Financial Planners Brought To Account

[Garpal Gumnut]

It is not often that I disagree with LNP Policy, but tonight's Senate vote putting the screws on Financial Planners and the Banks, will benefit every Investor in Australia.

Storm and Timbercorp should never be allowed happen again.

gg

 

[Julia]

Do you really think some words in a bit of legislation will prevent such disasters in the future?

I didn't support the government's winding back of Labor's measure, but get that there is a genuine issue with red tape, paperwork etc.

I don't care what any government legislates, there will always be people ready to con the gullible or greedy out of their money who have the ability to do it.

If anything, promoting the idea that consumers will now be completely safe from being ripped off because of a bit of documentation will create a false sense of security and people might actually be more vulnerable than ever.

 

[pixel]

Do you really think some words in a bit of legislation will prevent such disasters in the future?

It's not necessarily "some words in a bit of legislation" that make the difference, but the realisation that our Justice System really means businessthat makes scammers think twice. We always have to remember that half the Australian population has an IQ below average. So there will always be plenty of gullible potential victims.

However, if the Law is upheld and false advertisers, scammers, and rip-off salesmen are dealt with accordingly, events like Commbank, Sonray etc will find far fewer imitators.

 

[sptrawler]

I tend to agree with Julia, laws are enacted, then scammers start working out ways to circumvent them.

It is like the old saying," an inteligent person can make a lot of money, a person with common sense can take it off them".

 

[Vixs]

The business today is already markedly different as a result of the FOFA changes that did go through. Investment commissions are still completely non-existent and weren't part of what the LNP was trying to keep out, the ability to charge fees based on a % of assets under management was still not possible, removing incentives for anyone that recommended clients leverage their portfolios to have a bigger asset base to charge fees on. The requirement to act in the client's best interest, a far harder test to satisfy than the old 'not unsuitable' rules, was still the standard.

The people harping on about all this are idiots who don't even know what is it they're 'repealing'. Removing consumer protections my ass, it was all about making the planner's job actually possible under stifling new framework.

You'd have to be a nutjob to go into financial planning these days. Much more risk for a fraction of the reward adviser's of days gone past got? Sign me up! Higher educational requirements demanded of the next generation by the previous generation that had none? Doesn't sound hypocritical at all!

Enjoy the future - you will be able to receive advice from industry fund owned advisers who can't even raise the prospect of implementing any strategy their fund doesn't offer (Need trauma insurance? Sorry, your industry fund doesn't offer it so it won't be recommended.), or bank-owned advisers based in Sydney or Melbourne that you only get to meet by Skype. Any independent firms will be priced even further beyond the reach of regular Australians and as such people that need quality advice will continue to go without quality advice.

 

[Knobby22]

What complete and utter bull.

It's about planners not being paid commission to provide dodgy products.
Its about planners not being able to charge management fees without communicating with the customer.

What switched Ricky Muir was his sitting on the Timbercorp debacle.
The main guy made 7mil sales hid his commissions and promptly went bankrupt so he couldn't be sued.
ANZ were in it up to their necks and will get away with it.

Don't believe the dross. We shouldn't have laws like this, and though the banks have pumped millions into the Libs to try to get them repealed, the people (ie democracy) has won.

If you go to an advisor now, you pay a fee for his advice, just like doctors, engineers, architects, accountants and any other professional. They will have to be properly trained and not allowed to cheat on an exam based on a sort of vege course. Whistleblowers will be protected.

I can't believe how easily some people let vested interests pull the wool over their eyes just so they can back their party of preference.

 

[sptrawler]

What complete and utter bull.

It's about planners not being paid commission to provide dodgy products.
Its about planners not being able to charge management fees without communicating with the customer.

What switched Ricky Muir was his sitting on the Timbercorp debacle.
The main guy made 7mil sales hid his commissions and promptly went bankrupt so he couldn't be sued.
ANZ were in it up to their necks and will get away with it.

Don't believe the dross. We shouldn't have laws like this, and though the banks have pumped millions into the Libs to try to get them repealed, the people (ie democracy) has won.

If you go to an advisor now, you pay a fee for his advice, just like doctors, engineers, architects, accountants and any other professional. They will have to be properly trained and not allowed to cheat on an exam based on a sort of vege course. Whistleblowers will be protected.

I can't believe how easily some people let vested interests pull the wool over their eyes just so they can back their party of preference.

I think what Vix is getting at is, the ability to recommend anything other than 'safe as a bank' investments, will become too risky.
Therefore everyone will offer the same, which will end up with the Banks and AMP, being the only ones left.

The super funds will still charge you for advice, but will hand the responsibility to the Banks or AMP etc to invest it.

It will be interesting to see if the result is a drop in returns, my guess is it will be.

 

[Hodgie]

I think what Vix is getting at is, the ability to recommend anything other than 'safe as a bank' investments, will become too risky.
Therefore everyone will offer the same, which will end up with the Banks and AMP, being the only ones left.

