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How to Check Your Bank’s Financial Advice is Right

With news of yet another bank scandal, you might be wondering if the financial advice you received from your bank is appropriate.

Use the checklist below, for signs your bank’s financial planner has given you bad advice.

But isn’t it too late, if I’ve already received advice?

Possibly not. If you have received advice from CBA Financial Planning or Financial Wisdom in the last 12 years, you may have a right to claim for loss arising from poor advice.

The Open Advice Review Program was established by CBA after a Senate Inquiry report on the CBA financial planning scandal forced the bank to review thousands of cases of advice it had given to customers. Given that after a year and 20,000 inquiries, CBA have only paid out 3 clients, many people are asking if they can trust the CBA to objectively review its own advice.

CBA is not the only bank with serious issues in its financial planning business. Other banks are reviewing advice given by their financial planners.

Bad advice given by financial planners at NAB and one of its advice businesses Meritum, have led to large financial losses for clients. While NAB have gotten rid of many of its rogue advisors, there are still questions over NAB’s review of its own advice and its decision not to payout many clients who were given bad advice by planners the bank sacked.

ANZ have recently been caught short changing 8,500 clients by signing them up for ongoing advice under its Prime Access service, and then not providing the advice clients were charged for.

And, 160,000 Macquarie Bank clients have been invited to seek compensation after clients suffered heavy losses from poor advice dating back to 2004.

Based on my experience reviewing different bank’s financial advice, and through discussions with insiders at CBA, here are the issues I think you should look out for:

 

  1. Rolling over industry funds into a bank-owned product, without a reasonable basis.

Each bank typically recommends products it owns, over all others. A CBA or Financial Wisdom advisor might be more likely to recommend you switch to a Colonial First State super fund or CommInsure insurance product. ANZ might recommend OnePath. NAB might recommend MLC. Westpac could recommend BT. And Macquarie will likely recommend Macquarie.

This doesn’t mean you’re getting bad advice, however….

A financial planner is required to document a clear basis for moving your super from its current fund to one of the banks (and that basis must be linked to your objectives, and not general in nature).

Such a basis might include:

  • Additional features and benefits, relevant to your objectives
  • Lower overall cost

Many aligned advisors (who tend to recommend expensive super and insurance products) cry foul when you focus on costs, rather than the features of a super fund or insurance policy (when an advisor relies on commission, it’s not in their best interests to recommend the least expensive fund).

So, if you’re not sure if you ended up with a better super fund based on the information presented to you, just look at the difference in ongoing costs (financial planners are required to document a cost comparison in the Statement of Advice – often titled Replacement Product Advice Record).

If your new bank-owned super fund or insurance is more expensive than your previous, and you can’t see a clear benefit, you may have been given poor advice.

 

  1. Rolling over your super fund into a bank-owned fund, without replacing (or considering) the loss of insurance

Recommending you rollover your super fund, causing you to lose insurance attached to that fund, can be one of most negligent pieces of advice a bank advisor can give.

You could have lost inexpensive insurance cover that might be difficult, or impossible, to get back. If you have ongoing health concerns, then you may have lost insurance cover that you’re never able to acquire again.

Check old statements from your previous super fund to see if you had insurance cover (your bank Statement of Advice might even refer to existing cover). If you lost this cover and the bank financial planner didn’t take this into account, then you may have grounds for a complaint.

 

  1. Recommending a portfolio that’s too aggressive

Many CBA, Macquarie and NAB clients were placed into investments that were too aggressive, when taking into consideration their capital growth needs and capacity for capital loss.

CBA financial planners allegedly manipulated some ‘Risk Profiles’, making it seem appropriate to invest their clients into more ‘aggressive’ investments than is suitable. These ‘aggressive’ investments pay the planner more commission. And, some planners forged their client’s signatures on investment applications to place clients into funds they never agreed to (see point 6 below).

As part of its review, if CBA finds a client has been invested into a portfolio that’s too aggressive, when deciding the loss incurred, the bank is assuming that the client should have been placed in a ‘balanced’ portfolio, containing growth and defensive oriented investments.

But, it’s possible you should have been invested in a more conservative portfolio, possibly made up of 100% cash and fixed interest.

If you still have that portfolio, you will likely have made up any losses since 2008. However, if you cashed out your poorly performing investments during the GFC, you might have grounds for CBA paying out the money you lost, based on a more conservative portfolio than ‘balanced’.

In deciding how you should have been invested, look at how you were invested previous to seeing your bank financial planner. Also, look at your needs at the time you received advice. If you had enough money to meet your ongoing objectives with a conservatively invested portfolio, then you might be able to make a case for being invested too aggressively.

 

  1. False statements in your insurance application

If you received insurance advice, get a copy of your application from the insurer (likely to be CommInsure in CBA’s case) and check that all your answers given during the health and lifestyle questionnaire were recorded correctly by your advisor.

If you later claim an insurance payout based on a pre-existing issue that was not disclosed in your application, the insurer can turn down your claim. And you may have to take the CBA to court to get a payout.

 

  1. Inappropriate gearing

If your bank financial planner recommended you borrow to invest, ask the bank for a copy of their Gearing Policy from that period and check you fit the criteria for your planner to be allowed to recommend gearing:

The following was not allowed at CBA:

  • Double gearing: where you use borrowed funds to invest in a margin loan or internally geared managed fund
  • Gearing advice to anyone whose investment risk tolerance is less than ‘Aggressive’.
  • Gearing at a greater than 50% loan to value ratio, including your overall debt and investments
  • Gearing to people without a stable income, savings history and investment experience

NAB and Macquarie clients were also given advice to invest in complex products that were too risky for their situation.

 

  1. Forged signatures

Get your hands on as much of your file as possible and check all signatures on your file, making sure they are all yours. CBA and NAB advisors were caught forging signatures.

If a signature has been faked, hopefully you’ll spot it.

Either way, if there are any documents you don’t remember signing, check what you agreed to in that document and make sure it fits with your recollection of what you agreed to at that time.

 

  1. Lack of documentation

Check you received a Statement of Advice and copies of all supporting documents, including:

  • Financial Services Guide
  • Product Disclosure Statements
  • Application forms

If anything is missing, the bank needs to prove it was provided to you before you invested, rolled over super or bought insurance. If they cannot do this, you may have more solid grounds for complaint and claim for a payout for any advice you feel is inappropriate.

If you need help, email me at contact@justinbrand.com.au.

 

You might also like:

Why I Think Ian Narev Is Not Sorry For CBA Scandal

Banking Bad: Is Your Financial Planner’s Fee Causing Bad Advice?

 

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Posted by: Justin Brand
I'm an independent financial advisor and blogger doing my best to make financial services less complex, dull and intimidating.
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