market began to show consistent decline, thus protecting capital.

To be fair to them (and I find that difficult) I'd say most of these advisers are as stunned by the degree of the losses as their trusting clients.

I don't think it's fair to say to a widow whose husband has always handled the investments that you should have taken responsibility for understanding whether or not the funds were invested wisely.  If you knew enough to do that then you wouldn't have needed to seek the advice of a presumed professional.

What others have said about having completed a Risk Profile is correct.
But what I've seen of these documents has just indicated that you would best be invested in a "Conservative", "Balanced", or "Growth" style investment, but any details of exactly what these constitute are pretty unlikely to have been specified.   Even if such details had been stated, I expect you'd have agreed with whatever was suggested anyway.  That, after all, is what you were paying for - professional advice.

Have you discussed your disappointment with the FP, i.e. said to him just what you have said to us?

Did you, perhaps, in the initial discussions suggest that you wanted an income you could rely on?   If so, perhaps he placed your funds into high yield companies, i.e. those paying good dividends.   So perhaps he has taken the view that as long as your cash flow (income) continued smoothly you would find the drop in the capital value acceptable, in the supposed belief that this would eventually recover?

I don't know if you have had full and candid discussions with your adviser before getting involved with what sounds like some litigation.

If it were me, I'd be making sure I clearly expressed my concerns to the FP, listening to his explanations of his strategy (if he had one) before allowing your very understandable emotional reaction to take over in the form of some sort of legal accusations which could possibly become very messy and protracted.

But, maybe on this, if you do decide to go down that road, might be good to make sure you are more clear on the details and the possible future implications and/or costs than possibly you have been with the financial planning.  i.e. I wouldn't be too trusting about what anyone says they can do for you at this stage.


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## BradK (28 November 2008)

peter2 said:


> How is an inexperienced person going to know about hedging or options? Be realistic.




I would have thought that a simple put option was straight forward. Nothing too complicated. Call it insurance - just ask was all I said. A financial planner should know about a put option - they do capital protection all the time. 

Brad


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## BradK (28 November 2008)

Julia said:


> But, maybe on this, if you do decide to go down that road, might be good to make sure you are more clear on the details and the possible future implications and/or costs than possibly you have been with the financial planning.  i.e. I wouldn't be too trusting about what anyone says they can do for you at this stage.




Good point. From a financial planner to a lawyer is swimming with sharks. Watch the costs, Dot.


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## sails (28 November 2008)

BradK said:


> I would have thought that a simple put option was straight forward. Nothing too complicated. Call it insurance - just ask was all I said. A financial planner should know about a put option - they do capital protection all the time.
> 
> Brad




"Simple" put options still have all the greeks factored into their pricing - can be a trap for newbies to options.

They are the most heavily inflated with IV on market lows - the place where the most fear hits and newbies will buy puts...  The best place to buy puts are usually on market highs when IV is much lower - but that's when the newbie thinks uptrends last forever...

Dividends are factored into puts - something else newbies to options can get caught on.

Special dividends and the like usually result in option strikes being adjusted.

Not quite as "simple" as it appears on the surface...


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## Temjin (28 November 2008)

peter2 said:


> How is an inexperienced person going to know about hedging or options? Be realistic.
> 
> The FP should have ascertained the maximum drawdown that the client could tolerate and used a stop loss exit (or implement a fully hedged strategy). I realise that most FP's don't know what a stop loss is.
> 
> It staggers me that they want to be classified (and paid) as financial mgt. professionals.




"Most".  You will be surprised some FPs actually know more about trading and the concept of system development and position sizing than some of you here. And WOULD want to recommend people to trade with a small amount, at least in an informal way because it is against the "regulations" to do it through paid advises. 



			
				MichaelD said:
			
		

> Dot,
> 
> My 2 cents;
> 
> 1. Assume ANYONE and EVERYONE in the financial planning industry you have ever had contact with (including anyone promising a rescue package) is lying, dishonest, incompetent or a combination of all of the above. NOBODY, repeat NOBODY in the industry is working for you - they are all working to enrich themselves.




That's a bit harsh there MichaelD. 

