Financial Advisors? Why?

[Junior]

I notice you totally avoided the questions about giving people a book list to read/study and advice about a stop loss on investments.

Brty if they were happy to read books and DIY, they wouldn't choose to make an appointment with a financial adviser. As previously explained, an adviser is not just about managing a lump sum of money, it's higher level strategy and advice across a range of areas which pertain to someone's financial situation and planning throughout different life stages. Risk management, estate planning and the use of different tax structures are example of other areas a good adviser will address as part of a plan.

Most advisers do rely on managed funds for most clients, because to manage a portfolio of direct shares with stop losses etc. requires daily monitoring of the portfolio = a lot of time and therefore significant cost to the client. As in most professions there is a significant & growing burden in terms of administration and compliance in managing funds for a client. For someone with a large portfolio to manage direct investing can make sense, but not so for the average portfolio under advice.

There is nothing inherently wrong with managed funds in my view, as long as performance is above benchmark and fees are reasonable.

The days of an adviser recommending just one fund manager who their dealer group is aligned with are dying, thankfully. Use of ETFs and index funds are more prevalent these days as well, to keep costs down for the client.

 

[Junior]

An example:

You would be surprised how many people out there are sitting on a large accumulation of cash, paying tax at their marginal rate on interest earned. It's only once they retire, reality sets in that their capital will be eroded by tax (less so in retirement) and inflation. Furthermore they have remained loyal to the bank they have used their whole lives - and the bank has not returned that loyalty in terms of offering a competitive interest rate.

You might say the answer is easy - buy some shares or an index fund. Most people wouldn't know where to start, some aren't even computer literate and would be stressed out even setting up a broking account. Then they wouldn't know what sort of volatility or returns to expect, and therefore what level of income to expect from their savings.

The scenario above is common as there are many who are not accustomed to such low interest rates and may have been taught by their parents to only trust cash and residential property.

A decent & ethical adviser can very easily provide good value for money with advice, which provides peace of mind and a regular income stream through retirement. The advice will take into account tax and estate planning considerations, and the children can be involved in the process where appropriate.

 

[brty]

Junior, obviously none of us are going to change anyone else's opinion, but just couple of points...

Brty if they were happy to read books and DIY, they wouldn't choose to make an appointment with a financial adviser.

Perhaps the correct financial advice is to sell some appropriate books, they probably don't know where to start. I agree with Tech/A that there should be education about money/investments etc in schools.

There is nothing inherently wrong with managed funds in my view, as long as performance is above benchmark and fees are reasonable.

Hence why I mentioned stop losses. There is a litany of funds that have gone from outperformers, to underperformers, to losing nearly all of the (remaining) funds under management. FPs/advisers seem to be good at putting people into funds, but then do not manage how the fund performs.

You would be surprised how many people out there are sitting on a large accumulation of cash

No I'm not!! These people have done very well for themselves over time (except for inheritances), so they do know how to make money. The problems always seem to arrive after they have sought professional advice on what to do with their cash, thinking the 'professional' adviser knows more than they usually do. These are the people that you could point to a good book or 2 and they would do very well by themselves, just like they have done, to get the large accumulation of cash in the first place.

A decent & ethical adviser

Can you name ANY that don't claim to be?? How does a totally uneducated person know who is decent and ethical?? online testimonials? advertising? saw on TV??(LOL, sorry could not resist).

A decent & ethical adviser can very easily provide good value for money with advice, which provides peace of mind and a regular income stream through retirement. The advice will take into account tax and estate planning considerations, and the children can be involved in the process where appropriate.

Assuming now the person has been lucky enough to find a decent and ethical adviser, the rest of this statement highlights the weakness of the adviser. As soon as retirement and tax planning are mentioned in association, out comes stuffing as much into super as possible, using TODAY'S rules. However the rules keep changing and will continue to do so. A good adviser would take this into consideration, but current rules/regs (and perhaps the new ones?) are not likely to allow him/her to take this into account.

