Financial Planners should take some blame!

[MRC & Co]

I am astounded at the number of people that have had their world turned upside down by so called professionals.

And isn't that the worst part.

These guys are percieved professionals.

I have mates who are financial planners for reputable banks, and they wouldn't know a trade/investment if it came up and said hi!

Sorry to hear dot. I also know many people who have lost a fortune, crying and ask me where to invest their hard earned dollars. Man Financial in my honest opinion, these HUGE hedge funds also have the best risk strategies in place and can make money no matter what environment. I think through CBA they also have a capital guarantee (which is as good as any IMO). Most of my money is in cash or with them.

 

[BradK]

For anyone else reading this and getting into the market now: A tip

Ask your financial planner about capital protection - buying a put option to protect the value of your investment.

Ask.

Brad

 

[skyQuake]

For anyone else reading this and getting into the market now: A tip

Ask your financial planner about capital protection - buying a put option to protect the value of your investment.

Ask.

Brad

Wouldn't put call parity mean its cheaper (from brokerage) to just buy a call?

 

[mazzatelli1000]

Wouldn't put call parity mean its cheaper (from brokerage) to just buy a call?

Depending on the length of the term of the call this will introduce other Greeks than delta, which for folks seeking professional advice from planners, would not know the implications and how to manage it.

 

[peter2]

How is an inexperienced person going to know about hedging or options? Be realistic.

The FP should have ascertained the maximum drawdown that the client could tolerate and used a stop loss exit (or implement a fully hedged strategy). I realise that most FP's don't know what a stop loss is.

It staggers me that they want to be classified (and paid) as financial mgt. professionals.

 

[awg]

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.



Sir O

And isn't that the worst part.


Well actually the worst part is that the FP ( and their employer) still get the FULL COMMISSION if you are in cash products!!!

typically 1% on average.

So like now, or even worse soon, many getting 4% return minus 1% commission..for admin only..take that!

Sir Oss loathing of MINs, pales into insignificance compared to how i felt about that.

Most pensioners have WRAP style products.

In fact that was one of the first signs that things were going bad that i noticed in my portfolio.

The High Yield Cash funds suffered a Capital loss!!

When i investigated the reason for this, it was sub-prime.

I sold them

my FP did not tell me jacksh!t about it, it was all of my own bat.

I could bore u to tears about the 30+ times I sold down, each time with FP disapproval.

I finally cashed the remainder BEFORE all redemptions were frozen, mainly for that reason...so if I was posting on ASF that redemptions would soon be frozen, you would think that FPs would have good idea that it may happen?

Can anyone say FUNDAMENTAL CONFLICT OF INTEREST

 

[MichaelD]

Dot,

My 2 cents;

1. Assume ANYONE and EVERYONE in the financial planning industry you have ever had contact with (including anyone promising a rescue package) is lying, dishonest, incompetent or a combination of all of the above. NOBODY, repeat NOBODY in the industry is working for you - they are all working to enrich themselves.

2. You must AVOID emotional responses at all costs and you need to educate yourself about financial matters and the options available to you at this time. It stinks that you have to do this at this time of your life, but unless you want to get even further into a hole, you're going to have to do it for yourself.

 

[wayneL]

Dot this is such a schmozzle. My own mother is 79 and has the same sort of risk profile. Luckily she has a grizzly bear for a son that has her in 100% cash at the moment... but that is not without some stern talk about the real situation in the world as she has been approached by the bank's FP several times.

Earlier this year I was approached to join an FP firm so had occasion to do some research on the industry; frankly, I was stunned, appalled, horrified.

The problem is in how FPs are remunerated. i.e. commission. 99% make a living by upfront and trailing commissions from the various 'mutual funds' and suchlike. Therefore, if I was a financial planner, the advice I gave to my mum wouldn't have earned me a cent.

This is problematic for all the reasons the above posters have outlined. essentially, they are commissioned salesmen.

That said, there are some very good planners, but they charge fee for service. The problem is that most people are not prepared to pay FPs in this manner and for some reason I cannot fathom, they prefer the commission system.

On the other hand, should we require FPs to be financial forecasters? What if in 2005 your FP said the world is going to implode and to stay in cash while you watch the index run up 2000-3000 points? You would only be happy with him now that the the world has gone to hell, three years later.

It's an easy gig in a bull market, but very tough in this sort of market. The big question is: Did he match your risk profile with the investments? If not, you might have him by the short and curlies.

 

[Julia]

Dot, I can imagine how upset you must be feeling. I doubt that it's much comfort to appreciate that you're in the same situation as hundreds of thousands of others who have similarly trusted the smooth talking FP's.

