Financial Planners should take some blame!

[Dot41]

I just want to say Thank You to everyone that has responded either negative, positive or with compassion. Some of you think I should have known better and hey, I admit to being naive about investing which is why I went to a professional in the first place.
I am looking at my finances and situation now. I don't drive so I have no car to sell and I have cut down on spending. I may look at down sizing my home as I don't need a house this size anymore but it is really really difficult to leave so many wonderful memories behind plus I don't feel alone here.
The managed fund has ceased redemptions so that is not an option either.
Anyway, there are many people out there that are worse off than me. At least I have a house that I can sell whereas others are not in that position. It doesn't cost anything for Phoenix Global to assess my situation and they will tell me straight up if they consider I have a viable claim so fingers crossed.
Again thank you all for your respones. You have made a lonely woman not so lonely. Dot

 

[Bushman]

Some of you think I should have known better and hey, I admit to being naive about investing which is why I went to a professional in the first place.

The managed fund has ceased redemptions so that is not an option either.

It doesn't cost anything for Phoenix Global to assess my situation and they will tell me straight up if they consider I have a viable claim so fingers crossed.

Again thank you all for your respones. You have made a lonely woman not so lonely. Dot

Geez Dot you do sound a lot like a 'younger' person in some of the language you use. But that would be a cynical assumption on my part. Also you do have some financial nous as you are right on to concept of redemptions and what this means to your investment. But just call me a cynical Gen-X'er out of touch with the retirement belt out there.

At least we have had a good discussion about the FP topic and, most importantly, given Phoenix Global a good plug. Coincendentally I just googled their website and they have 'FP legal action' plastered all over it. You might get a few other investors involved.

Good luck 'lonely old lady'.

 

[Dot41]

Geez Dot you do sound a lot like a 'younger' person in some of the language you use. But that would be a cynical assumption on my part. Also you do have some financial nous as you are right on to concept of redemptions and what this means to your investment. But just call me a cynical Gen-X'er out of touch with the retirement belt out there.

At least we have had a good discussion about the FP topic and, most importantly, given Phoenix Global a good plug. Coincendentally I just googled their website and they have 'FP legal action' plastered all over it. You might get a few other investors involved.

Good luck 'lonely old lady'.

Thank you. I will take "sound younger" as a compliment. I am 67, not 90, but I do admit that I don't know what "Gen Xer" means.
I know about "redemptions" as I made enquiries about getting my money back and I was told "the fund has frozen redemptions at this time". I feel I have learnt a lot in the past few months. Huge learning curve. I found out about Phoenix Global from a friend who has also contacted them. This is not a "plug" BUT if they can help me get some kind of positive result I will tell everyone that will listen.

 

[awg]

it is possible to find FP who work for hourly rate or straight percentage of your portfolio.

I interviewed several.

the Hourly rate guy charged $250 per hour (from memory)

I also found one who ran his own independant firm.

he was a Chartered accountant, qualified FP, Broker agent, and traded his own account, Very Impressive.

I almost decided to use him, but went my own way.

My sister did decide to use him, so have been able to follow his progress.

He does not use MINs but straight equities, has made some very good calls, including selling RIO at the very top, but also not so good, including Centro in her portfolio.

He also put her 100% into shares, which i did not agree with ( correctly, as it turns out).

Trouble is, you need to know what questions to ask.

I really interrogated the guy, and even pointed out a couple of things he had got wrong ( to his embarrasment).

he was so impressed he offered to cut his commisision (a lot, I bargained hard) to have me on board.

I went with Esupefund SMSF, as they charge a flat rate of $600 pa ( no connection to the company), but no financial advice.

depends a fair bit on the size of yr account, because then commission vs hourly rate becomes far more relevant

 

[Mofra]

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%!).

If the risk profile was conservative (as you would expect in Dot's situation) the cash portion of the portfolio should be high enough to protect against prolonged periods of bourse wekness. Heck, the standard portfolios in Coin/X Plan could have done a better job.

 

[tommymac]

If the risk profile was conservative (as you would expect in Dot's situation) the cash portion of the portfolio should be high enough to protect against prolonged periods of bourse wekness. Heck, the standard portfolios in Coin/X Plan could have done a better job.

Absolutely correct. It's best practice to keep a couple of years worth of "income payments" in cash for times like these.

If the FP did not do this and relied only on distributions, this would be negligent.

 

[joeyr46]

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

Very few make money buying options either way because of time and when we are most bearish is uaually right near the bottom or when we are bullish is right near the top so we don't buy the correct type of option at the correct time

 

[wayneL]

Very few make money buying options either way because of time and when we are most bearish is uaually right near the bottom or when we are bullish is right near the top so we don't buy the correct type of option at the correct time

You can burn a lot of premium buying put options in a bull market too, reducing returns. Option while removing some risks, introduce others. You can go way out of the money, for minimal cost, but of course then you have to accept more downside risk.

