I had an experience last month that left me furious, yet more determined than ever.
It revolved around an adviser, the kind that should no longer exist in our world.
Let me explain.
About two weeks ago I got a call from a family member. He’d sought out advice from a friend of 30 years who also happened to be an adviser.
“Would you mind taking a look at it, Stewart?” he asked, “Something’s not sitting right”
“Sure”, I said, “Shoot it through”
I got the SOA. I read it. I re-read it. My blood boiled.
I shared it with my wife, an adviser herself. Her reaction was along the same lines.
This wasn’t professional advice.
It wasn’t adequate in any way, shape or form. If the fact that it had come from an experienced and apparently-compliant adviser wasn’t bad enough, that it had come from an old friend made it entirely despicable.
My family member had asked for advice on if and how their significant but not endless retirement funding could be made to last well into their senior years.
I expected to see clear reflection of that issue in the recommendations. I expected cashflow modelling. I expected to see an analysis of the benefits of holding the existing SMSF vs. closing it. I expected to see rigour applied to the problem. I expected at least an FSG.
Instead I saw a recommendation to switch to an in-house, white label product platform; cheaper, but only because the sum transferred was lower. Oh, and if the client changed adviser or dealer group, or decided they no longer needed to pay ongoing fees, they’d have to find a new investment vehicle.
It talked about the clients goal of ‘outsourcing investment management’ (whaaaa?).
It talked likely returns, but made no attempt to explain how those returns would or wouldn’t solve the problem.
It mentioned a possible CGT event due to the sale of existing assets – “this could result in a tax savings or a tax debt” – but suggesting nothing more than ‘speak to an accountant’.
It pulled money from the exisiting SMSF, leaving the balance under $150k, but gave no rationale as to whether that was a good idea.
It was a one trick pony. Money onto my platform. Here’s the bill.
I could go on, but let’s just say; it stunk the place out.
That wasn’t the best bit.
Here’s the best bit.
$14k implementation, $7k ongoing.
Yup. The most expensive pile of sh*t I’ve ever seen in my life, for what amounted to little more than an under-considered asset transfer without basis.
I did the sums. The fees being charged on an ongoing basis, taking into account the target returns, would consume over 25% of the financial upside generated by the strategy.
Best interest my foot.
It was a wake-up call. Maybe I’m lucky in the fact that being an independent coach and playing in the space that I do, I’m insulated from this kind of skullduggery.
However, how can there really be any basis for advice other than the objectives the client is seeking to achieve or secure?
I’m sick of the nonsense that is risk profiling, peddled as a panacea for every investment recommendation.
It’s a personality profiling tool with (as far as I can tell) exactly zero psychological basis at all.
It’s a shock more clients haven’t challenged legally the basis of making an long-term investment recommendation according to a tiny sample of hypothetical questions.
“Oh, it says here you’re high risk tolerance. Lets whack you in an Aggressive Growth fund”… (regardless of the fact all of their life’s goals can be achieved using a balanced approach).
Where are the scientific studies showing the validity of the link between emotional state and these seemingly made-up questions? If I almost get hit by a bus walking into the room beforehand, what impact will that have on my answers? What about if I’ve just done a parachute jump or won $500 on a scratchie?
I guess this is my realisation that the penny hasn’t quite dropped for many advisers on an objectives-based approach.
I get that there are a lot of advisers seeking scale in their business, but this isn’t the way to do it.
I know that the media beat-up is usually unfair and based on a bunch of incorrect assertions, but there are advisers out there (and those institutions who enable them) who need to realise that the game has changed.
Get on board or get out, before you ruin it for everyone and destroy the livelihoods of those whose goal is genuinely to do good.
Allow yourself to be cut out, so we can get on with healing the patient.
The happy ending to this is that for every bad apple there are more good ones.
My loved ones went back and reviewed the advice given by an earlier adviser, someone with more noble intent and stronger ethics, who had told them what they really needed to hear.
That there was no magic pill to make retirement money last another hundred years. That the solution lay in doing what they were already doing, with minor tweaks to their spending and other things they could control.
He charged them nothing but added significantly more value.
I know who I’ll be sending my family to next time.
Want a next step?