Month: May 2018

The incomparable David Rowe has a daily habit of drawing great cartoons. This image describes the current situation with the excrement covered big 4 Australian bank pigs dragging the Australian Treasurer and the Minister for Revenue and Financial Services along for the ride in front of the Royal Commission.

Lets start again with the astounding ASIC revelation

ASIC found that in 75% of the advice files reviewed the advisers did not demonstrate compliance with the duty to act in the best interests of their clients. Further, 10% of the advice reviewed was likely to leave the customer in a significantly worse financial position. 

Lets get this straight … I rock up to to a financial planner and I only have a 1 in 4 chance to get some advice in my best interests …. and, I have a one in ten chance of ending up in a significantly worse situation … What is going on !!!! – these are the people who many depend upon for sound financial advice.

The sad case of Sam Henderson

Slack Investor writes about Sam only because he is still gobsmacked with the evidence presented to the Royal Commission on 24/04/18.

A bit of background … Sam Henderson is the very public and enthusiastic face of Henderson Maxwell, a financial advice and accounting firm. Sam has been  everywhere in the Australian financial media  for the past few years with his own weekly TV show and newspaper columns. Slack Investor admits to being a great fan of Sam’s podcasts Sky News “Your Money Your Call” presented weekly on Thursdays. In these podcasts Sam, and others, dispense generally good advice about retirement issues and superannuation.

I have found their program to be extremely informative. They have talked a lot about Self Managed Super Funds (SMSF’s), retirement strategies and taxation – Advice that Slack Investor has found very helpful.

However, Sam has fallen foul of the Royal Commission. Henderson Maxwell charged $4950 up front to give advice to a client that would have been to her detriment – to the value of at least $500 000. It appears that Sam’s firm has acted in their own self interest rather than the clients. Specifically, Mr Henderson urged his client to establish a SMSF and remove her super investments from a generous public sector deferred benefit fund to invest in Henderson Maxwell products, which would have earned him ongoing fees.

The fees proposed by Sam Henderson’s advice would have annually amounted to $19,000 while the client’s existing strategy was costing her $2768.

Although, through this public shaming, Sam has carried a lot of the heat for the widespread malpractice by the banks and financial planners.  This case represents the huge problem with the financial industry in Australia and the reason why Slack Investor has educated himself in the dark art of finance rather than rely on a financial advisor to dictate strategy for him.

One of the most galling things about this case is that Henderson Maxwell is considered to be one of the leading firms for giving financial advice. They are the winner of the 2016 Australian Association of Financial Advisers (AFA) award for practice of the year. The AFA advertise their advisers as “Trusted, Knowledgeable, Reputable, Respected”

Slack Investor admits to being a flawed human – but he would hope that he would act ethically even as the financial system drapes its lucrative reward tentacles tantalizingly in front of him. In the case before the Commission, Sam Henderson responded to financial incentive.

What is wrong with the Financial Advice Industry?

“Show me the incentives and I will show you the outcome” –  

Charlie is vice- Chairman of Berkshire Hathaway and dispenser of financial common sense – another Slack Investor Official Hero

This sums things up. At the moment most financial advisors are given incentives to sell their own products – there is no incentive to represent the best interests of their clients. The regulator ASIC has done a review of the quality of financial advice that had been provided to SMSF’s, and found that

90% of cases had failed to be in clients’ best interests.

It is hoped that the Royal Commission will accelerate change. The Financial Review reported that four years ago the head of the Financial Planning Association (FPA) called on financial planners to unite and push for the separation of product from advice. In the meantime, the vertically integrated financial planning money machine with its fees and trailing commissions has kept on rolling on …

The Hayne Train should address these issues before finally pulling up to the station – While we are waiting, if you really need a financial planner, only use a truly independent advisor  registered with IFAAA – No affiliations with product, no commissions and no asset fees . There will be an upfront fee for the advisor’s service – but this fee should be small in comparison to the ongoing costs associated with the lifetime tenure of an affiliated advisor.