During a recent weekend at my partner’s parents we discussed at length their financial predicament. They’ve retired, but due to recent market volatility they are wondering if they can afford to remain retired.
They are hard-working, blue-collar country folk, who made good by owning the only pub in town and by changing towns every few years. They trusted their business adviser/accountant.
As I flicked through their most recent portfolio document at their Lake Macquarie home, they explained how their investment balance has shrunk from just under $1 million in 2003, when they sold their last business, to just over $700,000 in March.
They have four allocated pensions, comprised of dozens of managed funds, all held via Asgard and which produce, for tax purposes, very modest income.
Last month they heard that a bank had become mortgagee in possession of a Nelson Bay apartment development in which they had, on the recommendation of their adviser, invested $40,000. They have lost the entire $40,000 investment and were unable to explain to me what the nature of the property investment was. I suspect they bought units in a trust, and that there was probably some mezzanine financing involved.
But they were advised to invest this money after they retired, even though they are risk-averse and want a retirement income stream with no capital risk and have no understanding of what they invested in or why they agreed to do so at this late stage in their life. They cannot recall discussing fees with the adviser concerned. They assume now that he collected a commission on the property investment – but they are not sure.
My in-laws are not stupid. To the contrary, they are representative of much of middle Australia. They have some wealth, though they don’t consider themselves “wealthy”. They worked for 40 years, and will probably live for another 20. They have a house worth almost half a million dollars. Their investment with Asgard is worth $700,000 (and falling …). They don’t understand the world of money, even though they managed their own business, turning over a few million dollars a year. In other words, their position is typical of many Australians.
Until their recent second thoughts, they trusted their adviser 100 per cent. They have been my in-laws for 12 years, and over that time I have often questioned them about their investments and finances. But they preferred to remain very private, and confided personal financial details only to their adviser.
I mention their current situation in the hope that it may reveal a little about why I have a passion for a better financial planning profession. It is a vitally important business.
Since starting Professional Planner in October last year, having previously launched IFA magazine, I have received vast amounts of mail and comment. There’s been lots of constructive ideas, some love mail and some unprintable hate mail. This will be my last column for the time being – we have enough opinion at the front of the magazine, and I wish to make room for ideas that we simply can not accommodate currently.
However, amidst the recent market calamity, clients all over Australia need more than ever to know that they can trust their advisers. And I reckon more businesses will come under close scrutiny. Companies like Centro, Fincorp, Allco, MFS, City Pacific, Basis Capital and Absolute Capital all shared a number of concerning similarities.
They were all privately-run public companies, had dominant founders on their boards and share registers, were drowning in debt, had mostly mums and dads as investors, not institutional shareholders, and as a result they were slack on governance, and their products were mostly sold via financial planners.
The mail telling me to rack off in our endeavour to improve professionalism is bizarre in the face of mounting evidence that this industry needs radical structural surgery. The industry must get its act together, and self-regulate effectively, or the Rudd Government will do it for us. The majority of people who read this magazine
do so because they are hungry for help and ideas on how to deliver better outcomes to their clients, on improving their efficiency, and on how to build a profitable and honest business with longevity.
However, those who continue to think that heritage and history are reasons not to improve ethics, education standards, quality of peak bodies, transparency, demonstrating the value of advice and charging for it independently of product sales, are not living in the real world.
This industry is about wealth creation, protection and financial security for the nation. How you go about your business is everybody’s business. As superannuation funds move into negative return territory for the first time in years, get ready to be front page news.
You can choose whether it’s for good reasons or bad reasons that you end up on the front page. Professional Planner magazine’s job will be done when it’s for good reasons and when the industry’s reputation has risen so much that everyone wants an adviser, and can be confident of finding a great one.
