That’s a big call, I know. But it’s what the Royal Commission (RC) into financial services seems to be suggesting.
Not all financial planners, just the ones who’ve been blowtorched by bad-arse special counsel Rowena Orr, affectionately nicknamed ‘Shock-and-Orr’ by the media. (Pictured above, showing strong side-eye game).
I’ve been following the RC closely this week. Partly for professional interest and partly because it’s car-crash viewing – i.e. hard to look away from the wreckage.
So far we’ve heard about greed and dishonesty at the top. AMP management all but confessed to charging fees for no service, then lying to the regulator about it. So far, the CEO and head lawyer have taken the fall, but there will be more, I suspect.
We’ve also heard about incompetence and greed at the frontlines.
An adviser who told a couple they could buy a property within their self-managed super fund, to live in. Anyone with even the slightest knowledge of SMSFs knows you can’t do this: only investment properties can be placed into super. That couple ended up with no home of their own to live in.
There was another adviser who suggested his clients change super funds, even though they’d be slugged with a $16,000 exit fee – or a quarter of their (fairly meagre) savings. Because it would make him money.
Then there was a high-profile, TV-star adviser, who told a client to leave her super fund and join his firm’s. Even though it would cost her $500,000 to do so.
This was after his staff had impersonated the client to contact her super fund (which is absolutely not required, because you can easily give an adviser authority to call on your behalf).
Turns out he was confused about whether his client was in a ‘deferred benefit’ fund or a ‘defined benefit’ fund. Those two things are in no way similar; it’s like saying you’d like a pinot noir and being serve a pinot gris. When a girl wants red wine, she does not like getting white.
Luckily, this client is a smart and savvy lawyer, so she picked up the error, rejected the advice and complained to his professional body. In the planner’s response, he called her ‘nitpicky’ and ‘aggressive’.
I don’t know about you, but if I’d picked up a $500K error in advice I’d just been charged several thousand dollars for, I’d feel a little aggressive.
And if knowing the difference between ‘defined’ and ‘deferred’ is nitpicky, then sure, sign me up for pedant of the year.
These are just some examples of the train-wreck that is the Royal Commission. And while there is some schadenfreude in watching it, mostly, it just hurts my heart.
It hurts because these are everyday people who have done the right thing and sought professional advice about something important. Then been totally screwed over for it.
It hurts because, for every dodgy and stupid and incompetent planner, there are many more who care deeply about their clients and give solid advice that’s in their client’s best interests.
But sadly, it’s hard to sort the good from the bad.
When you get a bad hairdresser, you know straight away. Your partner will no doubt declare the shitness of your new ‘do as soon as you walk in the door. Ah well, six weeks and you can move on.
But bad financial advice can take a long time to emerge and even longer to fix. In fact, many of the people affected by bad advice don’t even know it yet. Seriously, AMP admitted that they haven’t quite got around to telling a bunch of clients that their adviser is a chump who’s cost them money.
I’m at a loss to know what to make of it all. How can I sit here and tell all my Fierce Girls to get professional advice? What if you end up with one of the spivs who send you off in the wrong direction?
What if you get sold crap products and solutions just because it puts money in the pocket of the adviser and their company?
You can look for recommendations from family and friends, but what if they have also been given bad advice and just don’t know yet?
I honestly don’t know the answers to these questions. It’s mindblowing to me just how devastating the RC’s findings have been. From the Prime Minister through to the average woman on the street, we are all left shaking our heads at the breathtaking combination of greed and stupidity that appears to infect the financial planning industry – or perhaps the finance sector more broadly.
Take charge of your own money
The only advice I can offer in light of these revelations is this: you can make plenty of good decisions about your money without financial advice.
The first thing to do is get a handle on your spending. Good money management is the biggest challenge for most people; working out how to invest comes later on.
So before you do anything, check out my take on Guilt-free spending and how to wrangle your bank accounts into order.
Beyond that, financial advisers mostly help you in three areas: personal insurance, investments and superannuation. Here are some DIY ways to improve them.
Insurance – You normally get insurance through your super fund without even asking – mostly it’s just death cover and TPD (read this post for more detail). Call them up, check how much you’re covered for, talk to them about whether it’s too much or not enough. Most funds are allowed to provide this ‘limited advice’ as part of your membership. And you should definitely look at adding income protection if you don’t have it already.
Investments – Knowing where to invest your surplus savings is a good problem to have. However, many of us could do great things just by paying extra off our mortgage (and therefore saving thousands in interest over the life of the loan).
We could easily start small with an exchange-traded fund (read more here) or a micro-investing app (like Acorns, which this week rebranded itself to Raiz). Investing doesn’t have to be scary and complicated – and a bit of self-education goes a long way.
Super – With the RC findings ringing in our ears, I’m gonna make a call: a big-bank super fund may not be the best option. I’ve worked with lots of super funds over the years (as clients) and have found that industry funds and values-driven funds (like Australian Ethical) really do approach things with one purpose in mind: their members.
If you’re already in a bank fund, I’m not saying you need to bail out of it. But if you want to roll all your super into one fund (which you totally should, to cut out duplicate fees and insurance premiums), pick one that aligns with your values.
And consider putting a bit extra into super, as it’s a good way to cut your tax bill and keep money aside for the future.
Another thing you can do is speak to your fund about which investment option is best for you. Again, this advice is often part of your membership, so it’s worth seeing if your risk profile is right for your age and situation.
In some cases, the ‘default’ option they put you into is one-size-fits-all. And as anyone who has been entangled in a cheap, Chinese-made ‘one-size’ top in a change room can attest, one-size does not actually fit all.
To sum up, I would reiterate what I say on here all the time: you are responsible for your money. Educate yourself. Pick up the Barefoot Investor. Read http://www.financy.com.au or the Money section of the newspaper. Get engaged and involved. The more you know, the more control you have.