Financial Planning Gone Bad: How to Avoid Advisor Rip-Offs
Think your financial planner is on your side? Here's the brutal truth about trailing commissions, insurance kickbacks, and how to find an advisor who won't screw you.
The brutal truth about your financial future: you're on your own
You are the only person responsible for your financial future. If it all goes belly up, the buck ultimately stops with you. Even if you've been given dodgy advice by an expensive suit, it's up to you to do your homework and take charge of your investment choices.
No one else has an incentive to grow your wealth—not your fund manager, not your financial planner, not your accountant, or your tax lawyer. No one else, that is, except you.
For example, do you know how much you are actually paying in fees, both upfront and ongoing? When it comes to a financial advisor conflict of interest, fees and hidden commissions are the root of all financial evil.
Sure, commissions are now banned on superannuation and investment products in Australia, but they can still be legally received on insurance products. An adviser who makes a juicy commission selling you retail life insurance has a conflict of interest, and you're the one paying the price.
To see how bad things can get, here is what happened back when commissions were still allowed on investment products. (Fortunately, thanks to the FOFA reforms, it's now illegal to receive commissions on investments and superannuation in Australia.)
In the months before October 2008, numerous bank customers had been persuaded to switch from the safety of term deposits to these funds with higher rates, which gave the financial planner and the bank a nice trailing commission that they didn't get from a humble term deposit sold by a teller over the counter at some suburban branch across Australia.
The bonus incentive - planners go rogue
As Charlie Munger famously said:
“Show me the incentives and I'll show you the outcome.”
How to find an advisor who won't screw you
So, how do you get financial advice without getting ripped off? You have a couple of solid options in Australia:
First, you can consult a Centrelink financial advisor (via the Financial Information Service) for free, unbiased advice on retirement planning, pensions, and assets tests.
Alternatively, if you need comprehensive planning, look for an independent financial advisor in Australia. You want a certified, fee-for-service financial adviser who charges a flat, transparent fee with zero incentive to recommend one investment product over another. Don't let commissions dictate your retirement.
