Lock up this gang of thieves

The bank­ing royal com­mis­sion has Scott Pape out­raged this week, with a spe­cial re­port on in­vest­ment ad­vice

The Sunday Telegraph (Sydney) - - BAREFOOT INVESTOR - THE BARE­FOOT IN­VESTOR HOLDS AN AUS­TRALIAN FI­NAN­CIAL SER­VICES LI­CENCE ( 302081). THIS IS GEN­ERAL AD­VICE ONLY. IT SHOULD NOT RE­PLACE IN­DI­VID­UAL, IN­DE­PEN­DENT, PER­SONAL FI­NAN­CIAL AD­VICE.

HERE’S some­thing shock­ing that I learnt this week.

Ap­par­ently there’s been a spate of vi­o­lent home in­va­sions in which young thugs have been ter­ror­is­ing vul­ner­a­ble pen­sion­ers — and it’s been go­ing on for years.

In fact, one young thug was caught steal­ing $120 from a lit­tle old lady.

And when the cops caught up with him, and ques­tioned him on it, he re­peat­edly lied and said it wasn’t him.

Yet, when he went up against the mag­is­trate this week, he not only ad­mit­ted his guilt but ad­mit­ted he’d lied through his teeth to save his back­side.

I’d say this young thug is head­ing for the slam­mer.

OK … so I just made all that up. There was no gang. No young thugs rip­ping off $120 from pen­sion­ers.

But there is a gang … of wealthy, old bank­ing ex­ec­u­tives on mul­ti­mil­lion-dol­lar salaries who didn’t have to climb through a win­dow — they were greeted at the front door.

And, ac­cord­ing to the bank­ing royal com­mis­sion this week, they didn’t steal $120 — they stole more like $120 mil­lion.

And that’s just Comm­bank, which the com­mis­sion called the “gold medal­list” in fee-for-no-ser­vice.

Hell, they even slugged dead peo­ple fees for ad­vice. For 10 years. Se­ri­ously, these guys are good! All up, across the in­dus­try, some 306,000 peo­ple have been charged a com­bined $216 mil­lion for ser­vices they didn’t get.

And in the case of AMP, the royal com­mis­sion found they’d even sys­tem­at­i­cally lied about it to the cor­po­rate cops (ASIC).

Yet let’s be clear — there will be no jail time.

In­stead, the bosses will apol­o­gise — via their un­der­lings, who they’ll send off to be shot on the royal com­mis­sion’s front­lines — and they’ll qui­etly re­tire on their multi-mil­lion­dol­lar bonuses.

But here’s the rub: at its core, the bank­ing and fi­nance in­dus­try is based on trust. You need to trust that the com­pany you’re deal­ing with won’t rip you off, and that they’ll have your best in­ter­ests at heart.

What we’ve seen at the royal com­mis­sion sug­gests we can’t trust them. And that’s backed up by ASIC, which re­cently found that in the case of bank-em­ployed ad­vis­ers, in 75 per cent of cases the ad­viser didn’t act in the client’s best in­ter­ests.

Can you imag­ine our young thug ap­pear­ing be­fore the judge: “Look, Your Hon­our, I’ve made mis­takes. I’ve robbed hun­dreds of thou­sands of de­fence­less pen­sion­ers for years. So it’s clear what I re­ally need to do is … ad­dress my in­ter­nal pro­cesses.”

Yeah, nah. I’m with ScoMo on this one. Lock ’em up. Tread Your Own Path! P.S. In hon­our of the royal com­mis­sion, this week I’ve de­cided to an­swer ques­tions about ad­vis­ers.

TIM ASKS: Am I in the wrong job? I am a fi­nan­cial plan­ner. (No, se­ri­ously please keep read­ing:) I got into the in­dus­try after be­ing re­trenched, as I was look­ing for some­thing that would pay bet­ter than an ad­min job. I do my best to pro­vide ad­vice that is free from bias and not tied to prod­ucts. Trou­ble is, sooner or later my boss is bound to no­tice and move me on. How do I help Aussies with their fi­nances and still put food on my ta­ble?

BARE­FOOT REPLIES: The royal com­mis­sion is great, but un­for­tu­nately it tends to tar ev­ery­one with the same brush. The over­whelm­ing ma­jor­ity of fi­nan­cial plan­ners and mort­gage bro­kers are good, hard­work­ing, eth­i­cal peo­ple like you. It’s the game that sucks. It’s ba­si­cally where the banks man­u­fac­ture prod­ucts and then em­ploy plan­ners to sell them. Hope­fully a rec­om­men­da­tion from the royal com­mis­sion will be to break up the ver­ti­cal in­te­gra­tion game. Yet what ad­vice would I give you right now? Well, there are truly in­de­pen­dent firms that charge hourly rates. Or there are fi­nan­cial coun­sel­lors, who do im­por­tant work with­out flog­ging prod­ucts. How do I find a fi­nan­cial ad­viser?