The super funds will still charge you for advice, but will hand the responsibility to the Banks or AMP etc to invest it.

It will be interesting to see if the result is a drop in returns, my guess is it will be.

The smaller independents will struggle and get pushed towards either institutions or larger independents which have the systems and support in place to meet the FOFA reforms.

What a lot of people don't know is that the software alone required to comply with these FOFA reforms can be extremely expensive. These additional costs and squeeze on the smaller businesses margins may be enough to run a lot of them out of business. Therein lies the issues as we could lose a lot of the independent advisers to the institutions which you have eluded to.

It's a bit of a balancing act, on 1 hand there needs to be tighter legislation and consumer protection, on the other hand if the new laws become too expensive so that we get even more of a dominance from the institutions in the industry then that creates a whole separate issue.

The banks will have absolutely no problems dealing with these reforms, it's the small business owners that will have a tough time. There is no risk for an adviser to work for the bank, there is a lot of risk to be an independent adviser and business owner. If that risk does not get them any additional reward there will be no reason to remain independent.

 

[basilio]

The field of financial advisors has being a closely sown minefield. The casualties are the victims of Timbercorp, Storm and a myriad other scams that passed for investment opportunities.

When it's stripped bare the the financial advisor industry has existed to make money for

1) The financial institutions who run them for a very fat profit
2) The advisors who sell the products for their own commissions
3) The financial products themselves (Timbercorp et al) who created optimistic to mythical scenarios and then used very high commissions to the advisors and institutions to sell this rubbish to Mums and Dads.

I understand that between commissions, fees, Wrap charges and whatever else is dreamed up investors pay around 40% of the returns to the above participants. And that is before any of the investments go belly up because they were out and out frauds that should never have been sold in the first place.

http://www.smh.com.au/money/investing/six-questions-for-your-financial-planner-20140620-zsf18.html

 

[Junior]

The main guy made 7mil sales hid his commissions and promptly went bankrupt so he couldn't be sued.

A bit besides the point, but I know this main guy.

He was legitimately bankrupt/insolvent. Had the majority of his wealth and business assets tied up in the very same margin loan and Agribusiness products he recommended to clients. He was sucked in by Timbercorp's slick marketing just like everyone else.

There is a lot of misinformation in the media about this. The guy didn't walk away with $7mill in commissions, he blew it up in geared portfolios and his own personal failed MIS investments, and trying to save his business. He doesn't give financial advice any more and probably never will, despite his ban coming to an end.

Agreed with Vixs, the changes already in place will significantly improve the quality of advisers out there.

Although I do think more should be done. High upfront insurance commissions, minimum education standards and conflicts of interest (particularly FPs who have arrangement with real estate groups) are all areas which need to be looked at.

 

[Knobby22]

Hodgie

The smaller advisors and the organisation that reflects their views are for these changes.
The larger advisors including AMP and the bank owned companies are against.

The large advisors do not want people to get financial advice based on ability. They would rather sell them a range of white good style products through a barely trained and cheap functionary where they can skim profits in a myriad of ways.

 

[Knobby22]

Thanks Junior

 

[Hodgie]

Hodgie

The smaller advisors and the organisation that reflects their views are for these changes.
The larger advisors including AMP and the bank owned companies are against.

The large advisors do not want people to get financial advice based on ability. They would rather sell them a range of white good style products through a barely trained and cheap functionary where they can skim profits in a myriad of ways.

The dodgy products you mentioned before were recommended by independents, those are the ones that would get the 10%+ commissions by recommending agribusiness products such as Timbercorp. They wouldn't exist on a bank owned Approved Product List (APL) as they thought they were too much risk.

I agree 100% that a prudent financial adviser should have no problems with these changes and it should actually provide opportunity for them to show their worth over an institutionally owned adviser who can only recommend the same products to every client, I'm just saying that it is really expensive and contains a lot of risk to go out on your own. if that risk isn't worth it they just wont do it when they have an easier option to make money.

I have friends that currently work for banks as financial planners, they have told me how simple and easy these changes are for them, they don't have to do anything different and they take on none of the risk, the support and systems are all provided to them by the bank.

I know that these changes are not so simple for small business owners.

I completely agree that financial planners who do not have much scope in their advise and just flog off products should be worried

 

[sptrawler]

Hodgie

The smaller advisors and the organisation that reflects their views are for these changes.
The larger advisors including AMP and the bank owned companies are against.

The large advisors do not want people to get financial advice based on ability. They would rather sell them a range of white good style products through a barely trained and cheap functionary where they can skim profits in a myriad of ways.

When I was at work, a few of the guys got involved in lemon myrtle, strawberries and I think tee treas.

They said this is brilliant you put in a wad of money, the tax return pays off the loan, then you get an income stream from it.
I said, no thanks, sounds shonky, it wasn't being pushed by the banks and they did get burned.
They are still screaming it was unfair that the ATO had to be paid back.

How do you make laws to protect people from their own greed? They will just look for something else to make easy money on.
The next thing will be suing financial planners, for any losses incurred, I can see liability insurance going through the roof.