It's true that ANYONE in ANY industry is working for themselves. However, there are certainly ALOT of FPs out there who are geninuely wanting to help their clients but fail to do so because they did not have the right knowledge/experience or simply put too much faith in their own education or the financial system. Incompetent they may be, but it's not like every FPs are naturally dishonest evil people who are extremely greedy and looking to scam every single clients they could get hold of. 

I would place the blame on the whole system itself and how FPs are traditionally trained to advise fundamentally flawed stuff. (Efficient Market Theory as one example, buy and hold as another) Some would surely love to get away from these limitiations placed upon by the businesses they work in, but there are just simply too much regulations around to "protect" the consumers. Very few have true freedom in the advises they can give for fear they would be sued if their advices were "inappropriate".


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## MichaelD (28 November 2008)

Temjin said:


> However, there are certainly ALOT of FPs out there who are geninuely wanting to help their clients but fail to do so because they did not have the right knowledge/experience or simply put too much faith in their own education or the financial system.




So, erm, exactly how are you disagreeing with me? Incompetent advice is no better than dishonest advice in terms of nett result to the naive client. In fact, it's probably worse because the FP believes they are "helping" rather than knowing they are not.

"What's the difference between a used car salesman and a financial planner?"
"At least the used car salesman knows when he is lying to you."


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## Temjin (28 November 2008)

MichaelD said:


> So, erm, exactly how are you disagreeing with me? Incompetent advice is no better than dishonest advice in terms of nett result to the naive client. In fact, it's probably worse because the FP believes they are "helping" rather than knowing they are not.
> 
> "What's the difference between a used car salesman and a financial planner?"
> "At least the used car salesman knows when he is lying to you."




Only on the part where you think every single FPs out there are dishonest. 

I would say dishonest advice is worse than incompetent advice. Try comparing to a nutrientist who advised you to go on a full low cab diet because he believed all the hype about it but ignore the potential health risk associated with it. He genuinely believed the diet plan would help you. 

But how do one determine if an advice is "competent" or not? Train every single FPs out there to time the market and advises their clients to sell all their shares and properties before the great deleveraging crisis begins? Even the legendary investors aren't that perfect at market timing. Losses cannot be prevented in times like this. 

Dot's case is an exception here because it clearly shows her FP is ignoring her personal risk profile and risk management by fully invested into shares. Most honest and unbiased FPs would have done a different eway. If I were one and I had the ability to provide recommendations to anything out there,  it would have been a whole different mixture of selected equities through ETFs, commodities through ETCs, alternative investments such as fund of hedge funds, cash and probably a small amount in physical precious metals. And of course, periodically change it dependant on how the whole global crisis work out without PROMISING anything. 

At the end of the day, most people would have been worse off if they don't see a financial planner to assist with their household budget and debt management. Investment advise is only a small part of it.

But I guess everyone have a different expectation on what a mainstream financial planner should do. And the expectations here are certainly more demanding the average person because of level of sophistication in investment knowledge most have here. It's a totally different world here.


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## Bushman (28 November 2008)

Temjin said:


> But I guess everyone have a different expectation on what a mainstream financial planner should do. And the expectations here are certainly more demanding the average person because of level of sophistication in investment knowledge most have here. It's a totally different world here.




Exactly - it is the 'expectation gap' that all professionals have to deal with. FP, auditors, doctors, valuers etc. Never lawyers though - what is with that? 

I agree with the risk profile comments -even had Dot said 'balanced/growth' instead of 'conservative', a good FP should have guided her in the right direction. 

In terms of was a 50% ASX-200 retrace forseeable by your 'average' FP? Well they should have spotted the US real-estate bubble but who could have forseen Lehman Bros and AIG collapsing? That caused the 'perfect' liquidity storm and the spectacular capitulation selling in September and October. 

The severity of this crunch has left us all on the back foot.  

However, that being said, if Dot had been in a conservative portfolio (say 70% cash/treasuries, 15% global industrial equities, 15% 'A-grade' direct commercial property/brownfield infrastructure, she would be breaking even in nominal terms now.  There is, off course, no save havens especially in the stagflation environment we are operating in but still - 50% down when you are retired is a poor, poor result. My 2c only.


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## Surly (28 November 2008)

I think it would take me a couple of weeks to become an FP with my insurance background...and a lot of the FP I have met display about that level of competence.

They should be called exactly what they are, Managed Funds Sales People.

cheers
Surly


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## numbercruncher (28 November 2008)

Hi Dot.

