I’m not about to provide an account of all the possible wrongdoings detailed by the banking royal commission.
In a nutshell, too many financial advisers have ties to the big four banks or insurance companies; either directly as employees or as associated organisations that receive commission or some other soft dollar incentives for ‘selling’ the financial services of these bigger institutions.
On top of that there are also unscrupulous advisers referring to themselves as being independent recommending actions that are more in their own best interests than those of the clients.
How do these conflicts impact clients?
Rather than providing Australians with unbiased and trusted advice that aligns with Best Interests legislation introduced back in 2013, the royal commission is exposing complacent and probable criminal abuse due the systemic approach to delivering advice which heavy bias towards recommending organisations that will provide them the greatest financial incentive.
In addition to the obvious potential for customers to end up with an unsatisfactory financial product, there is also the distinct possibility that the service they end up with isn’t even the right service for their needs.
This issue really comes down to two views of financial advice – traditional advice and ‘new world’ advice.
Traditional advice focuses primarily on matching you – the client – with a financial product. You may not have sought the services of a financial adviser, but if you have ever enquired about a home loan, you will be familiar with the process.
You need money for the loan, the mortgage lender sits you down in front of a computer, adds your basic financial details and needs and the computer spits out one or two preferred options. The same can be said of traditional financial advice, “You want to invest? Here’s a range of managed funds that we can choose from.”
Firms providing ‘new world’ advice will want to firstly know why you want the money before they start offering advice on the strategies and priorities you should focus on to give you the best chance of achieving your greatest aspirations.
‘New World’ advisers need to understand why you are seeking advice before they can start working out what type of advice or strategy is most suited.
The most important part of receiving any advice is always in the attainment of the outcomes that the clients individually seek. Then any cost associated to this advice must be measured against the value that has been received by the client in undertaking the advice and service.
If an adviser is simply looking to push a range of products without taking the time to understand your deeper aspirations hopes and dreams, then the advice you receive may well fall short of meeting your needs – whether the adviser is getting kickbacks or not.
Beware any advice where the charges for the advice is not based solely on the quality of the advice rather than the quantity you want to borrow, invest or save.
As published in The West Australian.