Set an forget is not optimal with options so then you need an options manager to handle the hedgeing... introduced new risks and could result with non correlation with the overall market. Great if they outperform, but disaster for the fund if they underperform.

 

[MR.]

At least we have had a good discussion about the FP topic and, most importantly, given " " a good plug. Coincendentally I just googled their website and they have 'FP legal action' plastered all over it.

Bushman, you're on the money. Beat me to it. There's a moral here....

anyway

# First financial planner I saw convinced me not to buy shares and so I didn't spend a cent.
That was before WayneL's 2000 - 3000 gain. Hmmm. Missed out on some gains there "if I remembered to sell"

# The second adviser tried to push MFS, now we know by that other thread in "general chat" where that ended up. Lucky I didn't buy any.

 

[jeflin]

Whenever you try to pin blame on financial planners, they will just say "Caveat Emptor."

In most situations, people turn to financial planners because they are uneducated about financial affairs or have little time of day to see to the nitty-gritty details of investments, they just want to see some return on their money.

Financial planners make use of this mentality and encourage their clients to leave money making to them, but when things happen, they say "buyers beware."

If the clients have time or are smart enough to understand prospectus and do their own research, they might as well get rid of the financial planners in the first place.

It is a very unfair situation but too bad, the rules of the game has been determined by the rich.

 

[Happy]

Whenever you try to pin blame on financial planners, they will just say "Caveat Emptor."

In most situations, people turn to financial planners because they are uneducated about financial affairs or have little time of day to see to the nitty-gritty details of investments, they just want to see some return on their money.

Financial planners make use of this mentality and encourage their clients to leave money making to them, but when things happen, they say "buyers beware."

Yes this is the best legal con:

Ask expert for advice, yet you take the responsibility

 

[Temjin]

Yes this is the best legal con:

Ask expert for advice, yet you take the responsibility

If that "disclaim" does not exist, then there simply wouldn't be any more financial planners in this country as the chances of being sued for investment losses are guaranteed to be 100%.

This probably goes the same for other similar professions where the outcome of their advices are inherently "unpredictable" or the variability is just too great.

 

[Sir Osisofliver]

I just want to say Thank You to everyone that has responded either negative, positive or with compassion. Some of you think I should have known better and hey, I admit to being naive about investing which is why I went to a professional in the first place.
I am looking at my finances and situation now. I don't drive so I have no car to sell and I have cut down on spending. I may look at down sizing my home as I don't need a house this size anymore but it is really really difficult to leave so many wonderful memories behind plus I don't feel alone here.
The managed fund has ceased redemptions so that is not an option either.
Anyway, there are many people out there that are worse off than me. At least I have a house that I can sell whereas others are not in that position. It doesn't cost anything for Phoenix Global to assess my situation and they will tell me straight up if they consider I have a viable claim so fingers crossed.
Again thank you all for your respones. You have made a lonely woman not so lonely. Dot

Dot,

It's hard to say anything without you sitting across from me at my desk.

1) Have you done a cash flow analysis? When will you have to start borrowing money just to live?
2) You seem to be living in a large house -presumably has extra rooms? Any family members wanna move in and pay rent?
3) You may also want to consider renting out the house and finding a smaller place to rent temporarily. You'll have the difference between your rent and your rental income to live on in the short term without having to sell your principle asset. Be aware however that depending upon where you live there may be a rental crisis in progress and you may have difficulty in finding something significantly cheaper.
4) It's been my experience that the squeaky wheel gets the grease. Start writing letters and e-mails. Make a PAIN of yourself. Drip water onto your hand written letters and say things like "I'm crying as I write this and consider my future". Tug those heartstrings. Begin with the following
a) Your financial planner and his/her company.
b) The company that has locked redemptions.
c) Your local government minister
d) News and Radio stations

When dealing with corporations, take your complaint/concern as high as possible. EG Managing Director or Board. Write a letter a day. Tell you have had to start getting assistance. Tell them you are buying food from communicare. Tell them you've had to give away your cat because you can't afford to feed him anymore.

I'm sure you get the drift.

Sir O

 

[Pat]

I just want to add my .

I work with Financial planners every day, and most of them have abosolutely no idea. Every day I come across situations that seem like jokes or pranks...

All a FP needs is to be PS146 certified. Pretty darn easy to do. No wonder so many have lost so much.

I must say there are some exceptional planners out there, and most of their clients have made very minimal losses if any.

The govt has put alot of crappy legislation into the FP industry like SOA's, yet in the end any fool can become a FP, join a dealer group and rake in 4% initial commission and 6% trail comission on a pension or investment.