 

[Junior]

Assuming now the person has been lucky enough to find a decent and ethical adviser, the rest of this statement highlights the weakness of the adviser. As soon as retirement and tax planning are mentioned in association, out comes stuffing as much into super as possible, using TODAY'S rules. However the rules keep changing and will continue to do so. A good adviser would take this into consideration, but current rules/regs (and perhaps the new ones?) are not likely to allow him/her to take this into account.

Brty, many of your points highlight the need for regular reviews and advice. As the rules change the strategy will change, the performance of recommended managed funds will be monitored and changes made where required.

RE Super, yes the rules keep changing, but it's still a low-tax environment and for those approaching retirement it makes sense to load it up. For clients who are 55+ they are within a few years of having full access to their super - funds can be taken as a lump sum if it makes sense to do so due to any rule changes. Super is still completely tax free and unrestricted access for those aged 65+ and a balance <$1.6mill.

Finding a good and ethical adviser.....there are many of them out there these days. There are some good guides online for ways to assess an adviser before signing up.

 

[Junior]

Junior, obviously none of us are going to change anyone else's opinion, but just couple of points...

I agree, that's fine. I'm in the industry and I work with a great group of advisers.

However, in the past I've seen some very poor behaviour & average advice so I'm certainly not defending the whole industry.

 

[greggles]

Financial planning 'doesn't have professional standards', resisting reform

http://www.abc.net.au/news/2018-04-16/financial-planning-lacks-professional-standards/9664134

When is the government going to get serious about the financial planning industry? Too much greed and not enough concern for the financial health of the average person.

Is it because the government it too afraid to take on the powerful corporate interests that control the financial advice industry? If there was ever an industry that needed serious reform, this is it.

 

[basilio]

Perhaps another reason to be (very) careful about financial advisors and trusting your local for-profit superannuation machine.
Print Email Facebook Twitter More
IOOF plunges $900m as APRA moves to disqualify its top executives
By business reporters Daniel Ziffer and David Chau
Updated about an hour ago

Photo: If APRA succeeds, Chris Kelaher and four IOOF senior executives will be disqualified.
(Supplied: Royal commission)
Related Story: Royal commission accuses IOOF of making members pay compensation for a fund error
Related Story: ANZ sells wealth management business to IOOF for $1b
Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume.

Audio: Royal Commission: IOOF used member funds to pay own compensation (PM)
Australia's financial regulator has taken action against superannuation giant IOOF in the Federal Court and is trying to disqualify its top executives from managing people's retirement savings.

Key points:

• IOOF paid compensation to its superannuation members out their own retirement savings
• APRA accused IOOF of breaching its duty to act in their members' best interests
• The company says its compensation scheme meets the "pub test"

Its managing director Chris Kelaher, along with four senior executives, failed to act in the best interests of superannuation members, the Australian Prudential Regulation Authority (APRA) alleges.

https://www.abc.net.au/news/2018-12...s-apra-moves-to-disqualify-top-execs/10593278

 

[basilio]

I agree, that's fine. I'm in the industry and I work with a great group of advisers.

However, in the past I've seen some very poor behaviour & average advice so I'm certainly not defending the whole industry.

That is a tough gig Junior. From my observations quality, ethical, customer focused financial advice in the financial services industry is just not what the industry is about. It should be but unfortunately industry greed, lax supervision and toothless regulators have let the foxes run the hen house.

I posted the article about IOOF but the current Royal Commission has thrown up evidence that AMP and CBA and other larger organizations that employed many financial advisors were not acting in the interest of their customers.

 

[Junior]

That is a tough gig Junior. From my observations quality, ethical, customer focused financial advice in the financial services industry is just not what the industry is about. It should be but unfortunately industry greed, lax supervision and toothless regulators have let the foxes run the hen house.

