Blowing Up Bad Advice

WARNING:

This article contains a little bit of questionable language and a sizable rant. Do not read if you are easily offended or a bad adviser.

It’s Bonfire Night here in the UK and the legend of Guy Fawkes is taking centre stage. Nowadays, Guy’s cause might be labelled as religious extremism. However, there are days when I’d like to take gunpowder to the worst aspects of the financial services industry…and here’s why.

Aunty Kay & The Bad Adviser (a true story)

A few years back, during the depths of the global financial crisis, I was visiting my aunty Kay in Australia. She asked me to look at some of her investments because they had dropped significantly in value, as had most people’s investments at that time. She wanted to ensure that she was receiving the right advice for her situation.

As I read through the advice she had received, I became more and more incensed. It encapsulated everything I hate about bad advice. Why?

The Written Report Was A Load Of Crap

I’ve tried to find a nicer, more polite way of phrasing this, but there just isn’t one. The written report had no redeeming features. Not one.

  • It was 80 pages long.
  • It included all correct legal disclosures, making it overly dense and difficult to comprehend.
  • The parts that weren’t stipulated by the regulator were brief, irrelevant to Kay’s situation and (in my opinion) completely misrepresented what she had discussed with the adviser.
  • It was generic investment advice, with nothing specific about what she wanted to do with her life and how this advice would help her achieve her goals.
  • Kay had clearly stated she wanted investments that were no risk, yet her money was placed into two property funds and a bond fund. In my view, the adviser was either giving advice that suited himself or he was totally incompetent. In either case he shouldn’t be practicing.
  • Despite all this, she was charged fees as if she had received genuine, personally tailored financial planning advice.
  • The recommendations were clearly written for the benefit of the adviser, not my aunty.

They Hid Behind Regulation When Challenged

When, at my behest, aunty Kay made a complaint, the adviser and the network claimed that everything was done by the book and they were right. That sort of defensive attitude makes me even angrier. This was a lady who wanted a no risk investment, even if it meant no return; she fully understood that. The adviser just ducked for cover and, had I not been involved over the many months it took to resolve the issue, my aunty would have given up. Not once did anyone (not the adviser in question nor the network itself) call or write to her to apologise for what was, very clearly, poor advice.

Advice between a client and their adviser is personal and confidential and therefore, in my view, the penalty should also be personal. This adviser simply left the company and there was no comeback. He may well be working somewhere else giving the same shitty advice to some other poor, unsuspecting individual.

I do wonder why advisers like this aren’t fined or banned from practising at the very least. We deal with people’s life savings, after all; our profession should not be staffed by mugs.

Bad advisers hide behind regulations and blame the compliance culture for their own shortcomings, rather than focussing on what’s best for the client. Businesses that run client-focussed models don’t have any major compliance issues. Issues only arise when businesses try to comply to the letter of the law, with no consideration to the spirit of it.

They Displayed A Total Lack Of Knowledge

In the instance with aunty Kay, the adviser clearly had no understanding of diversification. This is such a basic tenet of good investment advice. If you don’t know something as basic as that as an adviser, then you’re a bloody idiot who should be incarcerated for sheer stupidity.

The Network Engaged in Cynical Practices

Let me be clear; I’m not anti-networks, I’m just anti-bad ones. In this instance the group in question appear to have mopped up a large number of bottom-end advisers to grow into one of the largest networks in Australia in a very short space of time. They had knowingly and cynically taken on advisers like the one who advised aunty Kay after the shake-out from the Aussie equivalent of RDR. Pay peanuts, get monkeys perhaps?

Here Endeth My Rant

It is my belief that the (totally understandable) lack of trust across the financial services industry is as a result of these types of issues. By addressing the trust issue, it is possible we could create an industry that is ten times the size of what we have now.

It’s beholden on all of us to be doing the right job for clients. Perfection may well be unattainable, but excellence isn’t. Be excellent!


A click to tweet for the fellow ranters:

As far as I’m concerned, if you can’t stand behind your own advice, get out of our industry! [click to tweet]

Or a sweet tweet:

 It’s beholden on all of us to be doing the right job for clients. Be excellent! [click to tweet]


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5 thoughts on “Blowing Up Bad Advice

  • Brett,

    I suspect this sort of thing is much more common than you think here in the UK.

    Often when reading comments on blogs or listening to advisers at meetings what comes across is a clear obsession with themselves and regulation as opposed to the client.

    Similar impressions are given by adviser firm websites where glory walls dominate and substance is hard to find.

    It may just be insecurity which drives advisers to build walls of paper around their work and makes their communications as opaque as possible but it is what sustains the general mistrust in our industry.

    If you need more than one sheet of A4 to explain what you propose doing with someone’s money then perhaps you should not be doing it,

    If you do the right thing every time for clients then compliance should be irrelevant as it only came about in the first place as a bum covering exercise for products which failed to deliver what it said on the tin.

    Favourite rant subject so thanks for the chance to air it !!!!!

    Reply
  • There isn’t much to disagree with but I have one possibly controversial point to add. There is still a lot of questionable advice in the UK, as Phil suggests, but a misapprehension about where it comes from. Take extremely high risk UCIS funds sold to people who can’t afford to lose that money. Let’s assume, for the sake of argument, that’s bad advice. There are plenty of high profile, ‘Award Winning Financial Planning Firms’ still pushing those right now. The types who appear in all the trades regularly. With lots of qualifications and glossy brochures. It isn’t necessarily just what goes on in networks and the perceived lower end of the market.

    Reply
  • Hi Brett
    Surprised to read “Advice between a client and their adviser is personal and …therefore, in my view, the penalty should also be personal.”
    If we are building businesses, with repeatable processes, this isnt really the case. We have to accept responsibility if our systems and controls allow bad advice to be given to our clients.

    Reply
  • Hi Philip, Phil and Phil (not sure what significance three wise Phil’s has, but it must mean something),

    Firstly, for Philip Wise, I take your point and clearly it is a business process issue. However, in some larger groups single advisers run a little bit loose at times and in a case as I’ve described both the business and the individual adviser should be held to account in my view.

    For Phil Young, yes I know. Bad advice can lurk in many places. In this instance the advisers in Oz just happened to be of the lower end variety.

    I think I’d also like to clarify that in my own career I’ve made mistakes that have cost my clients money. When I was a new adviser I cringe at some of the things looking back. I’m not out to condemn anyone who has made mistakes. However, it’s how you respond to those mistakes. Do you put your hand up and take it on the chin? Do you try to address the consequences even if you haven’t been caught? Or do you run for cover as in this instance in my article?

    Advisers who are less experienced but genuinely trying to do the right thing can improve and grow and we all fit that description at some stage of our career. I am happy to support these people if they get into a tough spot, or better still, by helping them not get into a tough spot by sharing my expedience.

    For Phil Melville. Glad I could be of help and I agree re the one page thing and doing the right thing by clients. I know in our compliance world many will see this as unrealistic, but I’m with you; I don’t think it is.

    Reply
  • Sadly, there are too many advisers of this sort out there. How they get away with it I don’t know.

    Earlier this year, my CPD was audited by the IFP. It passed, though they picked up on the lack of hours spent on the area of ethics.

    I think this is a bizarre and, frankly, pointless requirement – just about anyone can study and pass exams to become an adviser, but if the adviser is a person with no ethics and one that gives no consideration to anyone’s but their own needs in the first place, attending a seminar or reading something about ethics is hardly going to change that.

    Or do the IFP and PFS believe otherwise?

    Reply

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