My reccomendation is for peeps out there to get there PS146 diploma, and manage your own retirement. Easier than it sounds...

 

[Julia]

Dot,

I
1) Have you done a cash flow analysis? When will you have to start borrowing money just to live?
2) You seem to be living in a large house -presumably has extra rooms? Any family members wanna move in and pay rent?

Again without knowing details of level of need, maybe consider a reverse mortgage?

 

[bootross]

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.

Yep, that's how the system works. And you've provided a good example of how the commission system does not allow for the client's interest to be put ahead of everything else.

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.

Because if you gave someone the following options to pay for their financial advice:

a) A one-off - never - to - be - repeated - upfront fee of $10,000 for preparation of a financial plan, with no other costs ever or commission payable, or
b) allowing the planner to receive an ongoing commission of 0.6% pa of the value of your investment for the life of that investment.

most would choose option b.

The commission system is just like any other product in any other market. If there was no demand for it, it would soon disappear. But whilst people still choose it, it will still be around.

On the other hand, should we require FPs to be financial forecasters?

You can't expect planners to be forecasters, when 95% of the general population can't predict market movements either.

 

[bootross]

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.

Well it sounds like he at least took the time to get to know you, so as far as auditing his actions, it sounds like he's met the 'know your client' rule.

Obviously he was well aware of my financial situation as well as the warning signs in the market.

So by this, do you mean you could tell the market was going to go down, but he didn't? If so, did you contact him about it?

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.

So I interpret this, rightly or wrongly, to mean that you initially decided to purchase the investments he recommended? If so, did he explain how volatile these investments could be?

I relied on my professional adviser but the service he provided was not what he promised.

And I think this is where the main problem lies, the planning industry does not communicate clearly as to the service that will be given and how that service will be delivered. eg. if the planner said "we'll monitor your investments", a reasonable person may take that to mean that their investment balances are being monitored on a regular basis and decisions as to whether to sell out of positions or open new ones will be made regularly. In reality, most planners use a 'set and forget' investment approach under the premise of the 'buy and hold' strategy (which I agree is not infallible). Once a client's funds are invested, a subsequent move to a more defensive approach is not usually done unless the client requests it, or their so-called 'research deparments' recommend it.

 

[TheRage]

I just want to add my .

I work with Financial planners every day, and most of them have abosolutely no idea. Every day I come across situations that seem like jokes or pranks...

You need to refine your network so that you are not dealing with the jokes.... Be pro-active in recommending the good planners. Of course I am assuming that you are an accountant by making this statement.

All a FP needs is to be PS146 certified. Pretty darn easy to do. No wonder so many have lost so much.

While I agree the level of education is ridiculous in our industry to say that the this was the cause of the problem without some reference to the general market is just as ridiculous. However in the case above I agree that the asset allocation could have been wrong for Dot given her age and risk tolerance.

I must say there are some exceptional planners out there, and most of their clients have made very minimal losses if any.

To say that excceptional planners have made no losses is irresponsible as it places an unreasonable expectation on those in the industry. I have many retirees who have had very minimal losses due to the nature of their investments but I also have some young clients who are down 20% but are fully invested in the market. Financial planners can't set stop losses. The neat little SOA trick ensures that we don't. I could just imagine pumping out a 30 page document every second day because a stop loss was hit. It's horses for courses and there would not be one planner in Australia who does not have a least one client with some sort of loss in their portfolio.

The govt has put alot of crappy legislation into the FP industry like SOA's, yet in the end any fool can become a FP, join a dealer group and rake in 4% initial commission and 6% trail comission on a pension or investment.

This does not sound right. Intial commission of 4% I have seen but never a trail of 6% unless it was on some sort of Mezannine Property Investment. Most fund Managers cap trail to less than 1%. Adviser service fee though can be added in but again this is usually capped at 2%. However I could be ignorant because most of my fees are fee for service.

My reccomendation is for peeps out there to get there PS146 diploma, and manage your own retirement. Easier than it sounds...

You contradict yourself with this comment. If the foolsih planner salesman with this qualification cannot manage your money what makes you think that by getting this qualification you will be any better. The only difference is that you have your own interests at heart. To be honest PS 146 is not enough to be a good planner. I have a bachelor degree and post grad qualifications but probably learn more from the passion that I have for anything investment than from qualifications. The Financial Planning Association are addressing the educational issues and to be a CFP you now need some sort of degree. Into the future I would suggest the requirements will eventually match other professional industry's such as accounting. This will only happen when the grandfatheing of Insurance salesman is complete and they are in retirement which maybe happening faster than anyone thinks. The current market would be hurting commission driven businesses quite bad.