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The Fierce Girl's Guide to Finance

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royal commission

This is legit the only thing you need to read about the Royal Commission

And it’s not even that long!

I want to say a few things about the shit that went down with the Hayne Royal Commission into banking and financial services. The final report was released on Monday,

I know, it’s the last thing you want to think or read about. But go with me for a quick moment.

But first of all, can we take a moment to appreciate the awesome awkwardness of the photo call.

The fact that Hayne gives zero fucks about hiding his disaste for the whole thing is just glorious.

Ok, now I want to get to the real point. There were 76 recommendations that came out of the final report. I’m not gonna lie, I haven’t read most of them. I usually nerd out on this stuff but it’s been a busy week.

What I have done is read a shitload of commentary on it. And I came here to say this: don’t trust anyone with your money.

I’m not saying bury it in the backyard.

I am saying that a recurring theme was people having no bullshit filter.

The hearings were full of stories of people given poor advice by dodgy bankers and advisers, who didn’t see it for what it was.

Like, people close to retirement were given supersize home loans for risky property purchases. Or parents went guarantor for their kids’ businesses and didn’t realise their own home was on the line. Awful stuff, where people lost their homes, marriages and families.

There will always be fraudsters and dodgy dealers. But much of the poor behaviour recounted in the Commission wasn’t technically illegal. It was just risky business.

People who couldn’t afford to take on risk were told to do so. And because they trusted ‘professionals’, they just went along with it.

So what can you do? Educate yourself.

Take it from Elle, education is the best revenge

Sorry, no silver bullet.

To become a truly fierce girl, you need to take some responsibility for, and interest in, your finances. Read books and blogs. Talk to smart people. Pick up the business section of the paper now and then.

If you’re making a big decision about your money, go in with a serious amount of your own research. Line  up any advice or recommendations against your gut instincts. If it doesn’t sit well with you, think twice about it. And never feel afraid to ask ‘dumb’ or ‘rude’ questions.

The fact is, the Commission didn’t recommend fundamental changes to the sector. And greedy/unethical/incompetent people will continue to litter the finance industry the same way they do every industry. (You probably work with some yourself). As a result, you have to be on your game.

Sounds harsh, but the best defense against getting ripped off is to be a bossy, know-it-all, difficult-question-asking bitch.

Which is great, because that’s totally my style!

 

 

If financial planners are greedy, dishonest or stupid, who should we trust?

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.

Take charge

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.

Should I care about the Banking Royal Commission?

A lot happened last week. Taylor Swift announced her Australian tour dates. Prince Harry announced his engagement to Meghan Markle. And in a spectacular show of being skewered by his own political allies, Prime Minister Turnbull announced the Royal Commission into banks.

If you haven’t been following the business press as closely as me, let’s recap the key points.

  • Banks have done a bunch of dodgy things, from ripping off financial planning customers, to denying life insurance clients their claims. Labor and The Greens have been gunning for a banking Royal Commission for ages.
  • The Government was, for a long time, seen as an ally of the banks. But in a high-drama, high-school-style reversal of friendship, the Libs came up with a new bank tax in this year’s budget. Turnbull, like a mean girl, sensed the direction of the wind, saw that people don’t like banks, and figured he may as well take money off them. All of sudden it was like ‘you can’t hang with us’ and ‘can I have my CDs back’.
  • But the Government wouldn’t go so far as calling a Royal Commission, because a) they had said they wouldn’t and b) they still secretly love banks.
  • That was, until the crazy Nationals got in on the act last week. Like a group of Emo kids and nerds united by their tendency to get teased, the Libs and Nats have an uneasy coalition. And last week some Nationals threatened to call a parliamentary inquiry, which the Greens had already had a crack at. You know that when the Nats and Greens are pushing the same barrow, some weird shit is about to go down.
  • And then, in a crisis response Ferris Bueller would be proud of, the banks sent the PM a letter saying, essentially, ‘Bring it on, bitches’. You see, if the Nats/Greens’ inquiry got up, those parties would control the terms of reference.
  • But if the banks and the Libs called their own Royal Commission, they could set the chess pieces up the way they wanted. Choose the guy running it, decide who it would cover and most importantly, what it would exclude.
  • Like a kid about to have his locker searched for weed, the banks were all like ‘Nothing to see here’, madly hoping they didn’t accidentally leave a baggie of bud at the back of the locker last week.

So, the terms are set and from what one columnist described, it will have all the impact of being slapped with a wet lettuce.  It will also cover more than banks, and sweep in superannuation and insurance. This has the impact of spreading the attention and therefore the depth across more companies. While it’s costing a bomb (like $75m) and will take a year, the word on the street is that’s not actually enough to cover all those sectors. Time will tell.

What does it mean for you?

Probably not a lot. Maybe it will shine a light on the potential conflicts of interest within banks (where they provide financial planning then sell a bunch of their own products, for example).

But we already have a highly regulated bank and financial services sector. What’s harder to control is culture, and that’s what the banks need to work on. When money is involved, and large sums of it, it’s easy for greed to take over in some corners of an organisation.

A good culture calls out bad behaviour and shuts it down. I suspect that hasn’t been happening enough in some parts of some banks. (There are also genuinely good people  in banks, doing great work – let’s not forget that).

Caveat Emptor – the real answer to all of this

That just means ‘buyer beware’ – but it sounds way smarter in Latin right? My take on the whole thing is this: there will always be people trying to take your money. So when it comes to big financial decisions, the key is to keep your dubious face on.

Here’s an example. One of the issues that people want the Commission to cover is how ANZ got mixed up in the collapse of Timbercorp. This was a forestry investment that was tax deductible because it was agriculture or something. Basically, if you invested, you got a bunch of tax breaks. So, people chucked a bunch of money into it, and many lost said money when it all collapsed.

I feel sorry for them, but here’s the thing. The people I heard interviewed had broken the basic rules of investment.

Firstly, does it sound too good to be true? Shitload of tax breaks for planting trees? Sounds legit. Not!

Secondly, are you throwing all your money at it? Or are you building a diversified portfolio of investments so that if one goes sour, you don’t lose it all.

Thirdly, have you protected your downside? This means looking at all the things that could go wrong, what they would cost, and how you would bounce back from the worst outcome. If you haven’t played out this scenario, then you’re not ready to invest.

None of these things are super complex or require a degree in finance. It’s just having a good bullshit detector, not ever trusting anyone too much, and following some basic principles.

If you’re ever thinking about an investment and aren’t sure about your own BS filter, ask someone else – someone you trust, or who’s really cynical. Or both. Like a poorly lined pencil skirt, when you hold something up to the light, you often see its flaws.

So, short answer is this: nobody is going to protect your money as well as you. No royal commissioner, no regulator, not even Ferris Bueller. The only option is for you to take charge, Fierce Girls!

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