I hope Phoenix Global can find grounds to launch legal action and you recoup your money.

I also hope the greedy little parasite who exceeded you risk profile loses his Mcmansion , Beema , life savings, and shirt off his back. There is far to many predatory parasites in the finance industry.


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## arco (28 November 2008)

.

There must be some good FPs out there, but I personally know 5 and I would not trust them with my money. They don't seem to have much of a clue and I don't think they use stop losses - they talk more about dollar cost averaging. Perhaps TA is just mumbo jumbo to them.

If they ever studied charts the breakdown has been clear for some time. I personally sold my last share over a year ago.

Simple trend lines

At *1* they should start to sit up and take notice, at *2* they really need to watch more closely, and at *3* if they have anything left they definitely should be starting to close remaining positions. Last chance at *4*


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## prawn_86 (28 November 2008)

I think a lot of FPs problems is the fact that their hands are tied. There is so much compliance that they have to go through they can only ever really offer 'standardised' advice. All the big firms have products matching risk profiles etc, so the indiviual planner just has to do the risk profile and then give the client what product they are told by the company.

The only way they would be able to offer advice based on things like TA etc is if they were a small boutique firm charging by the hour rather than commissions.


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## Dot41 (28 November 2008)

I just want to say Thank You to everyone that has responded either negative, positive or with compassion. Some of you think I should have known better and hey, I admit to being naive about investing which is why I went to a professional in the first place. 
I am looking at my finances and situation now. I don't drive so I have no car to sell and I have cut down on spending. I may look at down sizing my home as I don't need a house this size anymore but it is really really difficult to leave so many wonderful memories behind plus I don't feel alone here.
The managed fund has ceased redemptions so that is not an option either.
Anyway, there are many people out there that are worse off than me. At least I have a house that I can sell whereas others are not in that position. It doesn't cost anything for Phoenix Global to assess my situation and they will tell me straight up if they consider I have a viable claim so fingers crossed.
Again thank you all for your respones. You have made a lonely woman not so lonely. Dot


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## Bushman (28 November 2008)

Dot41 said:


> Some of you think I should have known better *and hey*, I admit to being naive about investing which is why I went to a professional in the first place.
> 
> The managed fund has ceased redemptions so that is not an option either.
> 
> ...




Geez Dot you do sound a lot like a 'younger' person in some of the language you use. But that would be a cynical assumption on my part. Also you do have some financial nous as you are right on to concept of redemptions and what this means to your investment. But just call me a cynical Gen-X'er out of touch with the retirement belt out there.

At least we have had a good discussion about the FP topic and, *most importantly*, given Phoenix Global a good plug. Coincendentally I just googled their website and they have 'FP legal action' plastered all over it. You might get a few other investors involved. 

Good luck 'lonely old lady'.


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## Dot41 (28 November 2008)

Bushman said:


> Geez Dot you do sound a lot like a 'younger' person in some of the language you use. But that would be a cynical assumption on my part. Also you do have some financial nous as you are right on to concept of redemptions and what this means to your investment. But just call me a cynical Gen-X'er out of touch with the retirement belt out there.
> 
> At least we have had a good discussion about the FP topic and, *most importantly*, given Phoenix Global a good plug. Coincendentally I just googled their website and they have 'FP legal action' plastered all over it. You might get a few other investors involved.
> 
> Good luck 'lonely old lady'.




Thank you. I will take "sound younger" as a compliment. I am 67, not 90, but I do admit that I don't know what "Gen Xer" means.
I know about "redemptions" as I made enquiries about getting my money back and I was told "the fund has frozen redemptions at this time". I feel I have learnt a lot in the past few months. Huge learning curve. I found out about Phoenix Global from a friend who has also contacted them. This is not a "plug" BUT if they can help me get some kind of positive result I will tell everyone that will listen.


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## awg (28 November 2008)

it is possible to find FP who work for hourly rate or straight percentage of your portfolio.

I interviewed several.

the Hourly rate guy charged $250 per hour (from memory)

I also found one who ran his own independant firm.

he was a Chartered accountant, qualified FP, Broker agent, and traded his own account, Very Impressive.

I almost decided to use him, but went my own way.

My sister did decide to use him, so have been able to follow his progress.