Over the last year, I've read and listened to, with amazement, the multiple so called professionals who've reassuringly said: "just take the long term view, eventually there will be a recovery. We've had recessions before and the market has always gone on to make new highs". This has been trotted out as a blanket piece of advice to all investors regardless of age and circumstance.

I have seen only two pundits suggest getting out as the market began to show consistent decline, thus protecting capital.

To be fair to them (and I find that difficult) I'd say most of these advisers are as stunned by the degree of the losses as their trusting clients.

I don't think it's fair to say to a widow whose husband has always handled the investments that you should have taken responsibility for understanding whether or not the funds were invested wisely. If you knew enough to do that then you wouldn't have needed to seek the advice of a presumed professional.

What others have said about having completed a Risk Profile is correct.
But what I've seen of these documents has just indicated that you would best be invested in a "Conservative", "Balanced", or "Growth" style investment, but any details of exactly what these constitute are pretty unlikely to have been specified. Even if such details had been stated, I expect you'd have agreed with whatever was suggested anyway. That, after all, is what you were paying for - professional advice.

Have you discussed your disappointment with the FP, i.e. said to him just what you have said to us?

Did you, perhaps, in the initial discussions suggest that you wanted an income you could rely on? If so, perhaps he placed your funds into high yield companies, i.e. those paying good dividends. So perhaps he has taken the view that as long as your cash flow (income) continued smoothly you would find the drop in the capital value acceptable, in the supposed belief that this would eventually recover?

I don't know if you have had full and candid discussions with your adviser before getting involved with what sounds like some litigation.

If it were me, I'd be making sure I clearly expressed my concerns to the FP, listening to his explanations of his strategy (if he had one) before allowing your very understandable emotional reaction to take over in the form of some sort of legal accusations which could possibly become very messy and protracted.

But, maybe on this, if you do decide to go down that road, might be good to make sure you are more clear on the details and the possible future implications and/or costs than possibly you have been with the financial planning. i.e. I wouldn't be too trusting about what anyone says they can do for you at this stage.

 

[BradK]

How is an inexperienced person going to know about hedging or options? Be realistic.

I would have thought that a simple put option was straight forward. Nothing too complicated. Call it insurance - just ask was all I said. A financial planner should know about a put option - they do capital protection all the time.

Brad

 

[BradK]

But, maybe on this, if you do decide to go down that road, might be good to make sure you are more clear on the details and the possible future implications and/or costs than possibly you have been with the financial planning. i.e. I wouldn't be too trusting about what anyone says they can do for you at this stage.

Good point. From a financial planner to a lawyer is swimming with sharks. Watch the costs, Dot.

 

[sails]

I would have thought that a simple put option was straight forward. Nothing too complicated. Call it insurance - just ask was all I said. A financial planner should know about a put option - they do capital protection all the time.

Brad

"Simple" put options still have all the greeks factored into their pricing - can be a trap for newbies to options.

They are the most heavily inflated with IV on market lows - the place where the most fear hits and newbies will buy puts... The best place to buy puts are usually on market highs when IV is much lower - but that's when the newbie thinks uptrends last forever...

Dividends are factored into puts - something else newbies to options can get caught on.

Special dividends and the like usually result in option strikes being adjusted.

Not quite as "simple" as it appears on the surface...

 

[Temjin]

How is an inexperienced person going to know about hedging or options? Be realistic.

The FP should have ascertained the maximum drawdown that the client could tolerate and used a stop loss exit (or implement a fully hedged strategy). I realise that most FP's don't know what a stop loss is.

It staggers me that they want to be classified (and paid) as financial mgt. professionals.

"Most". You will be surprised some FPs actually know more about trading and the concept of system development and position sizing than some of you here. And WOULD want to recommend people to trade with a small amount, at least in an informal way because it is against the "regulations" to do it through paid advises.

Dot,

My 2 cents;

1. Assume ANYONE and EVERYONE in the financial planning industry you have ever had contact with (including anyone promising a rescue package) is lying, dishonest, incompetent or a combination of all of the above. NOBODY, repeat NOBODY in the industry is working for you - they are all working to enrich themselves.

That's a bit harsh there MichaelD.

It's true that ANYONE in ANY industry is working for themselves. However, there are certainly ALOT of FPs out there who are geninuely wanting to help their clients but fail to do so because they did not have the right knowledge/experience or simply put too much faith in their own education or the financial system. Incompetent they may be, but it's not like every FPs are naturally dishonest evil people who are extremely greedy and looking to scam every single clients they could get hold of.

I would place the blame on the whole system itself and how FPs are traditionally trained to advise fundamentally flawed stuff. (Efficient Market Theory as one example, buy and hold as another) Some would surely love to get away from these limitiations placed upon by the businesses they work in, but there are just simply too much regulations around to "protect" the consumers. Very few have true freedom in the advises they can give for fear they would be sued if their advices were "inappropriate".

