Telling hits from myths about fi­nan­cial ad­vi­sors

Trusted mon­ey­men can seem as rare as uni­corns when it comes to find­ing some­one to guard your cash... so it pays to know the golden rules.

Sunday News - - NEWS -

fol­low­ing ap­proval for a ald Mc­Don­ald fam­ily room at hland Hos­pi­tal, which ed in De­cem­ber 2013. he In­ver­cargill hos­pi­tal nge­ment in­cluded pro­vid­ing rma­nent space, util­i­ties, clean­ing and daily main­te­nance, while the char­ity had own­er­ship and op­er­a­tion of the fam­ily room – un­der its logo – pro­vide cap­i­tal for the con­struc­tion and main­te­nance of the fam­ily room, and a pro­vide paid co-or­di­na­tor.

FI­NAN­CIAL ad­vis­ers are of­ten in the news for the wrong rea­sons: forgery, steal­ing from clients, ponzi-style schemes, and other as­sorted scams.

Now there’s a full-blown scan­dal un­der way in Aus­tralia, where one of the major banks was re­port­edly charg­ing dead clients for ad­vice, and an­other com­pany mis­led reg­u­la­tors up to 20 times about charg­ing clients for ad­vice they never re­ceived.

There are calls for a sim­i­lar in­quiry here in New Zealand. While it re­mains to be seen whether the lo­cal play­ers are as bad as the Aussies, there are def­i­nitely some shenani­gans go­ing on.

As one wag com­mented on last week’s col­umn, if you’re try­ing to find a trust­wor­thy fi­nan­cial ad­viser, ‘‘look for the one who rides in on a uni­corn’’.

Cyn­i­cal, but not too far off the mark. There are some ex­cel­lent fi­nan­cial ad­vis­ers out there, but most ad­vis­ers do not have your best in­ter­ests at heart.

Some­thing like 80 per cent of ad­vis­ers work on a com­mis­sion model. That means they get kick­backs to fun­nel your money into cer­tain in­vest­ment prod­ucts. How do you know they’re choos­ing the best in­vest­ment for you, rather than just feath­er­ing their own nest? You don’t.

Now, some ad­vis­ers might hon­estly be­lieve they al­ways do the right thing. There are even new rules com­ing in that will give them a duty to put clients first. It doesn’t mat­ter. Com­mis­sions cre­ate a fun­da­men­tal con­flict of in­ter­est, and they’d have to be su­per­hu­man not to let it af­fect their judg­ment.

What about tak­ing ad­vice from bank or Ki­wiSaver staff? At least they’re on salaries, and the new law means they can’t be of­fered bonuses that en­cour­age them to give bad ad­vice. But again, it’s hope­lessly bi­ased. Th­ese in-house ad­vis­ers aren’t even al­lowed to of­fer ad­vice on prod­ucts of­fered by other com­pa­nies. Can you imag­ine some­one on ASB’s pay­roll hon­estly say­ing you’d be bet­ter off with West­pac, or vice versa?

The Aus­tralian reg­u­la­tor looked into banks ad­vis­ing clients to switch across to one of their own prod­ucts. In a full 75 per cent of the files it re­viewed, the move wasn’t in the client’s best in­ter­ests. If you be­lieve the lo­cal banks and Ki­wiSaver schemes are im­mune to this temp­ta­tion, I’ve got a bridge to sell you.

That leaves the in­de­pen­dent ad­vis­ers. Rather than tak­ing money from the in­dus­try, they’re on your side. Of course, that means you have to pay them a fee, like you would any other pro­fes­sional.

You could be look­ing at any­thing from a few hun­dred dol­lars for some very sim­ple ad­vice, through to sev­eral thou­sand dol­lars for a com­pre­hen­sive fi­nan­cial plan. If you don’t have a lot of money to man­age, this is not go­ing to be worth your while.

The good news is that some ad­vis­ers do take on small clients, or pro­vide sim­ple one-off ad­vice on the likes of Ki­wiSaver. The bad news is, there are not that many of them out there. The FMAhas a list of ad­vis­ers but even once you’ve found some can­di­dates to in­ter­view, you’ll want to run through the fol­low­ing check­list: 1. Are they reg­is­tered? Check the data­base at fspr.co.nz. If not, there’s a prob­lem. 2. How are they paid? They should dis­close this upfront, in writ­ing, with­out hav­ing to be asked. If they don’t, there’s a prob­lem. 3. How broad is their scope of ser­vice? In other words, can they help you with ev­ery­thing you need ad­vice on, or only some spe­cific ar­eas? 4. How much do they charge? Are there any hid­den fees at the end of the con­tract, or on­go­ing costs? Are the fees spelled out in dol­lars, not hid­den be­hind per­cent­ages? 5. Do they lis­ten to you, and un­der­stand what you want?

If you man­age to check off all th­ese items, con­grat­u­la­tions – you might just have found your­self a uni­corn. Got a burn­ing money ques­tion? Email Bud­get Buster at richard.mead­[email protected]­dish.org, or hit him up on Face­book, where you can also find links to pre­vi­ous Bud­get Busters.

Mak­ing the most of your money means learn­ing how to choose a good fi­nan­cial ad­vi­sor.

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