He does not use MINs but straight equities, has made some very good calls, including selling RIO at the very top, but also not so good, including Centro in her portfolio.

He also put her 100% into shares, which i did not agree with ( correctly, as it turns out).

Trouble is, you need to know what questions to ask.

I really interrogated the guy, and even pointed out a couple of things he had got wrong ( to his embarrasment).

he was so impressed he offered to cut his commisision (a lot, I bargained hard) to have me on board.

I went with Esupefund SMSF, as they charge a flat rate of  $600 pa ( no connection to the company), but no financial advice.

depends a fair bit on the size of yr account, because then commission vs hourly rate becomes far more relevant


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## Mofra (28 November 2008)

sinner said:


> Which asset class would you have advised her financial planner to take refuge in? "Hi Dot, due to economic volatility I've put the majority of your holdings into USD and JPY, you now have negative growth as yields do not cover my fees."
> 
> or
> 
> ...



If the risk profile was conservative (as you would expect in Dot's situation) the cash portion of the portfolio should be high enough to protect against prolonged periods of bourse wekness. Heck, the standard portfolios in Coin/X Plan could have done a better job.


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## tommymac (28 November 2008)

Mofra said:


> If the risk profile was conservative (as you would expect in Dot's situation) the cash portion of the portfolio should be high enough to protect against prolonged periods of bourse wekness. Heck, the standard portfolios in Coin/X Plan could have done a better job.




Absolutely correct. It's best practice to keep a couple of years worth of "income payments" in cash for times like these.

If the FP did not do this and relied only on distributions, this would be negligent.


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## joeyr46 (28 November 2008)

BradK said:


> I would have thought that a simple put option was straight forward. Nothing too complicated. Call it insurance - just ask was all I said. A financial planner should know about a put option - they do capital protection all the time.
> 
> Brad




Very few make money buying options either way because of time and when we are most bearish is uaually right near the bottom or when we are bullish is right near the top so we don't buy the correct type of option at the correct time


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## wayneL (29 November 2008)

joeyr46 said:


> Very few make money buying options either way because of time and when we are most bearish is uaually right near the bottom or when we are bullish is right near the top so we don't buy the correct type of option at the correct time




You can burn a lot of premium buying put options in a bull market too, reducing returns. Option while removing some risks, introduce others. You can go way out of the money, for minimal cost, but of course then you have to accept more downside risk.

Set an forget is not optimal with options so then you need an options manager to handle the hedgeing... introduced new risks and could result with non correlation with the overall market. Great if they outperform, but disaster for the fund if they underperform.


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## MR. (30 November 2008)

Bushman said:


> At least we have had a good discussion about the FP topic and, *most importantly*, given     "           "    a good plug. Coincendentally I just googled their website and they have 'FP legal action' plastered all over it.




Bushman, you're on the money.  Beat me to it.  There's a moral here....

anyway    

# First financial planner I saw convinced me not to buy shares and so I didn't spend a cent.  
That was before WayneL's 2000 - 3000 gain.  Hmmm.  Missed out on some gains there "if I remembered to sell" 

# The second adviser tried to push MFS, now we know by that other thread in "general chat" where that ended up. Lucky I didn't buy any.


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## jeflin (30 November 2008)

Whenever you try to pin blame on financial planners, they will just say "Caveat Emptor."

In most situations, people turn to financial planners because they are uneducated about financial affairs or have little time of day to see to the nitty-gritty details of investments, they just want to see some return on their money. 

Financial planners make use of this mentality and encourage their clients to leave money making to them, but when things happen, they say "buyers beware."

If the clients have time or are smart enough to understand prospectus and do their own research, they might as well get rid of the financial planners in the first place.

It is a very unfair situation but too bad, the rules of the game has been determined by the rich.


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## Happy (1 December 2008)

jeflin said:


> Whenever you try to pin blame on financial planners, they will just say "Caveat Emptor."
> 
> In most situations, people turn to financial planners because they are uneducated about financial affairs or have little time of day to see to the nitty-gritty details of investments, they just want to see some return on their money.
> 
> Financial planners make use of this mentality and encourage their clients to leave money making to them, but when things happen, they say "buyers beware."





