A Betrayal of Trust
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I agree with you McLovin about it not being ASIC's fault.
However, can you expand on how getting rid of AFSL's would be a great start toward fixing the problem?
However, can you expand on how getting rid of AFSL's would be a great start toward fixing the problem?
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Because AFSL's come out of cereal boxes but the average punter believes there is some sort of regulation of license holders, or even worse guarantee. From what I've seen financial planners, generally, don't have the requisite skill-set to understand and then recommend complex products.
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I don't believe getting rid of AFSL's would fix the problem. Just because something is not working, does not mean you have to get rid of it. Financial advice in Australia needs to be fixed starting with better regulations. The process has started and will take some time.
I can appreciate why the public has distrust for financial advisers. However, there are some, although not many honest financial advisers, who provide value for money and conflict free advice.
For conflict free advice, your financial adviser should satisfy the following 3 criteria:
1. They don't have ownership links or affiliations with any product manufacturers. (I have read that about 80% of the financial planners in Australia are affiliated with a product manufacturer)
2. They don't receive commissions or incentive payments from investment products. (can be rebated)
3. They don't charge a percentage of your assets. (this is really a commission disguised as a fee)
I can appreciate why the public has distrust for financial advisers. However, there are some, although not many honest financial advisers, who provide value for money and conflict free advice.
For conflict free advice, your financial adviser should satisfy the following 3 criteria:
1. They don't have ownership links or affiliations with any product manufacturers. (I have read that about 80% of the financial planners in Australia are affiliated with a product manufacturer)
2. They don't receive commissions or incentive payments from investment products. (can be rebated)
3. They don't charge a percentage of your assets. (this is really a commission disguised as a fee)
skc
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The bigger problem imho is that financial advisers by and large are regular human beings and are in no posiion to generate excess return. An adviser meeting your criteria will not fleece your money... that's a great start but I can say the samething about my pet cockatiels.
Here's my suggestion. Make every financial adviser make available public their client returns (average return or some other metric)... that will sort out the good and the bad in no time.
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Hi skc
I agree that most financial advisers are unable to recommend investments that can beat the market.
However, when you talk about financial advisers, I feel you may be confused with investment advisers.
To clear up any confusion, allow me to explain what financial planning advice is?
Financial planning advice helps you make the most of what you have while you create a comfortable future for yourself and your family. It's based on your goals and dreams, and includes tax planning, investments and your financial security.
There are many ways financial advisers can add value including saving tax, accessing government benefits, protecting your wealth, assisting with budgeting, managing debts, building wealth through regular saving, providing peace of mind and recommending investments.
A good financial adviser is someone who can add value as detailed above and provide conflict free advice.
I agree that most financial advisers are unable to recommend investments that can beat the market.
However, when you talk about financial advisers, I feel you may be confused with investment advisers.
To clear up any confusion, allow me to explain what financial planning advice is?
Financial planning advice helps you make the most of what you have while you create a comfortable future for yourself and your family. It's based on your goals and dreams, and includes tax planning, investments and your financial security.
There are many ways financial advisers can add value including saving tax, accessing government benefits, protecting your wealth, assisting with budgeting, managing debts, building wealth through regular saving, providing peace of mind and recommending investments.
A good financial adviser is someone who can add value as detailed above and provide conflict free advice.
Trembling Hand
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Thats what the marketing spiel says but thats not what people go to turn up to your office for in the main. They are looking for return on capital. And you offer advice on such matters. Its wholly reasonable that you should publish your returns.
Since any mug can be a financial advisor we the poor punter need some way to discern if you're sitting behind the desk because you cannot make money out of what you are advising yourself or because you do it so well that you actually make a packet out of selling valued (read profitable) advice.
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So, what then is the point of the AFSL. It tells me very little about the competence of the adviser. All I know is he that he can fill out a form and put it in the mail. I'd hazzard most people are completely unaware of what "training" their financial adviser has. I guarantee you, if there were no restrictions on who could provide advice people would be far more careful about who they entrust their life savings to.
The problem with conflict free advice is that it could still be rubbish.
