Financial Planners Brought To Account

[Hodgie]

Agree.
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.

That's correct. Most people have that assumption, I have seen it first hand on occasions where clients have lost money and someone has told them something to the effect of "Don't worry, insurance will cover it".

The fact is that many of these insurance policies will not cover a product failure at all. If the advice was found to be inappropriate for the clients who were recommended this product and a lot of claims come in it is entirely possible that the company will just go into administration and the claimants wont get anything back.

I cannot be too specific on a forum but an example would be a professional indemnity policy where the excess is 150k on claims where no gearing is involved and 300k on claims where gearing is involved.

In the above scenario, the insurance company wont pay a cent on any claim until that single claim exceeds 300k where gearing is involved . Given that the maximum compensation that the financial ombudsmen can currently award for compensation is 280k per claim, this excess will rarely if ever be breached.

Non institutionally owned companies will often go under before the insurance company gets involved at all.

On top of this there will be a bulk amount which has to be exceeded, for an example say 2 million. This acts like an excess on top of the excess. So for example, if you had a claim paid out for 350k, this would only take 50k off the 2mil which has to be exceeded for the year before the insurance company digs into their pockets. Given that the only way the excess is going to be exceeded for geared advice (which is usually what most large claims are about) is if the claimant actually takes the company on in court, it would be extremely unlikely that the excess bulk amount will be exceeded. keeping in mind that this is a year on year basis.

The above is just an example of the type of insurance policy a non-institutionally aligned company may take on simply because it's the cheapest option and by law they have to have PI insurance to keep their Australian Financial services License. The insurance company is happy to take the premiums as they know there is very low risk of them ever having to payout on any claim.

 

[Julia]

Thank you for detailed explanation, Hodgie. That's extremely daunting.
Such a different picture all round for independent planners than that generally held by the public, I expect.

 

[Hodgie]

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.

The banks don't own everyone, at least not yet anyway. There are still financial planners that are not aligned with the institutions out there but they are becoming fewer. It is difficult to compete with the bank business model.

 

[sydboy007]

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.

My experience with financial sellers is once you tell them you're not interested in property and borrowing they tend to see you as not worthwhile.

Earlier in the year I got sucked in by an FP who seemed quite good. Even had an hour long chat on the phone explaining where I was and what my goals were and that I wanted to get an idea of the pros and cons of salary sacrificing into super.

After paying for my plan waited a couple of weeks then emailed the guy what's going on to which I was told I'd have to pay to get the plan. When I responded I had paid it took a few more days for him to acknowledge that. Another month goes by and he's continually telling me he doesn't want to send the plan to me until we can tee up a time to talk about it.

Then he goes on holiday. I've yet to actually get the plan and I told myself never again. I think getting a decent financial planner is like winning power ball...on consecutive weeks.

 

[sptrawler]

My experience with financial sellers is once you tell them you're not interested in property and borrowing they tend to see you as not worthwhile.

Earlier in the year I got sucked in by an FP who seemed quite good. Even had an hour long chat on the phone explaining where I was and what my goals were and that I wanted to get an idea of the pros and cons of salary sacrificing into super.

After paying for my plan waited a couple of weeks then emailed the guy what's going on to which I was told I'd have to pay to get the plan. When I responded I had paid it took a few more days for him to acknowledge that. Another month goes by and he's continually telling me he doesn't want to send the plan to me until we can tee up a time to talk about it.

Then he goes on holiday. I've yet to actually get the plan and I told myself never again. I think getting a decent financial planner is like winning power ball...on consecutive weeks.

I'm a bit suprised you got caught up in that, you are well versed in financial matters, I would have thought as soon as they mentioned a fee you would have baulked.

I know every time I went to one, they said $4,000, I said I would get back to you.lol

Having said that, we fill in our own tax and SMSF tax returns, every year there is some issue.

It ends up never being our problem, but it is an amazing coincidence, that there is some issue.

 

[sydboy007]

I'm a bit suprised you got caught up in that, you are well versed in financial matters, I would have thought as soon as they mentioned a fee you would have baulked.

I know every time I went to one, they said $4,000, I said I would get back to you.lol

Having said that, we fill in our own tax and SMSF tax returns, every year there is some issue.

It ends up never being our problem, but it is an amazing coincidence, that there is some issue.

the fee was $450 so not like I'm going to lose sleep over it.

I just don't think there's a lot of honesty left in the profession,. It's a sales culture rather than helping someone see where they are and the best way forward to meet the goals they've set.

The market for this kind of advice must be massive, yet it seems nigh on impossible to find anyone willign to provide it.

 

[tech/a]

Due to litigation risk advice is general even though it's packaged as specific.
Don't expect advice on how to increase your wealth----that's just asking for
Court!

Investors EXPECT profit month in month out.
If you can't do that then your hopeless.

Couldn't think of a worse profession to be
In.

 

[Knobby22]

Agree.

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


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.


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.

So we should leave it to the professional plliticians then. Who wrote the coalition document. .. oh yes Arthur Sinodenos. A man who is not conflicted with only our best interests at heart.