I posted the article about IOOF but the current Royal Commission has thrown up evidence that AMP and CBA and other larger organizations that employed many financial advisors were not acting in the interest of their customers.

Much of the poor behaviour discussed and observed through the Royal Commission, related to senior executives. These people are not financial advisers. For example, the IOOF case you have referred to, is in relation to the trustees of a super fund. Likewise at AMP, the allegations were levelled at senior executives, not financial advisers.

There are plenty of great advisers out there. You will never read about them, the media have no interest in hearing reporting on the time someone received life-changing financial advice, they only care about scandal. Likewise with the Royal Commission, they are looking for the most shocking and reprehensible behaviour they can find.

 

[tech/a]

Junior.

I know your in the Industry.
Other than Insurance stories
Can you give an example or two of Financial Advisor
Life changing financial advice? I've never seen any and I know 3

 

[basilio]

Much of the poor behaviour discussed and observed through the Royal Commission, related to senior executives. These people are not financial advisers. For example, the IOOF case you have referred to, is in relation to the trustees of a super fund. Likewise at AMP, the allegations were levelled at senior executives, not financial advisers.

There are plenty of great advisers out there. You will never read about them, the media have no interest in hearing reporting on the time someone received life-changing financial advice, they only care about scandal. Likewise with the Royal Commission, they are looking for the most shocking and reprehensible behaviour they can find.

I can appreciate your desire to show the better side of financial advisors. I am also quite sure there are people with the skills to understand the various financial instruments in the market place, make sense of what would be in the best interest of theirs clients and set up a good deal for them.

Unfortunately I don't believe that that is the basis of the industry. From my observations an overwhelming focus of the industry is generating commissions on the sale of financial products and creating further commissions on the ongoing management of peoples total investments. I know that often the dodgiest investments are sold by financial planners to clients because these offer the highest commissions. Timbercorp comes to mind for a start.

I am also aware that the organizations that employ financial advisors (whether formally or not) have created a structure that rewards the most profitable (for the company) advisors and effectively sacks anyone who can't sell enough product to keep the figures looking good for the executives. I can remember the uproar from the industry when it was proposed that financial advisors should formally work for the benefit of their clients.

Again I believe the concept of skilled, client friendly financial advisor is excellent. Perhaps now is the time to restructure the industry so that the client does come first.

As previously explained, an adviser is not just about managing a lump sum of money, it's higher level strategy and advice across a range of areas which pertain to someone's financial situation and planning throughout different life stages. Risk management, estate planning and the use of different tax structures are example of other areas a good adviser will address as part of a plan. Junior

 

[Junior]

Unfortunately I don't believe that that is the basis of the industry. From my observations an overwhelming focus of the industry is generating commissions on the sale of financial products and creating further commissions on the ongoing management of peoples total investments. I know that often the dodgiest investments are sold by financial planners to clients because these offer the highest commissions. Timbercorp comes to mind for a start.

On this point. Commissions on investment products were banned in 2010, so this ugly element of the industry is dead. I worked for a group who sold a large volume of Timbercrop and other MIS projects...and new many other advisers who sold this stuff. Most of them were accountants/advisers. Not only sucked in by the commissions, but also blinded by the tax benefits associated with those investments.

Where commissions are still a problem, is where someone who owns a financial planning practice, also has ownership interest with a property development group. Their advisers then "advise" their clients to invest in off-the-plan property (this means commissions from developer, commissions on mortgage, commissions on Life insurance) .... I have seen this recently and it's highly unethical in my view. The upcoming changes to minimum education standards, should largely kill this off, as the "advisers" who operate under this structure are typically poorly educated.

 

[Junior]

Junior.

