The Royal Commission exposed corrupt profiteering as standard practice in large financial organisations, weakly enforced by ASIC, a toothless tiger.
The commission cost $75 million of tax payers money, did not have the power to order compensation of victims and did not advise criminal proceedings against anyone.
Many recommendations have been made, which have visibly translated into excessive caution in lending in reasonable circumstances.
The Royal Commission will lead to more paperwork, more arse-covering, but it is still to be seen whether it will result in genuine protection for consumers.
It’s enough to put anyone of getting financial advise, but some will still need help structuring and instituting a financial plan.
So how on Earth do you find a financial advisor you can trust?
Most are confident we would never be foolish enough to be ripped off. Until it happens, when most keep very quiet. It happens. A lot.
Scamwatch.com.au reported that losses to scams in 2019 was in excess of $532 million! There are lots of tips online about outsmarting scammers in general.
Trying to avoid being scammed largely means avoiding the most likely offenders, and having a BS filter in your dealings with financial advisors.
How to Find a Financial Advisor You Can Trust: Create A Short List
Ask family, friends and older colleagues for recommendations. Ask how long they have been working with their advisor.
If they have been clients for more than 10 years and the advisor hasn’t run off with their money and the client is still satisfied, that’s a good sign.
Beware those spewing positive reviews for companies they have only recently come to contact with. We all like to believe we got lucky and have found the perfect advisor or investment. Only time will tell if it was a wise decision.
It is very convenient to be approaching through cold calling or at a medical event, but these companies are clearly looking for business. Like selecting a restaurant during your holiday, it often pays to follow the crowd – that restaurant is probably empty for a reason.
Both are organizations that offer voluntary membership to advisors, enforce professional standards and will also allow you to search for an advisor member in your area.
Check the financial advisers register to ensure they are legally qualified to give the advise you are looking for.
Check the enforceable undertakings register for disciplinary action against the adviser not resulting in disqualification and past bans (ASIC often bans for 3-5 years only!)
How to Find a Financial Advisor You Can Trust: Do They Have a Criminal Record?
I almost choked on my coffee when I stumbled across an article outlining the criminal convictions of a well known property advisor who’s podcast I was subscribed.
Foolish youthful mistakes (as his statement seems to imply) should usually be forgiven and forgotten. But this wasn’t a stolen car, or boozy bad behaviour.
This respected property advisor was a qualified doctor, who allegedly sexually assaulted 60 patients. He was suspended by the medical board and sentenced to 9 months suspended sentence, then sentenced to 3 months jail in 1999 and deregistered by the medical board.
Multiple articles outline the shocking abuse of trust in the Australian and the Age (available from the National Library of Australia with a free library card, articles copyrighted so I cannot link).
This crime, not performed within the financial services industry, is not considered by the ASIC to be relevant to his position of trust and power over many families retirement savings. I disagree.
This court case was in 1999! AHPRA records are not searchable by the public before 2010, Criminal Records Online display records from 2012 only, and the NT article first listed was the only one I could immediately access. I wonder if his clients have any idea about this history.
Financial advisors can have all sorts of history that you would never dream of, but certainly can affect your trust.
How to Find a Financial Advisor You Can Trust: How is the Advisor Paid?
Without a polygraph, it’s hard to judge whether your advisor’s primary goal is in your best interest. The easiest way to minimize conflicts of interest is to pay for advise independently.
I’ve been fooled by this, not wanting to pay $2000-$3000 for financial advise, I went with a commission based advisor in 2014. In retrospect, he was a well meaning salesman, not an advisor.
Financial professionals, like everyone else, need to earn an income. It can come from clients or through commissions. Whoever is paying is where their allegiance lies. If you want them working in your interest you have to pay.
This really isn’t worthwhile, in my opinion, until you have worked out your financial goals and have some surplus income you’re ready to invest.
