Time to clean up the advice industry

WHO do you trust? Whose hands would you place your fate in? According to a lot of us, our friends and family are our most trusted advisers. That’s a whole lotta trust placed in inexperienced and often biased hands.

Of course, we love our friends and family. We even trust them – to a certain extent – with everything.

But when it comes to financial advice, we have to cut those apron strings and broaden our horizons.

Uncle Jim’s superannuation experience is no basis for switching your fund.

Dad’s disastrous investment in shares shouldn’t mean you rule out the stock exchange forever.

And your sister’s penchant for redrawing every cent off her mortgage at the drop of a hat is not a green light to do the same.

Our friends and family are well intentioned but often not fully informed. They might know bits and pieces but they’re far from expert. Harsh as that sounds, it’s good to keep in mind.

That’s not to say, however, that their financial experiences are not good lessons – but that’s all they are.

They are lessons to be aware of but not necessarily follow. You still need to get an expert on your side. Which brings me to the parlous state of Australia’s so-called experts. Our financial advice industry is rife with greedy money grubbers.

My general rule of thumb is that financial advisers can’t be trusted unless proved otherwise! And believe me, proving otherwise is hard to do. Even victims of financial advice seem reluctant to speak out. They don’t want to be identified as being sucked in or that they’ve had the wool pulled over their eyes. But there is no shame about being ripped off or advised badly. The more people who speak out about it, the less it will happen to others.

The big institutions, who control most of the financial advisers, are also keen to keep the bad outcomes hush-hush. So we can’t necessarily look at their track records for enlightenment.

The offer of confidential payouts and gag clauses on negotiated settlements with their victims is also used to keep things hidden. These deals limit the damage to the reputations of the adviser and the adviser’s employer and it keeps many of the bad apples in the barrel, waiting for the next batch of people to rip off.

So how do we find a good adviser?

I’m sorry to say it’s very difficult, if not impossible.

There are guidelines on the government’s MoneySmart website to follow, including a register to check whether an adviser is legit. MoneySmart also explains how many advisers don’t have their own licence but work under the licence of someone else.

The major financial advice and planning associations also have a code of conduct that their members are supposed to follow but that hasn’t stopped anyone in the past from being ripped off.

And let’s not forget plain old incompetence. As with any profession, there are people who are just no good.

Sadly, it’s a dangerous and expensive minefield we are forced to walk by ourselves.

The government has still not strengthened the laws to make it safe for us to have access to this vital service.