This morning I read an interesting article “7 Ways to Pick a Better Adviser”.
Knowing how to work out a good from bad advisor seems to be the biggest challenge people face in getting financial advice. That’s certainly what most people tell me.
How do you know if the fees your financial planner charges are worth it?
More importantly, how can you tell if high fees are causing bad advice?
The recent Banking Bad episode on ABC’s Four Corners showcased ordinary Australians who trusted the CBA, only to find they had paid a fortune for bad advice.
“He was actually a little uncomfortable and embarrassed”.
Last week I was contacted by Ross, a lawyer in Melbourne, who was concerned he was being charged unfairly for financial advice. He told me that his planner seemed “uncomfortable and embarrassed” about the fees he was obliged to charge.
Ross used the words “fee grab” to describe his current financial planning company’s new policy to charge an asset based fee (brokerage) for switching managed funds.
Financial planners need to charge for their advice and service. But in Ross’s eyes, this fee seemed to be excessive and incidental to the service.
But this fee is not what gets me worked up.
Ross‘s financial planner seemed to think this fee was disproportional to the value his company was providing for this transaction.
It’s hard not to conclude that this financial planner is putting the interests of his employer, and in turn his own interests, before his client’s.
(This post continues from 13 Signs You’re Getting Bad Insurance Advice (Part 1).)
The recent CFP v Couper court case showed you could get insurance advice that leaves you uninsured and unprotected.
Here are 7 more signs you’re getting bad insurance advice:
Noel Stevens was dying when CommInsure rejected his insurance claim. The NSW District Court ruled the insurer was right to turn down the claim.
Mr Stevens passed away, but not before taking Commonwealth Financial Planning to court as he believed he had been given bad insurance advice. The court agreed.
Commonwealth Financial Planning (CFP) appealed the ruling and recently lost when defended by Noel Stevens’ daughter (CFP v Couper). The evidence in this case showed it’s possible to receive insurance advice that leaves you uninsured, where you were previously covered.
This client had no idea his insurance advice was poor. The CFP advisor didn’t know he’d given the wrong advice. In fact, the advisor followed a process you could find in any bank across Australia.
When your advisor is none the wiser, how can you check you have received proper advice?
Failing to use a mortgage broker who will refund commission is one of the biggest mistakes people make when they choose a loan.
Commission refunds are probably the easiest way to put $10,000’s back into your pocket over the life of your loan – reducing your loan term by years, if you use the cash to make additional payments.
It’s the strategy that’s possibly the most effective and least utilised, as not many people know about it, or how to use it properly.
Investors in Australia have lost about 45% of their returns in management fees over the last 5 years, according to research published last month (check out this article in the Sydney Morning Herald).
To many people, commission is a dirty word. It is synonymous with a back hander or under-the-table payment.
And for good reason.
Update, 26 June 2014: Today the Senate’s Economic References Committee released its report on the performance of ASIC and referred to two of my suggestions when making their recommendations.
Over the last few months, two Fairfax journalists, Adele Ferguson and Chris Vedalago, exposed some of the inherent problems within the bank-owned financial planning groups. Their expose uncovered some terrible advice given by CBA and brought into question the ability of ASIC to regulate the industry effectively. Their efforts not only won them a well deserved Walkley Award nomination, but resulted in a Senate Inquiry into the Australian Securities and Investments Commission.
Submissions are welcome from the public or anyone in the industry who wants to have their say. Sadly, despite criticism from around the industry for ASIC’s handling of such issues, there have been no submissions from the banks, industry associations or lobby groups. And hardly a practical or constructive submission from any individual working in financial services who might have some insight into why ASIC has failed to deal with issues such as those at CBA.
If people don’t speak up publicly and provide thoughts on how ASIC might become more effective, nothing will change and you remain in danger of getting bad advice.
With that in mind, this week I made the following submission to the Inquiry.
You can take $100,000 off the cost of your mortgage with surprisingly little increase in repayments, at least when compared to the savings.
You probably understand how compound interest affects costs exponentially. But, if you’re like most people, you may not realise how much the total interest cost increases over the loan term. And, you might not know how little the corresponding weekly repayments decrease as you lengthen the term beyond 15 years.
As you extend the loan term of a mortgage beyond about 15-20 years, your minimum repayments tend to level out and, at the same time, your interest costs start to skyrocket.