 

[MichaelD]

However, there are certainly ALOT of FPs out there who are geninuely wanting to help their clients but fail to do so because they did not have the right knowledge/experience or simply put too much faith in their own education or the financial system.

So, erm, exactly how are you disagreeing with me? Incompetent advice is no better than dishonest advice in terms of nett result to the naive client. In fact, it's probably worse because the FP believes they are "helping" rather than knowing they are not.

"What's the difference between a used car salesman and a financial planner?"
"At least the used car salesman knows when he is lying to you."

 

[Temjin]

So, erm, exactly how are you disagreeing with me? Incompetent advice is no better than dishonest advice in terms of nett result to the naive client. In fact, it's probably worse because the FP believes they are "helping" rather than knowing they are not.

"What's the difference between a used car salesman and a financial planner?"
"At least the used car salesman knows when he is lying to you."

Only on the part where you think every single FPs out there are dishonest.

I would say dishonest advice is worse than incompetent advice. Try comparing to a nutrientist who advised you to go on a full low cab diet because he believed all the hype about it but ignore the potential health risk associated with it. He genuinely believed the diet plan would help you.

But how do one determine if an advice is "competent" or not? Train every single FPs out there to time the market and advises their clients to sell all their shares and properties before the great deleveraging crisis begins? Even the legendary investors aren't that perfect at market timing. Losses cannot be prevented in times like this.

Dot's case is an exception here because it clearly shows her FP is ignoring her personal risk profile and risk management by fully invested into shares. Most honest and unbiased FPs would have done a different eway. If I were one and I had the ability to provide recommendations to anything out there, it would have been a whole different mixture of selected equities through ETFs, commodities through ETCs, alternative investments such as fund of hedge funds, cash and probably a small amount in physical precious metals. And of course, periodically change it dependant on how the whole global crisis work out without PROMISING anything.

At the end of the day, most people would have been worse off if they don't see a financial planner to assist with their household budget and debt management. Investment advise is only a small part of it.

But I guess everyone have a different expectation on what a mainstream financial planner should do. And the expectations here are certainly more demanding the average person because of level of sophistication in investment knowledge most have here. It's a totally different world here.

 

[Bushman]

But I guess everyone have a different expectation on what a mainstream financial planner should do. And the expectations here are certainly more demanding the average person because of level of sophistication in investment knowledge most have here. It's a totally different world here.

Exactly - it is the 'expectation gap' that all professionals have to deal with. FP, auditors, doctors, valuers etc. Never lawyers though - what is with that?

I agree with the risk profile comments -even had Dot said 'balanced/growth' instead of 'conservative', a good FP should have guided her in the right direction.

In terms of was a 50% ASX-200 retrace forseeable by your 'average' FP? Well they should have spotted the US real-estate bubble but who could have forseen Lehman Bros and AIG collapsing? That caused the 'perfect' liquidity storm and the spectacular capitulation selling in September and October.

The severity of this crunch has left us all on the back foot.

However, that being said, if Dot had been in a conservative portfolio (say 70% cash/treasuries, 15% global industrial equities, 15% 'A-grade' direct commercial property/brownfield infrastructure, she would be breaking even in nominal terms now. There is, off course, no save havens especially in the stagflation environment we are operating in but still - 50% down when you are retired is a poor, poor result. My 2c only.

 

[Surly]

I think it would take me a couple of weeks to become an FP with my insurance background...and a lot of the FP I have met display about that level of competence.

They should be called exactly what they are, Managed Funds Sales People.

cheers
Surly

 

[numbercruncher]

Hi Dot.

I hope Phoenix Global can find grounds to launch legal action and you recoup your money.

I also hope the greedy little parasite who exceeded you risk profile loses his Mcmansion , Beema , life savings, and shirt off his back. There is far to many predatory parasites in the finance industry.

 

[arco]

.

There must be some good FPs out there, but I personally know 5 and I would not trust them with my money. They don't seem to have much of a clue and I don't think they use stop losses - they talk more about dollar cost averaging. Perhaps TA is just mumbo jumbo to them.

If they ever studied charts the breakdown has been clear for some time. I personally sold my last share over a year ago.

Simple trend lines

At 1 they should start to sit up and take notice, at 2 they really need to watch more closely, and at 3 if they have anything left they definitely should be starting to close remaining positions. Last chance at 4

 

[prawn_86]

I think a lot of FPs problems is the fact that their hands are tied. There is so much compliance that they have to go through they can only ever really offer 'standardised' advice. All the big firms have products matching risk profiles etc, so the indiviual planner just has to do the risk profile and then give the client what product they are told by the company.

The only way they would be able to offer advice based on things like TA etc is if they were a small boutique firm charging by the hour rather than commissions.