Ask potential financial advisers right questions and save money
Obviously, choice of a financial adviser can be important to a business’s and/or individual’s future. Yet Macks Advisory is astonished at the cavalier approach so many people adopt in choosing one from among Australia’s more than 15,000 financial advisers – even following extensive media reports of Macquarie Bank’s on-going efforts to return hundreds of millions of dollars lost to thousands of the Bank’s clients because of bad financial advice.
The Bank has agreed to repay to 3,000 investors $321m of superannuation savings tipped into the collapsed Shield Master Fund, but we understand another 9,000 investors are still uncertain of their fate after collectively losing $700m of their savings that finished up in not only the Shield Master Fund but also First Guardian Master Fund.
All 140 advisers who triggered these losses, together with firms that authorised them, marketing lead generators, auditors and superannuation trustees that approved First Guardian and Shield on their super platforms, are under investigation by the Australian Securities and Investments Commission (ACCC).
But we have no idea how many other financial advisers in how many other activities are currently failing to meet their legal obligations under the Corporations Act, to act in the best interests of their clients.
Which is why we suggest you should be prepared to ask some hard questions before selecting a financial adviser.
Here are suggested questions
Who better to suggest the hard questions prospective clients should be prepared to ask financial advisers, than a respected financial adviser? What follows, therefore, is a set of questions one of them suggests you should put to people from whom you seek financial advice.
As you’ll see, some are very direct questions, and we can’t guarantee you’ll get respectful or helpful answers to all of them. But at least we can guarantee they’re questions devised by an expert.
- Do you invest in any of the products or strategies you recommend to clients?
- What makes you different from any other financial adviser? Why especially do you think I should choose you?
- How many clients have left you over the past five years, and why?
- What has been the worst investment you’ve recommended to a client?
- How many clients have complained directly to you or lodged complaints via ASIC, AFCA, or the FAAA, and are you willing to let me view your complaints register?
- Can you provide advice on investments I might be interest in, for example a private business transaction, stocks, and direct property investment?
- Can you provide me with a copy or your approved product list (investments and platforms) so I can assess likely limitations of your advice to me?
- Can you articulate for me your core values as a financial adviser?
- Give me an example of a situation where you believe you’ve put a client’s interests ahead of your own, and it’s been to your detriment?
- Do you charge an hourly, flat-dollar retainer, or on an asset-based fee and why have you rejected another means of charging to adopt the one you use?
- Do you or anyone in your firm have a financial interest (direct or indirect), or a family connection with anyone that you recommend, such as an accounting firm, investment provider, or mortgage broker?
- When was your last independent client file audit conducted and can you share the result?
- Can you explain to me what you consider are your limitations in the advice you’re able to give me, and anything else I should be aware of that is contained within your financial services guide?
Don’t rush to judgement
It’s easy to say the thousands of investors who were crippled financially in the Shield Master-First Guardian scandal were foolish, that they crossed a fine between confidence and complacency. But in the main they weren’t greedy people, just people justifiably trying to get ahead by improving their finances.
Many happened to click on a social media ad making a seemingly innocent suggestion to “compare your super” on a super comparison website. It offered phone connection to a centre where people with Australian accents would put researches in touch with a financial adviser – the 140 advisers and their connections referred to earlier who are now under investigation.
The investors who came from all walks of life were confident the licensed financial advisers recommended to them would be working for them in their best interests.
But clearly these investors were badly let down, which begs the question whether it’s probably safer to avoid seeking financial advice from someone who may be untrustworthy, and rely exclusively on your own resources.
Expect that the financial adviser who composed the above list of questions says that in more than 20 years’ experience in the industry, anecdotal evidence is that many financial advisers have improved clients’ financial position at least to some extent.
If you decide you want to work with a financial adviser, look for someone with decades of experience and top-level academic qualifications (for example a Master’s degree or a PhD in a finance-related discipline).
Do web research on the financial planning company that licenses a financial adviser you favour as well as on the financier’s name, seek client references and recommendations from friends.