Before this, if your needs are pretty simple (e.g. just getting started with portfolio allocation), educate yourself by subscribing to blogs or podcasts on financial literacy and try a robo-advisor.
Insurance is probably the exception – if you have dependents or are planning a family, you will likely need to review your insurance needs.
Insurance is based on commissions. Keep this in mind and probably see 2 or 3 insurance brokers to be far better informed.
I sent an email to my consultant colleagues asking for their experiences with financial advisors. Many had made similar mistakes to me, and all that responded had regretted a decision made as a result from advise from a financial advisor
Check Your Not Getting Ripped Off on Fees
What are the advisors fees? The advisor I mentioned above convinced me to move superannuation a few years ago. The fees were MUCH high – I’m embarrassed to admit 4%! He convinced me that the fees would be made up by better performance.
In 2017 Warren Buffet won his $1 million bet that an index fund would outperform a collection of hedge funds over the course of 10 years. Since then there has been a lot of talk about the importance of a small difference in fees.
I only stuck with the new superannuation fund for 3 years, it under-performed my previous industry super net of fees, and was a lot more hassle, with the advisor regularly wanting me to complete more paperwork.
Avoid percentage based fees whenever you can – A one off fee will be far better value over the long-term. Where you have to pay a percentage of your assets, fees over 1% are widely accepted as a rip off.
Financial Advice for Doctors
There are several companies set up as specialist advisory firms for doctors – accounting, asset protection, financial and property advise all under one roof.
Seems like a great idea – specialists who only work with doctors would know your claim entitlements inside out and it all sounds very convenient.
But think about it a little harder. Why do you think these companies have set up specifically for doctors?
The same reason any other companies are interested in advertising to doctors – the profession is known to be well paid, and they are hoping to increase their profit margins,
Not necessarily a terrible thing -that is what all companies are here for. But there are conflicts of interest with several professionals referring to one another
Don’t just blindly sign up for one of these companies. Check them out thoroughly as described for any advisor and make your mind up carefully
Meeting Your Advisor
At some point, if you have decided you need professional advise, you are going to have to take the plunge and meet with them.
Consider meeting with more than one, to choose the one you feel more comfortable with.
Gather all your information before the day. Ask the hard questions to yourself – what are your goals, time frame, how much cash flow are you willing to put aside?
Commit to nothing on the day. No-one should be pressuring you in to anything. If anyone offers you a one day only offer – consider this a massive red flag!
No reasonable investment is going to disappear in a day, but Fear Of Missing Out (FOMO) is a common tactic scammers use to create urgency and get clients signed up without time to cool off.
Ask questions, including checking there is definitely no hidden commission incentive (some advisors charge a fee to the client and receive commission). If you don’t understand ask again and again. If you still don’t understand, don’t do it. Investing should not be that complex!
Read about what you have been advised, talk to your family. Take your time.
Once you’ve made your decision, keep an eye on your investments. Check in regularly to monitor performance and reconsider if your goals have changed
Finally check out the Money Smart website, a great resource for commonsense advise and explanation of investment class pros and cons.
If you haven’t already, subscribe to Aussie Doc to get reminders on how to avoid making huge money mistakes and avoid missing out future posts on money hacks especially for Aussie Docs.
Keen to Make the Same Mistakes as Many Before You? How to Get Scammed…
If you’re absolutely determined to get ripped off:
- Find your financial planner at a medical school fair and sign up in exchange for free pizza
- Make sure the advice is “Free”
- Don’t ask silly or difficult questions of your adviser – you don’t want to sound stupid!
- Don’t bother educating yourself or checking your advise – these are your trusted professionals, right?
- Put all your money in one go (or even borrow – go big or go home!)
- Look for the best possible return (15%? Sign me up!) as quickly as possible
- Look for a one-stop shop advertising services for doctors
- Don’t talk to your family and friends about your plans (especially if they have concerns)
- Don’t check in your investments – you have the experts handling your money now. Time to relax!