How many people really kick the tyres before hiring a financial planner..?

1. MONEY MARCH 2017 7574 MONEY MARCH 2017
INVESTING FINANCIAL ADVICE
D
espiterecentFutureofFinancialAdvice
(FoFA)reforms,investorscontinuetohave
alove-haterelationshipwiththefinancial
services sector. If recent Investment
Trendsresearchisanyproxy,confidence
in the advice community isn’t much better than during
the litany of scandals that plagued the sector.
Adding to this jaundiced view of advisers, formal
complaintslodgedwiththeFinancialPlanningAssoci-
ation(FPA)andtheindustryregulator,ASIC,havealso
been up in recent years, not down. So much for reform.
There’sclearlyalotmoretorigorouslypressure-testing
financial advisers than their ability to operate within a
strictercomplianceregime.NotevenASICcouldprevent
dodgyfinancialplanners,sackedforprovidingdishonest
advice during scandals, from resurfacing elsewhere.
Asacaseinpoint,CommonwealthBankplannerStuart
Jamieson was caught forging customers’ signatures
and subsequently expelled by the FPA. However, the
decision by the bank to let him resign – rather than be
fired – meant he was able to go on to two further jobs
inthefinancesectorwithoutclientsknowinganything
about his past.
Filter for independence
InlightoftheCBAandotherscandals,it’sequallyimpor-
tanttorunthesameruleroverthefirmanadviserworks
for, and the culture that drives its advisers’ behaviour,
says Michael Roberts, of the Bailey Roberts Group.
According to Roberts, you’re not ready to properly
pressure-test advisers until you’ve filtered for inde-
pendence. He claims only truly independent advisers
canbereliedupon100%toputtheirclients’financial
interestsaheadoftheirown.Assumingyousubscribe
to his view, weeding out those who work for a dealer
group controlled by a large financial institution will
eliminate a whopping 85% of the country’s 20,000-
plus advisers.
What investors need to filter out of their adviser
universe, says Roberts, are those who, by virtue of
working for firms owned by or aligned with large
financialinstitutions,havevaryingconflictsofinterest.
That doesn’t automatically mean the remaining
3000 advisers who don’t work for large financial
institutions are above reproach. They still need to
satisfy the all-important compliance test, and the
recent FoFA reforms have attempted the raise the
bar on both conduct and remuneration practices.
Start with compliance
GuyThompson,ofadvicefirmRiseStandards,recom-
mendsinvestorsstartscrutinisingadvisersbygetting
straight answers to basic “housekeeping” stuff. He’s
talking about qualifications and experience, includ-
ing any dismissals for misconduct, plus disclosure
on the licensee that authorises them to offer advice.
Remember to check ASIC’s online register of
bannedordisqualifiedadvisers(seeasic.gov.au).The
website also has a valuable tool kit on understanding
the financial advice process.
If an adviser isn’t a member of a professional body,
Thompsonurgesinvestorstoaskwhynot.Iftheyare,
findoutifthisactuallyhelpstogoverntheirconduct.
He also suggests investors ask advisers where they
have worked before, and be especially wary of short
periods of less than one or two years. “Alarm bells
shouldringifadvisersbecomeflusteredordefensive
whenexplainingtheirworkhistory,”saysThompson.
WhiletheASICregisterwon’tidentifyadviserswho
have been moved on due to “borderline” practices
that aren’t bad enough to take action against, Sue
Viskovic, head of Elixir Consulting, suggests asking
advisers if they have been the subject of any client
complaints to their licensee and/or to the Financial
Ombudsman. Similarly, check the ASIC register
for any disciplinary actions, as well as the website
adviserratings.com.auortheirLinkedInprofiletosee
if they have any client recommendations.
There’snobetterwaytocheckwhetheranadviser’s
(orthefirm’s)experienceandexpertisearecompatible
with your requirements than checking their website
for client testimonials and asking to speak with a
couple of their past or existing clients, says Wayne
Leggett, of Paramount Financial.
He says advisers should be comfortable providing
similarstatementsofadvice(SOAs)preparedforother
clientswithanyreferencetotheirnamesblackedout.
“Remember, if you haven’t done your homework on
what you’re looking to achieve financially, you risk
engaging the wrong adviser by default.”
Complianceaside,Viskovicalsoremindsinvestors
thatanyadvicestillhastopassthe“sniff”test.“With
any advice revolving purely around shifting your
current accounts to their employer’s platform and/
or investments, you want to be 100% confident it’s
in your best interest, with compelling documented
reasons why,” she says.
Conflicts and remuneration
InthewakeoftheFoFAreforms,advisersarerequired
to be upfront with you on how they’re remunerated,
so don’t be afraid to ask. Any potential conflicts of
interest should be included in an adviser’s financial
services guide.
Whatshouldalsoraisealarmbells,saysThompson,
is those advisers who aren’t absolutely honest about
whatcommissionstheyreceive,whatfeestheycharge
and any other influences or conflicts of interest on
how they’re managed.
“In addition to commissions and fee disclosures,
thefinancialservicesguideshouldhighlightwhether
a client’s portfolio is actively or passively managed,
any other arrangements, including any broking fees,
the regularity of adviser reviews and updates, how
they’re communicated, plus proposed access to your
portfolio via online platforms or similar.”
It’s equally important, says Thompson, to find out
what administrative support an adviser has behind
the scenes. Insufficient support could significantly
delay the average two weeks it typically takes to
receiveadvice.Ifanadviserlackscontroloverservice
delivery, he also recommends finding out who is
ultimately responsible if systems or procedures fail.
