Investors have a lot to worry about right now.
Perhaps some of these questions have crossed your mind…
Are you fretting about where you can find a reliable income stream? Does the stock market have any growth left in it? Is a GFC-style crash just around the corner? Is the government scheming to take your super? And are the federal government and RBA capable of reviving the economy?
These are all valid concerns.
There’s an even larger threat that could be right before your eyes. A menace that could wipe out your financial security, your retirement, and your plans for the future.
Here’s the story.
In 2007, Robyn and Merv Blanch invested $260,000 following advice from their Commonwealth Financial advisor. Just two years later in 2009, their funds had plummeted to just $92,000.
The bank blamed the losses on the GFC. Yet, even if the financial crisis were to blame, the losses were unnecessarily high. A competent advisor would not have left a client’s funds sitting in shrinking investments.
But the GFC wasn’t to blame at all. A rogue financial planner preyed upon Robyn and Merv. The advice they received was deceitful as well as bad.
Their financial planner ignored their instructions outlined in their ‘Statement of Advice’ (SOA). An SOA details on what basis advice will be given and considers a client’s individual circumstances and needs. The advisor placed them into high risk investments that were utterly inappropriate for their circumstances.
After the couple lost more than $160,000, the CBA offered compensation of less than $7,000. The bank sent them their SOA — they had altered it from the original, adding several pages and new tables.
The bank dragged out the case and the worn-down Blanchs eventually settled for $95,000 in compensation.
Merv and Robyn had been clients of Commonwealth Financial Planner Don Nguyen. The bank previously suspended Nguyen for illegal, deceptive practices. Yet the bank reinstated and even promoted Nguyen. This move illustrates the bank’s desire for profit regardless of all else.
You could put this story down to simply having bad luck — getting a bad egg. Don’t think it can’t happen to you. It’s far from uncommon. But it’s not just a handful of people falling prey to a few rogue planners.
The issues are so common that last month a senate inquiry explored the rampant deception plaguing Australia’s financial planning industry. In the Commonwealth Bank’s wealth management division alone, up to 400,000 clients received dodgy advice at the hands of their financial planners.
Paperwork was being illegally altered and crooked planners shunted clients into expensive, complex and high-risk financial products. These clients were forced to pay excessive trailing commissions and fees, and coaxed into forking out for exorbitant hidden charges.
Many lost hundreds of thousands of dollars…Some, their entire life savings.
Your financial planner is possibly the
biggest risk facing your finances
biggest risk facing your finances
It’s not just the rogue planner that you need to worry about. There’s an ingrained and systemic culture of ripping off clients in these institutions.
Take the example of Noel Stevens. At the urging of a Commonwealth planning advisor, Noel switched his life insurance from Westpac to Commonwealth Bank. He subsequently became sick and the CBA refused to pay up.
In court, the judge ordered the bank to pay out the policy, describing the bank’s conduct as ‘negligent’ and saying that it had undertaken ‘misleading and deceptive conduct’. The last years of Noel’s life were consumed with fighting the bank.
Noel’s lawyer commented on the case saying that, ‘This wasn’t a case where we can say that the financial planner acted in a rogue fashion. This was almost a systemic type approach to it.’
No matter what they state, an advisor is looking out for their own interests first. And there’s good chance that’s at your expense.
While I prefer to take care of my own investments, I have had my own questionable experience with a financial planner.
Many years ago, I was made redundant from a company that was shutting down operations. As a way to help us move on, my former employer offered to pay for a handful of services. One of those was a consultation with a financial planner. It was free, so I figured why not?
So I trekked into the Docklands — a desolate place ten years ago — to meet with the straight out of high school financial planner assigned to me.
I argued that no, I was not interested in handing over my redundancy cheque for him to invest — he didn’t exactly give off an air of competence. And anyway, I would need it to feed and house myself while looking for work.
I then turned down life insurance and some other products, which I can’t now recall.
Well then, ‘How about income insurance?’ he asked next.
‘Income insurance! I just told you I was made redundant! I don’t have an income to insure…’
With that, I left. It’s still a sore point — not to mention an afternoon I’ll never get back. But it was an eye opening introduction to the world of financial planners.
The entire industry conspires against us. It’s not just a handful of rogue planners and their schemes that you need to worry about. Even the ‘legitimate’ ones push products we don’t need and place our money into investments that will benefit their own interests.
That being the case, you might be unsure how to protect yourself. I’ll be back tomorrow with some tips — how to identify the red flags and take back control of your finances.
For Markets and Money, Australia