Yes this is the best legal con:

Ask expert for advice, yet you take the responsibility


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## Temjin (1 December 2008)

Happy said:


> Yes this is the best legal con:
> 
> Ask expert for advice, yet you take the responsibility




If that "disclaim" does not exist, then there simply wouldn't be any more financial planners in this country as the chances of being sued for investment losses are guaranteed to be 100%.  

This probably goes the same for other similar professions where the outcome of their advices are inherently "unpredictable" or the variability is just too great.


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## Sir Osisofliver (1 December 2008)

Dot41 said:


> I just want to say Thank You to everyone that has responded either negative, positive or with compassion. Some of you think I should have known better and hey, I admit to being naive about investing which is why I went to a professional in the first place.
> I am looking at my finances and situation now. I don't drive so I have no car to sell and I have cut down on spending. I may look at down sizing my home as I don't need a house this size anymore but it is really really difficult to leave so many wonderful memories behind plus I don't feel alone here.
> The managed fund has ceased redemptions so that is not an option either.
> Anyway, there are many people out there that are worse off than me. At least I have a house that I can sell whereas others are not in that position. It doesn't cost anything for Phoenix Global to assess my situation and they will tell me straight up if they consider I have a viable claim so fingers crossed.
> Again thank you all for your respones. You have made a lonely woman not so lonely. Dot





Dot,

It's hard to say anything without you sitting across from me at my desk.

1) Have you done a cash flow analysis? When will you have to start borrowing money just to live? 
2) You seem to be living in a large house -presumably has extra rooms? Any family members wanna move in and pay rent?
3) You may also want to consider renting out the house and finding a smaller place to rent temporarily. You'll have the difference between your rent and your rental income to live on in the short term without having to sell your principle asset. Be aware however that depending upon where you live there may be a rental crisis in progress and you may have difficulty in finding something significantly cheaper.
4) It's been my experience that the squeaky wheel gets the grease. Start writing letters and e-mails. Make a PAIN of yourself. Drip water onto your hand written letters and say things like "I'm crying as I write this and consider my future". Tug those heartstrings. Begin with the following
a) Your financial planner and his/her company.  
b) The company that has locked redemptions.
c) Your local government minister
d) News and Radio stations

When dealing with corporations, take your complaint/concern as high as possible. EG Managing Director or Board. Write a letter a day. Tell you have had to start getting assistance. Tell them you are buying food from communicare. Tell them you've had to give away your cat because you can't afford to feed him anymore. 

I'm sure you get the drift.

Sir O


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## Pat (1 December 2008)

I just want to add my .

I work with Financial planners every day, and most of them have abosolutely no idea. Every day I come across situations that seem like jokes or pranks... 

All a FP needs is to be PS146 certified. Pretty darn easy to do. No wonder so many have lost so much.

I must say there are some exceptional planners out there, and most of their clients have made very minimal losses if any.

The govt has put alot of crappy legislation into the FP industry like SOA's, yet in the end any fool can become a FP, join a dealer group and rake in 4% initial commission and 6% trail comission on a pension or investment.

My reccomendation is for peeps out there to get there PS146 diploma, and manage your own retirement. Easier than it sounds...


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## Julia (1 December 2008)

Sir Osisofliver said:


> Dot,
> 
> I
> 1) Have you done a cash flow analysis? When will you have to start borrowing money just to live?
> 2) You seem to be living in a large house -presumably has extra rooms? Any family members wanna move in and pay rent?




Again without knowing details of level of need, maybe consider a reverse mortgage?


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## bootross (1 December 2008)

wayneL said:


> The problem is in how FPs are remunerated. i.e. commission. 99% make a living by upfront and trailing commissions from the various 'mutual funds' and suchlike. Therefore, if I was a financial planner, the advice I gave to my mum wouldn't have earned me a cent.




Yep, that's how the system works. And you've provided a good example of how the commission system does not allow for the client's interest to be put ahead of everything else.



wayneL said:


> That said, there are some very good planners, but they charge fee for service. The problem is that most people are not prepared to pay FPs in this manner and for some reason I cannot fathom, they prefer the commission system.




Because if you gave someone the following options to pay for their financial advice:

a) A one-off - never - to - be - repeated - upfront fee of $10,000 for preparation of a financial plan, with no other costs ever or commission payable, or 
b) allowing the planner to receive an ongoing commission of 0.6% pa of the value of your investment for the life of that investment.

most would choose option b. 