I've found a decent accountant is far more valueable than someone waving glossy brochures in front of you.
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I can appreciate your feeling of how do I know if the financial adviser can recommend investments that can beat the market. My first thought is to ask the financial adviser if he can and if so how?
PS. I am comfortable with providing actual client returns to potential clients, so they can see for themselves.
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That's true and the key is value for money, so ask the financial adviser to demonstrate why you should pay them?
So, what then is the point of the AFSL. It tells me very little about the competence of the adviser. All I know is he that he can fill out a form and put it in the mail. I'd hazzard most people are completely unaware of what "training" their financial adviser has. I guarantee you, if there were no restrictions on who could provide advice people would be far more careful about who they entrust their life savings to.
The problem with conflict free advice is that it could still be rubbish.
I've found a decent accountant is far more valueable than someone waving glossy brochures in front of you.
Valueable - You have just made Roger's brand manager very happy!
On pure number this CAN NOT work, say you charge $100-$150 an hour for financial advice
most people don't need more than 5-10 hour of advice a year for their planning and switch investment or
tax .... so you are making say around $1000-$1500 a year for paid service per client...
to be viable each FA need 100 plus clients that commit to this sort of thing on an annual basis.
the maximum a FA can really have is 180 Clients ...10 hours a year ...1800 is a normal working hour
for a person per year...and that just to pay FA salary, then you got management on top, rent and a whole
lot of other stuff...and most has to opt in for you to get money I say 20-30% probably drop off after a while...
without the fees and other stuffed that eats into people nest eggs where are they getting the money from???
the whole system is broken with so many people dependent on fees..these fees just keep eats away each year
without their knowledge and most people don't know how to opt out or can opt out...
Most people with average brain now wake up to it and hence the explosion in SMSF, they grow at double digit rate for a while now and doesnt look like there is a slow down...from AFR article a day or two ago
"Could you run your own do-it-yourself superannuation fund? Every week 600 to 800 funds are set up by those who believe they can.
These new funds are added to the more than 500,000 self-managed super funds (SMSFs) already established, which among them manage investments worth more than $475 billion."
Most people better off not seeing once because the odds stack up against them regardless of what ever law they put in they will have some hidden fees some where to make it work....
Julia
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All the above is failing to take into account the inherent belief on the part of most average people that Financial Advisers are highly qualified and possessed of special talents and experience that will make money for them.
We have repeatedly discussed the anomaly of many bright, well educated people, successful in their own field, whose eyes just glaze over when it comes to Super or any kind of investment. For some reason they seem to regard such matters as so esoteric as to be beyond the capacity of ordinary people.
So they will pay what are to most of us ridiculous sums for financial advice which often turns out to be less than great. Do they then attribute the loss of profit to the adviser, or rather accept some glib assurance from the adviser that "under present market conditions, it's a good result" or some similar reassurance?
I'm not meaning to be dismissive of the usefulness of a good financial planner for structuring finances, tax minimisation, access to part pensions etc, and do not want to be insulting to those good advisers who genuinely work with their clients' best interests at heart. It's just unfortunate, I guess, that we hear so much of the rogues whose integrity is sadly lacking.
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OK in principle but I think this may simply encourage them to push clients into high risk / high return investments in order to boost the adviser's figures.
Not every client actually wants a high return. Some would be more concerned about return of their money than return on their money and vice versa.
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My advice fees are based on the value I can add to a clients situation and will reflect the complexity of their situation and the time and effort to prepare my advice for them.
My standard ongoing advice service fees range from $660 per year to $3,960 per year.
With my aim to provide ongoing financial planning advice to no more than about 120 clients and as I maintain very low business overheads, to answer your question, it CAN work.
I was looking at a clients Australian share portfolio this week and the total estimated return was 29.4% for the past 11.5 months and 6.0% better than the benchmark All Ordinaries Index. Based on their portfolio that equates to over $20,000 added value.
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Very well said.
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Yes, it is unfortunate.
It is also unfortunate for honest financial advisers, who provide value for money and conflict free advice.
