Money, May 05, AU Edition

Most financial advisors are here to help. Here’s how to pick the right one
Can you remember the days when financial advice came from a trusted accountant or bank manager? Things were simpler then: cars had bench seats in the front; we went to drive-ins; we ate meat pies and not Macca’s; we played sport for fun and not money; sex was safe and rugby was dangerous; and we had a father figure for a Prime Minister.
Well, perhaps not everything has changed.
But it’s a different world today, and there’s a whole new breed of people out there who want to tell us what to do with our money. Along with accountants and bankers, Australians now have to contend with guidance from such people as financial advisors.
I understand where the cynics are coming from when they say that the burgeoning financial advice industry is a self-made one. But in point of fact, I have spoken to many accountants, and their general consensus is that they are pleased that financial advisors exist.
Accountants say advisors take the heat off and allow them to focus on what to do with customers’ profits, rather than trying to make them in the first place. So let’s agree on one thing: love them or hate them, financial advisors are here to stay, and we have to learn how to manage them and assimilate them into our financial strategies. We need to better understand who they are, what they can do for us, what they can’t do, and what we can do if we are not happy with their service.
The first question has to be, just what exactly is a financial advisor? Greg Tanzer from the Australian Securities and Investments Commission (ASIC) explains that ‘financial advisors are qualified, and allowed under the law to give advice on shares, managed investments, superannuation, even insurance: really [any] financial type investments’. ASIC is the federal government authority responsible for the licensing, registration and monitoring of financial advisors. Importantly, ASIC is also responsible for the complaint process and legal ramifications if you, as a customer, believe that you have been inappropriately advised.

What do financial advisors need to do to become licensed? A prospective applicant has to fill in a 58-page licence application form which not only questions his or her qualifications but also delves into their personal financial situation, risk management skills, and knowledge of compliance policies and dispute resolution mechanisms.
ASIC has a register that lists training courses and individual assessment services that have been approved by ASIC authorised assessors as meeting ASIC’s training requirements in relation to their Policy Statement No. 146, which governs this sort of thing.
Once a financial advisor is registered, he or she is listed on the ASIC website ( and it is a simple matter of doing a search to ensure that they are correctly qualified.
A requirement of their licence is that every financial advisor must have a ‘Financial Service Guide’. This is a document which outlines the range of services that they offer, who they work for, and any associations they might have with financial institutions. You should be aware that almost all financial advisors have some sort of association with a large bank or other financial institution such as a managed fund provider. Is that a conflict? Is it a problem? According to Tanzer, ‘It is not providing that you know about it. The issue is that they can still give you advice from these institutions. Many customers actually want advice on the products available from these institutions because they do bank with them.’
Adds Tanzer, ‘They also have to tell you about commission arrangement and how they are being paid. They have to tell you up front’.
Financial advisors also have to be a part of some sort of external dispute resolution scheme. These schemes are put in place to save you time and money so that you don’t have to go to court. They are neutral, objective, non-associated schemes that go through certain procedures to ensure that disputes are managed fairly, openly, and equitably. One of the most common is the Finance Industry Complaint Service (FICS). All financial advisors have to be part of one of these schemes and you should ask them about this before you sign up with them.
Financial advisors also have their own industry group, the Financial Planning Association. This organisation sets ethical industry standards and has its own complaint resolution procedures.
If after all of this preparation you find yourself in a position where you have some major issues with your financial advisor, then your first step is to contact ASIC. ASIC has powers to take disciplinary action against financial advisors, which could include banning them or initiating criminal proceedings.
ASIC’s current acting chairman, Jeremy Cooper, succinctly explains that ‘clients seeking advice about how to invest their money to secure their financial futures, like all people, have a right to feel that the guidance and information they are receiving is genuine’.
senior2.jpgThis organisation is not a paper tiger, either. Just a couple of months ago, a NSW financial advisor was sentenced to an eight-year jail term with a non-parole period of five years after pleading guilty to fifteen counts of misappropriating client funds and three more counts of dishonest conduct. ASIC also took civil action in this matter in 2002 when they obtained an immediate injunction against the financial advisor in question, and later obtained orders from the Supreme Court of NSW to permanently restrain the person in question from providing financial products and financial advice, or dealing with client funds. In 2003, ASIC also permanently banned this particular financial advisor from acting as a representative of a securities dealer or of an investment advisor, and from providing any financial services.
This particular financial advisor had got himself in this position because he defrauded nine clients over a two-and-a-half year period of over $1.7 million. He advised each of his clients to invest their funds into certain investment products or term deposits. They all assumed their money was being placed into legitimate investments. But contrary to his clients’ directions, the money was used to meet various business and personal expenses. ASIC has made it clear that stealing clients’ money will not be tolerated. Cooper sums it up, stating: ‘The prison term imposed … is a reminder to all financial advisors that ASIC will pursue those who defraud the community and abuse their clients’ trust, and that they will get caught and punished’.
I should make it very clear that these sorts of proceedings are very rare because disputes are settled before court action is required, and of course, the vast majority of financial advisors are doing the right thing. Like any industry, it is the small handful of individuals that give a bad name to the hard-working ethical majority. You should also be aware that in many cases it is actually the client that is at fault for not fully understanding or investigating what is being offered. As in real estate, the financial planning is very much one of caveat emptor.
We are charging through the 21st century with a sort of millennium madness that is producing many changes. Like any change, some is good and some is not necessary. Regardless of your own personal opinion about financial advisors, they are here to stay. In the most part financial industry professionals see this as a good thing, but what about we that require their advice. For mine, as a prospective client, I see their role as a value added service that should help me manage and maximise my financial situation, but like most things in this life I am responsible for what I do and the decisions I make.
I do not want to be a part of a society full of whingers that is always looking for someone else to blame, or something else to fix self created problems. It is up to me to fully understand and investigate what an individual financial advisor is offering and what regulatory requirements they have met. If I research correctly and ask the right questions, I will be in a better financial position. It may sound a paradox, but if I were to be in the middle of a dispute I would prefer it was the result of something that my advisor had done rather than my inability to be proactive.
Tips for you to use before you hand over your hard-earned to a financial advisor:
* Search the ASIC website to ensure that they are licensed.
* Ask to see their Financial Service Guide.
* Ask what areas in which they are qualified to advise you.
* Question their commission and payment arrangements.
* Understand fully their associations with any financial institution.
* Be fully aware of what services they can offer.
* Ask them to explain, and sight, the external dispute resolution scheme that they are a part of, i.e. FICS. This is important in case you do have a dispute with them.
* Ask if they are a member of the Financial Planning Association.
* If in doubt contact ASIC at or call their hotline number: 1300 300 630.