The commission system is just like any other product in any other market. If there was no demand for it, it would soon disappear. But whilst people still choose it, it will still be around.



wayneL said:


> On the other hand, should we require FPs to be financial forecasters?



You can't expect planners to be forecasters, when 95% of the general population can't predict market movements either.


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## bootross (1 December 2008)

Dot41 said:


> My Licensed Financial Planner knew that I relied on my investment income to survive. He asked me many questions, including quite personal questions, in our first meeting so I know he is well aware of my circumstances.




Well it sounds like he at least took the time to get to know you, so as far as auditing his actions, it sounds like he's met the 'know your client' rule.



Dot41 said:


> Obviously he was well aware of my financial situation as well as the warning signs in the market.



So by this, do you mean you could tell the market was going to go down, but he didn't? If so, did you contact him about it?



Dot41 said:


> He knew that I was not in a position to accept the level of volatility and that I required less risky investments however he did not advise me to adjust my portfolio.



So I interpret this, rightly or wrongly, to mean that you initially decided to purchase the investments he recommended? If so, did he explain how volatile these investments could be?



Dot41 said:


> I relied on my professional adviser but the service he provided was not what he promised.



And I think this is where the main problem lies, the planning industry does not communicate clearly as to the service that will be given and how that service will be delivered. eg. if the planner said "we'll monitor your investments", a reasonable person may take that to mean that their investment balances are being monitored on a regular basis and decisions as to whether to sell out of positions or open new ones will be made regularly. In reality, most planners use a 'set and forget' investment approach under the premise of the 'buy and hold' strategy (which I agree is not infallible). Once a client's funds are invested, a subsequent move to a more defensive approach is not usually done unless the client requests it, or their so-called 'research deparments' recommend it.


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## TheRage (1 December 2008)

Pat said:


> I just want to add my .
> 
> I work with Financial planners every day, and most of them have abosolutely no idea. Every day I come across situations that seem like jokes or pranks...




You need to refine your network so that you are not dealing with the jokes.... Be pro-active in recommending the good planners. Of course I am assuming that you are an accountant by making this statement.



Pat said:


> All a FP needs is to be PS146 certified. Pretty darn easy to do. No wonder so many have lost so much.




While I agree the level of education is ridiculous in our industry to say that the this was the cause of the problem without some reference to the general market is just as ridiculous. However in the case above I agree that the asset allocation could have been wrong for Dot given her age and risk tolerance.



Pat said:


> I must say there are some exceptional planners out there, and most of their clients have made very minimal losses if any.





To say that excceptional planners have made no losses is irresponsible as it places an unreasonable expectation on those in the industry. I have many retirees who have had very minimal losses due to the nature of their investments but I also have some young clients who are down 20% but are fully invested in the market. Financial planners can't set stop losses. The neat little SOA trick ensures that we don't. I could just imagine pumping out a 30 page document every second day because a stop loss was hit. It's horses for courses and there would not be one planner in Australia who does not have a least one client with some sort of loss in their portfolio. 



Pat said:


> The govt has put alot of crappy legislation into the FP industry like SOA's, yet in the end any fool can become a FP, join a dealer group and rake in 4% initial commission and 6% trail comission on a pension or investment.





This does not sound right. Intial commission of 4% I have seen but never a trail of 6% unless it was on some sort of Mezannine Property Investment. Most fund Managers cap trail to less than 1%. Adviser service fee though can be added in but again this is usually capped at 2%. However I could be ignorant because most of my fees are fee for service.



Pat said:


> My reccomendation is for peeps out there to get there PS146 diploma, and manage your own retirement. Easier than it sounds...




You contradict yourself with this comment. If the foolsih planner salesman with this qualification cannot manage your money what makes you think that by getting this qualification you will be any better. The only difference is that you have your own interests at heart. To be honest PS 146 is not enough to be a good planner. I have a bachelor degree and post grad qualifications but probably learn more from the passion that I have for anything investment than from qualifications. The Financial Planning Association are addressing the educational issues and to be a CFP you now need some sort of degree. Into the future I would suggest the requirements will eventually match other professional industry's such as accounting. This will only happen when the grandfatheing of Insurance salesman is complete and they are in retirement which maybe happening faster than anyone thinks. The current market would be hurting commission driven businesses quite bad.


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