Financial Planners should take some blame!

[Dot41]

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.

 

[Sean K]

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

 

[clayton4115]

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.

 

[Mofra]

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.

 

[Sean K]

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.

 

[sinner]

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.

 

[awg]

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)

 

[skyQuake]

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.

 

[Dot41]

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.

 

[It's Snake Pliskin]

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.

 

[awg]

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!!

 

[Dot41]

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

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.

 

[Dot41]

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!!

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.

 

[Glen48]

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.

 

[mattlaw]

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.

 

[sam76]

caveat emptor

 

[awg]

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

 

[Temjin]

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".

 

[Sir Osisofliver]

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

 

[cutz]

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.