Trust in financial planning must be at, or near, an all-time low.

The string of failures in the financial planning sector that has cost investors, mostly retirees, billions of dollars over the past decade has not just been at the fringes. Revelations about dodgy advice at the Commonwealth Bank in the past have likely further dented trust in personal advice generally.

Planning is still evolving into a fully-fledged profession and consumers have to do their own checks. While the majority of planners would never dream of doing the wrong thing by their clients, there are those working in business models where advice is used to disguise product sales.

Business models

The financial advice industry can be divided broadly into two types – planners who work for independently-owned planning firms and those – the vast majority – who are aligned with one of the big financial institutions. Independently-owned advisers operate their own licence and can independently decide on what products and strategies they will use.

Aligned advisers, such as those either employed directly by the big banks or working for an advice firm that is owned by a big bank, usually recommend their employer’s products.

However, advice from a non-aligned planner is no guarantee of good advice. It was, for example, mostly non-aligned advisers who, in return for big commissions, recommended investing in property developer Westpoint, which collapsed in 2006.

Non-aligned advice firm Storm Financial, collapsed in early 2009. Storm advisers recommended only one “strategy” to clients.

They were advised to borrow, often with their homes as security for the loan, and invest in the sharemarket. The strategy unravelled when the sharemarket crashed as a result of the GFC.

Many had to sell their homes to repay their lenders and were left to rely on the age pension. Even accountants have not been immune from the disasters. It was mostly accountants who recommended the tax-effective agribusiness schemes such as Great Southern and Timbercorp that collapsed in 2009.


Mark Rantall, the chief executive of the Financial Planning Association, (FPA) points to a number of recent changes that will help lift the professionalism of planning.

The big banks and AMP have said they will lift minimum educational standards of their planners. Also, from the start of next year, there will be an online register of financial advisers.

It will likely include the planner’s work history going back five years, qualifications, ownership of the planning firm and any bannings or other sanctions against the planner made by the Australian Securities and Investments Commission.

The register will, for the first time, allow the regulator to know the details of everyone licensed to give personal advice.

Rantall says there is more work to do with FPA members, regulators, government and industry bodies to “ensure we live up to the expectations of our profession and its clients”.

Rantall says there are other things to ask an adviser besides qualifications, membership of professional associations, who owns the licence and how the planner charges for advice.

Consumers should ask the planner if he or she can refer you to those who have used their services. He says consumers will also find a lot of valuable information in the planning firm’s financial services guide.

Rantall says there are some tell-tale signs of whether an adviser is likely to be acting in your best interests or not. “If they try to sell a product from the minute you walk in the door and if it sounds too good to be true, it usually is,” he says.

“There is no short-cut to wealth creation,” Rantall says. “If anyone is offering a short-cut; that means taking higher risk,” he says. “The smart way to wealth generation is a long-term strategy and saving as much as you can, and managing down debt to an acceptable level,” he says.

It is also about building the super nest egg and not incurring high interest rates on debt, such as credit cards, Rantall says. Sometimes the best advice does not involve a product recommendation at all, he says.

Where investments are recommended they should be “solid”. If money is borrowed to make an investment the gearing levels should be conservative, he says.

Avoid pitfalls

Claire Mackay, a certified financial planner (CFP) and a chartered accountant at Quantum Financial, says there are a number of filters or screens that consumers can use to help choose a suitable planner.

The first is membership of the FPA as members must adhere to a code of conduct, ethical standards and undertake continuous education. New practitioner members of the FPA must have a relevant university degree.

About 5600 FPA members also hold the CFP qualification, which the association promotes as the “gold standard” of financial planning. Mackay says there is no filter that gives an absolute guarantee.

There are those who have the bare minimum and those who have gone “above and beyond”, she says. Some have specialisations such as expertise on self-managed superannuation funds, for example.

Consumers should be aware that advisers work for firms with different business models. Some people like the comfort of a big brand, such as a big bank. “They are there to sell their services,” she says.

There are free tools available for those with straightforward financial circumstances, MacKay says. This includes the Australian Securities and Investments Commission’s MoneySmart website at, where there is a budget planner and a mortgage calculator as well as other calculators, including for superannuation and retirement.

Simple superannuation advice is also available over the phone from your super fund, she says.

How to pay for it

Many people pay for advice through an “asset-based fee”, which is a fee charged as a percentage of the money under advice that is ongoing rather than paid upfront.

That can be a problem, because it may mean the planner has an incentive to make product recommendations and less likely to recommend paying-down the mortgage or buying an investment property.

That is because they can only capture an asset-based fee by pushing products. Many non-aligned advisers, including Claire Mackay, ask clients to pay a fee each year for advice. She says some people baulk at paying upfront. However, it is value the client is getting for the money that counts, she says.

Ratings service

Conducting a beauty parade of potential advisers is probably not that practical for most people. To make the search easier, Beddoes Institute, a consultancy, has launched its Most Trusted Advisers Register. It is designed to serve as a referral source for consumers.

Adam Tucker, the director of the Beddoes Institute, says thousands of clients of more than 150 advisers have been questioned. Of these 150, more than 30 have so far made it onto the network.

Tucker says these are the planners that are providing exceptional client service and performance. “Most trusted advisers also rated higher on their qualifications, experience and technical skills than other advisers,” Tucker says.

Planners pay nothing to be listed on the network. It is not funded by any financial advice or financial services firm. Nor it is funded by any association. More planners will be added to the network over time. The website is at and there is also a free mobile phone app at the Apple store.

Case study

Jon Boughton, 68, a retired clinical psychologist and management consultant, was prompted to seek financial advice in 1989. He had been relocated by his employer from Sydney, his home town, to Melbourne, where he has lived ever since.

After relocating to Melbourne, Jon’s wife Sandra, who is also clinical psychologist, heard financial planner Michelle Tate-Lovery of Unified Financial Services speak at Sandra’s workplace.

“We contacted Michelle because my wife was very impressed with the comments she had made,” Jon says. “At that stage, I was doing a lot of international work and was away from home quite a bit,” he says.

“I was more inclined to spend my time with my family, rather than rooting around in documents trying to find out what the latest tax situation was or what the super situation was,” he says. On meeting Michelle for the first time, he said he felt a connection straight away.

“It is not only a connection with the nature of the service offered,” he says. “If you are going to share personal financial information with somebody you need to feel comfortable and confident with the person,” Jon says.

Without advice they would have bumbled along, Jon says. “But there is no doubt we are significantly better off from having advice,” he says. Michelle Tate-Lovery gets paid a fee-for-service. “There has always been openness and transparency about the manner in which fees are charged,” he says.

Posted by John Collett – The Age on 17th September, 2014