Administration aside, Thompson urges investors
to find where advisers obtain their research, which
services they outsource (and why) and whether
they’re able to select investments for you using their
ownmethodology.“Thetroublewithrelyingontheir
licensee to do the research and make recommenda-
tions is it may be insufficiently tailored to meet your
individual needs.”
Regardless of whether an adviser works for a
financial institution or a firm purporting to be non-
aligned,Robertsalsourgesinvestorstofindoutwhat
their true relationship is with product providers
and how well it has been disclosed. “You need to
Follow a
stringent
checklist to
ensure your
hard-earned
wealth is
managed
properly
NEW RULES
WILL RAISE
THE BAR
Legislation setting out
a new professional
standards and education
framework for planners
has been passed by
parliament. This means
that from January 1,
2019, new advisers
must pass an exam, be
degree-qualified and
be supervised during
their “professional year”
(at least 12 months of
working and training)
by a registered financial
adviser.
There are also new
requirements for existing
advisers. They must:
• Comply with a code
of ethics (to be set by
a future professional
standards body) from
January 1, 2020. This
could be facilitated
through membership of a
professional association.
• Pass an exam by
January 1, 2021.
• Attain degree
equivalency by January
1, 2024.
• Undertake
ongoing professional
development.
As well, the Life
Insurance Remuneration
Arrangements Bill 2016
has passed through the
senate, creating a more
level playing field for
advisers, with no carve-
outs for direct sales of
life insurance.
STORY
MARK STORY
a planner
Trust me, I’m

2. 76 MONEY MARCH 2017
know if there’s a direct link between an advice firm’s
preferred product list, and the financial institution
they’re controlled by,” says Roberts.
If a firm professes to be non-aligned, it’s just as
important,claimsRobertstofindoutwhatinvestment
structure they use and recommend for your invest-
ments, and why.
Whilecommissionspaidonanyinsuranceproducts
should be the same regardless of the adviser, what
matters most is that any decisions are “remunerations
agnostic”, says Paramount’s Leggett.
Whether an adviser is charging a fee for service
and dialling the commissions back to zero or taking
commissions in lieu of fees, he says it’s important to
check that they aren’t in effect double-dipping. “Given
that clients wouldn’t know if they’re better off under
either option, it’s important to get advisers to spell
it out,” says Leggett. “Dialling down commission is
usuallynotaseconomicalfortheclientasthescenario
where the adviser gives the client a fee ‘credit’ for the
commission paid.”
Other boxes to tick
Robertsalsoremindsinvestorsthatcompliancecriteria
alone should only ever provide advisers with a ticket
to the game. Rogue financial advisers aside, he says
investors need to be equally wary of the financial
carnage that honest rookie advisers – who at face
value look credible – can cause due to inexperience,
insufficientfiduciaryresponsibilityand/orinsufficient
interpersonal skills.
“While the vast majority of Australia’s financial
adviserswerehonestwellbeforeFoFAreform,thathasn’t
alwaysbeenreflectedinthequalityoftheirunderlying
advice,” Roberts reminds investors. “Mediocre advice
INVESTING FINANCIAL ADVICE
is potentially conflicted, highly priced and biased
advice, especially if it unduly influences investors to
buy a particular product.”
Instead of fixating solely on advisers getting ticks
in all the right boxes, he says investors need answers
to another layer of questions that the entire advice
profession is seldom confronted with.
What Roberts is talking about is the probity of an
adviser’srelationshipswithotherthirdparties,especially
product providers, plus the right disclosure about the
types of investment vehicles they recommend. That’s
especially important given the growing popularity of
highly complex investment vehicles, especially in the
corporate bond space.
Roberts recommends asking advisers how the com-
plex investment vehicles they propose work – and the
associated risks and potential for loss within certain
markets–andwhereyousitwithinthecapitalstructure
if the underlying security goes bust. “The best way
to do that is to take nothing for granted, undertake
sufficient homework so you can second-guess an
adviser’srecommendations,andreadcontractsbefore
committing to any investments.”
Interestingly,hesaysthelengthstowhichanadviser
iswillingtogotoansweryourdifficultquestionsoften
offersmeaningfulinsightsintothedutyofcarethey’re
likely to provide once you’re a fee-paying client.
He says any adviser worth their salt should have
no difficulty explaining how they can ensure you
receive best-quality service at a reasonable cost, the
particular challenges confronting your demographic
and how they address them within their advice, their
investment performance track record, and who is
responsible for the performance of the recommended
investments. M
WALK ... AND
DON’T LOOK
BACK
At face value, it’s dif-
ficult to distinguish
between the “honest
and good”, “honest
yet fundamentally
incompetent” or “down-
right rogue” financial
advisers. However,
Christoph Schnelle, of In
Your Interest Financial
Planning, says alarm
bells should ring if you
experience any of the
following behavioural
traits during an initial
meeting with a
financial adviser:
• You were polite and
they became defensive
at innocent remarks.
• They can’t explain
products and invest-
ments simply.
• They can’t connect
on a human level.
• You feel you’re being
sold products from
day one.
• They’re technically
proficient but lack
empathy.
• Their relationship
with product providers
isn’t disclosed.
• They become overly
friendly and paternalistic.
• What they’re propos-
ing seems too good to
be true.
• They use scare
tactics.
• They become overly
emotional, judgmental
and idealistic.