I know your in the Industry.
Other than Insurance stories
Can you give an example or two of Financial Advisor
Life changing financial advice? I've never seen any and I know 3

This short piece here is relevant. Retirement planning is huge. Most people have no idea how much they need.

https://www.vanguard.co.uk/adviser/adv/articles/research-commentary/practice-management/how-outburst-changed-my-perspective-on-money.jsp

 

[Darc Knight]

I searched and searched for good Financial Planner. Found a CFP who was a Public Prosecutor in a past life. Researched the company and found it had links to CBA. The speil about "approved list" took on a whole new meaning. Then they wanted me to subscribe to a platform, even though their "approved list" included funds such as Colonial First.

Even Noel Whittaker can't tell you how to find a good Financial Planner.

 

[Junior]

I searched and searched for good Financial Planner. Found a CFP who was a Public Prosecutor in a past life. Researched the company and found it had links to CBA. The speil about "approved list" took on a whole new meaning. Then they wanted me to subscribe to a platform, even though their "approved list" included funds such as Colonial First.

Even Noel Whittaker can't tell you how to find a good Financial Planner.

The fact they recommend CBA products isn't necessarily a bad thing in and of itself. It depends if the advice focused on strategy and what you want to achieve first, or did they just launch straight into making sure all your wealth & insurance cover was moved into their products.

It also depends when the CFP was achieved, in terms of whether that carries much weight. These days it's a tough course to get through, with a strong focus on ethics. Back in the 90s it was a different story, and you didn't even need a degree as a pre-req.

 

[Darc Knight]

The fact they recommend CBA products isn't necessarily a bad thing in and of itself. It depends if the advice focused on strategy and what you want to achieve first, or did they just launch straight into making sure all your wealth & insurance cover was moved into their products.

It also depends when the CFP was achieved, in terms of whether that carries much weight. These days it's a tough course to get through, with a strong focus on ethics. Back in the 90s it was a different story, and you didn't even need a degree as a pre-req.

But if a CFP is advising to buy funds like Colonial why go to him in the first place, except for tax implications etc.
Also, why do I need to buy into the platform if he's doing all the buying etc. 3% in fees down the drain imo. Go straight to Colonial or Vanguard ( less than 1% in fees).

 

[Junior]

But if a CFP is advising to buy funds like Colonial why go to him in the first place, except for tax implications etc.
Also, why do I need to buy into the platform if he's doing all the buying etc. 3% in fees down the drain imo. Go straight to Colonial or Vanguard ( less than 1% in fees).

If fees are 3%, then that is way too high, I agree just use Vanguard. If you were just seeking straight investment advice, sounds like you can do it yourself through an Index Fund.

If he couldn't add value or provide you with advice to put you in a better position than before you walked in the door....then you don't need him.

 

[sptrawler]

This story is about someone who was cleaned out in the GFC, due to poor financial advice, but it does highlight how long and difficult it can be to recover.

Naomi lost hundreds of thousands after taking investment advice. It nearly cost her her home

Naomi Halpern was left in hundreds of thousands of dollars of debt when investments recommended by her adviser collapsed.

www.abc.net.au

From the article:
In 2007, during the early stages of the global financial crisis, Naomi Halpern was fielding calls from banks and debt collectors after her money.

In the years leading up to crisis, her financial adviser suggested she invest in the share market and timber and agricultural schemes — often with borrowed money.

When the values of her investments collapsed, she nearly lost her home. In the aftermath, ASIC found that her financial adviser failed to have a reasonable basis for the advice he gave to retail clients.

Now, 13 years later, Naomi is in her 60s and still paying off the debt.

How has this experience shaped your confidence with money?​

Confidence wasn't the problem. I'd always managed the finances in my business.

The mistake I made was to accept so-called "independent, professional expertise" for tax and later personal investing.

I have not been in a position to invest since.

 

[divs4ever]

i escaped a similar fate , by realizing the Financial Adviser ( the group since penalized by the regulators ) had conflicted interests , and having a long time aversion to leveraging in general ( on mortgage was enough for me )

so at worst for me i was only looking at a small negative ( a total loss of cash plus any fees ) but maybe i am more cautious than the average bear ( pun intended )