 

[Julia]

So we should leave it to the professional plliticians then. Who wrote the coalition document. .. oh yes Arthur Sinodenos. A man who is not conflicted with only our best interests at heart.

That's an uncharacteristically unreasonable conclusion to draw, Knobby.

Mr Sinodinos has already paid the price for his indiscretion and will almost certainly continue to do so.

Whatever he is or is not, has nothing to do with the competence or capacity of people like Lambie and Muir to understand complex implications of financial legislation and to make decisions accordingly.

Ms Lambie already voted on the issue, but is now saying, oops, got that wrong, so let's throw out that legislation and start over. (Translation: Sam Dastyari got to me with his repeated persuasion to do what he wanted).
So first off she was a puppet to what Clive wanted, and now she's equally a puppet to the bidding of Labor and the Greens. If you regard that as democracy at work, then I'm astonished.

And this would surely be setting a precedent: vote however you like, then if down the track you change your mind, just rip it up and cause the entire parliament to revisit the issue. Fantastic!
The children are apparently in charge of the Senate.

 

[sydboy007]

he seems to hit the nail on the head with this one

http://www.idiottax.net/2014/11/in-defence-of-financial-planners-well.html#.VHEo9ouUf-U

While I can't imagine the hurt and heartbreak people have suffered so the likes of Don Nygen could propel himself to the top of Commonwealth Financial Planning's league tables, I also wonder should some people just give up on investing? Admit to themselves that they will never research hard enough to be able to find and trust the appropriate person to do it on their behalf and understand a simple investment process. Alternatively, just admit they don't have the requisite personal and emotional skills to do it themselves.

For the average person there's little better than time, some consistent contributions and a few hairs on the chest so they make it through times like the last few months. Stick the money into a 60/40 job (or similar variation) with 60% in equity funds across the world, plus REITs and 40% in fixed interest and cash. Some people will disagree and I realise some people who read this site come in through channels where financial literacy is high. I appreciate your ability, knowledge and the possibility you're the ones successfully making the sharp moves, but it's totally lost on the average person. Them trying to be in and out of the market and picking winners will lead them to do this every night.

Reminds me of what Albert Einstein said:

“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”

"Compound interest is the most powerful force in the universe."

then there's the people who can take responsibility for their current financial situation - well seem like maybe 10% and the rest are looking for someone to blame

http://www.idiottax.net/2014/11/da-cost-of-living-and-mine.html#.VHErYIuUf-U

Still, it's rough out there for the average person on less than $45k (me), up to the average person on between $150k and $200k (someone else). According to News and their financial whinge survey, over half of everyone throughout those wage ranges is a combo of either frustrated or angry. Below 45k it's 80% of people and at $150 to $200k it's 53% who are crying poor.

Who do the news.com.au howlers blame?
The survey showed government policy was the main factor people blamed for cost of living stress, ahead of big business, a shaky global economy and the Reserve Bank. However it also showed around 20 per cent of people across all salary brackets from $45,000 to more than $200,000 were unclear about why they were struggling, saying ‘no one’ or they ‘didn’t know’ who was to blame. Around 10 per cent across each salary bracket said their own habits or decisions were to blame. Results also showed the government in the firing line, with more richer people blaming Abbott’s coalition, while a large proportion of people also said that none of the political parties knew what to do.

His budget reminds me of mine, less the care related expenses which goes into the holidays bucket.

 

[Garpal Gumnut]

the fee was $450 so not like I'm going to lose sleep over it.

I just don't think there's a lot of honesty left in the profession,. It's a sales culture rather than helping someone see where they are and the best way forward to meet the goals they've set.

The market for this kind of advice must be massive, yet it seems nigh on impossible to find anyone willign to provide it.

You have hit the nail on the head.

I strongly believe Financial Management should be taught at school from about Grade 3 or 4.

Simple stuff. Saving. Spending. Compounding. Initially.

Then becoming more sophisticated after Y7.

I was so pleased to see FOFA voted down. There is a god !!

gg

 

[sydboy007]

You have hit the nail on the head.

I strongly believe Financial Management should be taught at school from about Grade 3 or 4.

Simple stuff. Saving. Spending. Compounding. Initially.

Then becoming more sophisticated after Y7.

I was so pleased to see FOFA voted down. There is a god !!

gg

I totally agree

I was shocked when a friend asked for help in working out the level of comissions he'd earn as the % figure increased as the income he generated for the salon went up.

He was shocked I'd sent him an email a few minutes later with the $ figures for each band.

I know we can't legislate against greed and stupidity, but hopefully we can make the bastards pay when it's clear to see they're out fleecing the gullible.

A royal commission into the financial industry is probably what we need. Let those on the inside who have a conscience present the truth, and then compel the bankers to front up and try to justify what's happening.

I have to say my $299 subscription to the Motley Fool has paid off 100 times. Might be the only financial guidance I've received over the years that's actually been worth the money, though I'll admit the info FIIG provides in their seminars is pretty good too.

