Hi Julia,
You can't legislate against stupidity; not even against lack of expertise on the part of clients.
Those Mum and Dad investors that get fleeced the most aren't seeking advice because they're greedy, but because they want to grow their life savings. Which is quite a legitimate wish IMHO.
If some dodgy smart Rs dazzles them with an official license to advise, he should be held responsible if the outcome turns out a loss rather than what they were expecting.
You, as an educated person with the ability to do the Math and add percentages, know outrageous profits to be hollow promises; but you can't expect the same critical thinking from a retiree who still has to take his shoes off when the numbers go past ten.
I understand your point, but don't accept that even the most unsophisticated person cannot be expected to understand that if you borrow 90% of the value of your home in retirement, buy shares with the proceeds, and then take out a margin loan on those shares you are taking a hell of a risk, not just with the shares but with your home.
It might be a reasonable strategy when someone is 30 with many years of working life ahead, but not at 70.
That is all I mean when suggesting people need to acquire for themselves some basic level of financial literacy.
You refer to me as an 'educated person with the ability to do the Math (in Australia we usually say maths, don't we?), but I have had no training in finance whatsoever. I've done nothing in terms of educating myself that any other average person cannot do. Most just can't be bothered.
I've many times before commented on the number of even just my own friends who have doctorates in their chosen fields, but whose eyes just glaze over when you suggest they take even a baby step toward understanding how to make the best of their financial situation.
It would therefore be reasonable to legislate that any licensed advisor or authorised trainer of financial matters be responsible for the consequences of his/her advice or teaching. A hidden clause about "past performance is no guarantee for future" and similar rubbish about Forex and CFDs carrying the risk of losing more than 100%, should be no excuse or reason to shirk responsibility for big promises in the marketing and advertising material.
Seems reasonable, but is it absolutely in an environment as unpredictable as financial markets?
Smurf below gives the example of tradespeople being required to hold the appropriate insurance and to adhere to a set standard. Presumably this set standard is something easily quantifiable by objective measurement.
Fairly clear for some supervising body to declare an electrical installation, e.g., is not correctly done.
Is it so clear for financial advice?
As I mentioned earlier, Storm could be said to have offered valid advice to their clients in the environment of a rising market, so apparently no problem there, despite the huge risk accepted by clients of mortgaging their very homes and all their super/savings.
But that advice turned to dust when the market fell, clients being offered no exit strategy.
So when it comes to attributing blame, how does it fall? Solely with the advisers? Also with the clients who, even in the most generous of descriptors, could hardly have reasonably concluded that it was a safe, risk-free strategy?
By all means, set a threshold for the amount at risk - maybe as a percentage of a client's available funds. That would still allow the Fat Cats and "Professional, sophisticated investors" to chase higher returns with higher risks. It's a helluva difference whether half a Million lost represents 80% of a retiree's Super, or James Packer's lunch money.
I'm not sure what you mean here. Are you saying that if I go to a financial planner and say I have one million dollars to invest, he has to tell me "sorry, I am only allowed to advise you how to invest half of that amount"?
I may be misunderstanding your intent.
How about financial advisors being required to invest the same money as their clients in the investments that they recommend ?
I can't see that that would be remotely practical. If a planner has 5000 clients, you are suggesting he is personally obliged to invest in all the products engaged with in all of those 5000 clients?
Sort of similar to airline executives being required to fly on their own airlines. They would make sure the maintenance was done properly then.
Doesn't seem like a valid analogy to me, Rumpole.
You might as well suggest that a criminal lawyer should be required to engage in any strategy he recommends to his clients.
In most professions or trades, if you make a mess of the client's work then there is some degree of responsibility to put it right, including any associated consequences.
An electrician, for example, needs public liability insurance as a basic condition of hold a contractor's license. It's not optional, it's a legislated requirement. And then there's Workplace Standards ready to remove the license of anyone who does shoddy work, regardless of whether or not it causes an actual fire or shock.
I get the distinct impression that financial advice is pretty lightly regulated compared to other industries and yet it has massive consequences for individuals if things go wrong.
Seems like a good principle, smurf, but - as above - I'm not sure that it could quite equally be applied to the financial advice industry.
I might be wrong, of course.