WILL ASKS: I have read lots of ad­vice about avoid­ing ex­ces­sive fees charged by fi­nan­cial plan­ners. Prob- lem is that we still need one! My wife and I now have over $1 mil­lion in su­per. This is all great, but we’re in our early 50s and need some pro­fes­sional help to man­age it.

BARE­FOOT REPLIES:

You’ve done well! Let me be clear about this, the big­gest cost you’ll face in deal­ing with an ad­viser is ‘com­pound­ing fees’. I’ll give you a re­ally sim­ple ex­am­ple: You have a choice be­tween two funds: what the cal­cu­la­tor calls a ‘medium high’ share fund that charges 1.3 per cent in fees, and an­other fund called ‘medium low’ that charges 0.3 per cent in fees. Let’s as­sume they both earn his­tor­i­cal rates of re­turn on shares on your $1 mil­lion fund. If you choose the lower fee fund, you’ll have $270,000 more in your ac­count after 15 years when you re­tire. That’s why when it comes to choos­ing your ad­viser it’s in­cred­i­bly im­por­tant that you pay a true pro­fes­sional a re­as­sur­ingly ex­pen­sive one-off fee for in­de­pen­dent ad­vice (it could be up­wards of $5000). How­ever, make it a non-ne­go­tiable that you are in­vested in an ul­tra-low-cost port­fo­lio that com­pounds with­out any tacked-on costs. So, how do you find such an ad­viser? Well, just like any re­la­tion­ship, the first time is free — and then you start pay­ing. So I’d sug­gest you go on dates with at least three fi­nan­cial plan­ners be­fore you com­mit.

Baby, I’m bam­boo­zled

TERRY ASKS: I just had a long chat with a fi­nan­cial plan­ner. They bam­boo­zled me with talk of MERs, ICRs, fully-franked div­i­dends and tax cred­its, and how these fac­tors mean that their ac­tively man­aged fund would per­form bet­ter than a pas­sive fund (even after fees). Can you en­lighten me, please? BARE­FOOT REPLIES: An ex­am­ple will work best here. It’s like you go to your doc­tor for your an­nual check-up and say: “Do you think I should eat more fruit and ve­g­ies, and per­haps do 30 min­utes of ex­er­cise each day?” And the doc­tor replies: “Bug­ger that! I’m of­fer­ing 20 per cent off li­po­suc­tions this week. Wouldn’t you like some wash­board abs, Tubby? ” Bot­tom line? The ad­viser just bam­boo­zled you with bull­dust. There are three things you need to un­der­stand. First, fi­nance is the only in­dus­try where (in most cases) the more you pay the less you get. Sec­ond, you don’t open an SMSF (Self Man­aged Su­per Fund) for higher re­turns. Stud­ies show that 80 per cent of man­aged funds fail to beat a sim­ple in­dex fund over five years. Third, you should walk away from any pro­fes­sional who tries to bam­boo­zle you. Trust your gut!

Your book is stress­ing me out

PRUE ASKS: I started read­ing your book last night and was dis­cour­aged when I read about your SMSF strat­egy. About two years ago, on ad­vice from a fi­nan­cial ad­viser, my hus­band and I set up an SMSF, and we have since pur­chased a prop­erty with it. It was ex­tremely stress­ful to set up, and the cost of en­sur­ing com­pli­ance is ridicu­lous. My ques­tion is: should we close it (and how do we do this?), or would the fi­nan­cial and emo­tional cost be too high?

BARE­FOOT REPLIES:

I’m yet to see a case where some­one has bought a res­i­den­tial in­vest­ment prop­erty via an SMSF that was ac­tu­ally a good deal for the client. If I were in your shoes I’d get some sec­ond opin­ions — firstly a val­u­a­tion on the prop­erty from a lo­cal real es­tate agent and sec­ondly an as­sess­ment of the SMSF from an ac­coun­tant with no links to the guys who set it up. Once you’ve as­sem­bled the facts, act quickly.

Pic­ture: iStock

The big banks have made pigs of them­selves with our money.

The Bare­foot In­vestor: The Only Money Guide You’ll Ever Need (Wi­ley) RRP $29.95

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