We need to break the sales culture in the financial industry, and remove the FUM model as well.

 

[Julia]

You have hit the nail on the head.

I strongly believe Financial Management should be taught at school from about Grade 3 or 4.

Yes, of course that makes sense. But spare a consideration for the teachers who are under ever more and more pressure to teach add ons to the basic essentials of literacy and numeracy. Not much point understanding compounding and investment if you can't write a basic letter of application for a job.

Teachers these days are supposed to be able to take over many responsibilities that should be those of the home, including sex education, use of social media and god knows what else. Is it any wonder that so many kids are semi-literate while they spend more hours being instructed in the evils of climate change etc than how to construct a basic sentence?

There was no such financial instruction when you and I were at school, gg, yet we have managed to educate ourselves financially to a reasonable degree. Sometimes people just have to take responsibility for their own outcomes and it's not always the responsibility of governments to try to make up the deficit when the home education and training is lacking.

We need to break the sales culture in the financial industry, and remove the FUM model as well.

Yep, completely agree on this.

 

[Knobby22]

I think GG is right though, kids should get some basic training. The financial market are much more rapacious than they were when you were young,Julia. The use psychology and a range of tricks is common.

For instance GE Money targeted many with that sign here to get $10,000 offer and they were the ones behind the Harvey Norman deals, which as you know got a few people into trouble with the sudden onset of very high interest rates after the time is up (deliberately aimed to rip off the uneducated poor). They also had a few tricks if you got a car loan with them also.

RAMS is another company (owned by Westpac) that preys on young people.

There are many more sharks out there and the investment environment is not as good. Some arming of our youth to help protect them a little does no harm. You could tie it into maths (how interest rates work) and law (how contracts work).

 

[Julia]

Sigh. I already agreed that educating kids about money is useful, essential in fact.
I simply pointed out some of the facts re the already overcrowded curriculum.

Might be good for you to make your concerns known to the Minister for Education. I understand he is presently reviewing the curriculum.

Why should parents not inculcate financial common sense into their children? Why do we expect the government to do everything? I'm just sick of this general belief that whatever we are is dictated by what is legislated and delivered by governments.

(And yes, part of the above is rhetorical: I know all too well that some parents are financial dopes.)

 

[Junior]

I was so pleased to see FOFA voted down. There is a god !!

gg

And her name is Jackie Lambie!

 

[Hodgie]

You have hit the nail on the head.

I strongly believe Financial Management should be taught at school from about Grade 3 or 4.

Simple stuff. Saving. Spending. Compounding. Initially.

Then becoming more sophisticated after Y7.

I was so pleased to see FOFA voted down. There is a god !!

gg

It's not quite grade 3 or 4 but at the secondary school I went to they offered an elective class from grade 9 onwards called Financial Literacy which was quite good and provided a great start into learning about money management, loans, saving, some investments (they even had some basic FA/TA on stocks), compounding interest, cashflows etc. This is where I read my first book on Finance called "Rich Dad Poor Dad"

We also had Accounting, Math and Economics in addition to this so there were ample choices on the topic. They were however electives so by no means were we required to learn any of the material in these classes. I still remember that the teacher I had in grade 9 was adamant that Financial Literacy should be a compulsory subject as part of the educational curriculum.

 

[Wysiwyg]

You have hit the nail on the head.

I strongly believe Financial Management should be taught at school from about Grade 3 or 4.

Simple stuff. Saving. Spending. Compounding. Initially.

Then becoming more sophisticated after Y7.

I was so pleased to see FOFA voted down. There is a god !!

gg

That is a dumb idea. Who is gonna pay the rents and buy the crap and spend thriftily if they're all smarty pants investor types?

 

[VSntchr]

Sigh. I already agreed that educating kids about money is useful, essential in fact.
I simply pointed out some of the facts re the already overcrowded curriculum.

Might be good for you to make your concerns known to the Minister for Education. I understand he is presently reviewing the curriculum.

Why should parents not inculcate financial common sense into their children? Why do we expect the government to do everything? I'm just sick of this general belief that whatever we are is dictated by what is legislated and delivered by governments.

(And yes, part of the above is rhetorical: I know all too well that some parents are financial dopes.)

+1. I think that it's easy for parents (and the public in general) to point the finger and find someone else to blame, or to place a burden upon.

It's not quite grade 3 or 4 but at the secondary school I went to they offered an elective class from grade 9 onwards called Financial Literacy which was quite good and provided a great start into learning about money management, loans, saving, some investments (they even had some basic FA/TA on stocks), compounding interest, cashflows etc. This is where I read my first book on Finance called "Rich Dad Poor Dad"

We also had Accounting, Math and Economics in addition to this so there were ample choices on the topic. They were however electives so by no means were we required to learn any of the material in these classes. I still remember that the teacher I had in grade 9 was adamant that Financial Literacy should be a compulsory subject as part of the educational curriculum.

That sounds like a great class, sounds quite familiar in fact

 

[Hodgie]

That sounds like a great class, sounds quite familiar in fact

Haha, indeed.