 

[banco]

Hodgie

The smaller advisors and the organisation that reflects their views are for these changes.
The larger advisors including AMP and the bank owned companies are against.

The large advisors do not want people to get financial advice based on ability. They would rather sell them a range of white good style products through a barely trained and cheap functionary where they can skim profits in a myriad of ways.

Thing is the advice most people require isn't very complicated and isn't likely to pay particuarly well. I'm convinced the reason they have all these trailing commissions etc. is that if it was a fee for service industry most financial planners wouldn't make over 6 figures. You don't need to be financial genius to advise a couple with a vanilla SMSF, an investment property and a PPOR.

 

[Hodgie]

When I was at work, a few of the guys got involved in lemon myrtle, strawberries and I think tee treas.

They said this is brilliant you put in a wad of money, the tax return pays off the loan, then you get an income stream from it.
I said, no thanks, sounds shonky, it wasn't being pushed by the banks and they did get burned.
They are still screaming it was unfair that the ATO had to be paid back.

How do you make laws to protect people from their own greed? They will just look for something else to make easy money on.
The next thing will be suing financial planners, for any losses incurred, I can see liability insurance going through the roof.

They have had tons of those types of products over the years, I think you can still invest in a sandalwood product in WA which has a product ruling with the ATO. Apparently that was one of the better performers that hasn't gone completely bust.

People already are suing financial planners, for any losses incurred. In fact it goes beyond that, a client can sue their financial planner if their investments have not performed as well as they 'should' have, even if the client hasn't lost any money they can sue for the difference in performance of their actual investment and the performance of the alternative or 'appropriate' investment. This is the methodology used by the financial ombudsmen to calculate loss.

Professional Indemnity insurance is already extremely expensive, a lot of smaller Australian Financial Services License holders only have PI insurance purely for the fact that its the law. The insurance is so insignificant that it won't cover the potential claims that come in anyway, they have insane excesses of hundreds of thousands of dollars per claim. It's too expensive to get anything better for a lot of these companies.

 

[Hodgie]

Thing is the advice most people require isn't very complicated and isn't likely to pay particuarly well. I'm convinced the reason they have all these trailing commissions etc. is that if it was a fee for service industry most financial planners wouldn't make over 6 figures. You don't need to be financial genius to advise a couple with a vanilla SMSF, an investment property and a PPOR.

Any direct property is not a financial product, a financial adviser should not be giving any advise at all on a property purchase. This would put them at significant risk.

Also SMSF is a specialist area. There are actually a hell of a lot of issues that come with it for advisers. There has been a lot of crackdown in this area.

But I do agree that a major portion of clients do not require complex advise, the most common type of advise is the supple superannuation and insurance recommendations.

 

[tech/a]

Financial Planners who are qualified and can actually advise are fine.
They CAN advise on anything including property.

Financial Advisors who can do no more than sell the product for the company that their licence is held by
should be closed down.

Parasites who prey on those who don't know better and never will.
Would-be's who are often worse off than their naive clients!

 

[Boggo]

In addition tech/a, there is no longer such a thing as an independent financial planner. They are nearly all employed either directly or indirectly by the banks.

Simialirly, look at Aussie Home Loans ("we'll look after you") as an example, sold out to the banks (which bank), how independent would their loan advice be.

 

[Julia]

How do you make laws to protect people from their own greed? They will just look for something else to make easy money on.

Agree.

The next thing will be suing financial planners, for any losses incurred, I can see liability insurance going through the roof.

Hodgie has responded to this which I was going to ask about also:

Professional Indemnity insurance is already extremely expensive, a lot of smaller Australian Financial Services License holders only have PI insurance purely for the fact that its the law. The insurance is so insignificant that it won't cover the potential claims that come in anyway, they have insane excesses of hundreds of thousands of dollars per claim. It's too expensive to get anything better for a lot of these companies.

So, Hodgie, the insurance is actually pointless? Wouldn't most consumers have the impression that if a planner holds PI insurance, then any failure of the investment will be covered and they'll get their money back?
This is the sort of naive assumption that I suspect many people will make.

Thing is the advice most people require isn't very complicated and isn't likely to pay particuarly well. I'm convinced the reason they have all these trailing commissions etc. is that if it was a fee for service industry most financial planners wouldn't make over 6 figures. You don't need to be financial genius to advise a couple with a vanilla SMSF, an investment property and a PPOR.

Yep, I've been pondering this a bit also. Previously we've had planners offer a potential price of between $5000 and $10,000 to prepare a full financial plan. Does the average couple, with only about $100,000, say, to invest, and a low risk profile, really need a complicated analysis before whacking the funds into an ETF or similar?

I'm just not sure that the abolition of all commissions which did allow fee-free advice for this sort of client is necessarily entirely in the client's best interests.

Above all, it's crazy that people like Lambie and Muir whose investment experience is probably zero, are the people deciding what should happen here. Lambie has already shown she didn't know what she was voting for last time and probably doesn't this time.