FINANCIAL advice was at the centre of a raft of scandals, frauds, inquiries, reforms, rip-offs and multi-billion-dollar losses last year.     

As a result, consumer trust is estimated to be tracking at an all-time low.

The shocking track record of bad advice and kickback deals has damaged a whole industry but it is still possible for the average person to sift the good from the bad.

Despite recent changes to advice laws and promises of better self regulation by the big advice networks, the burden of finding good advice still has to be carried by the consumer.

Legal remedies and liability claims only come after bad advice has been given and a financial loss has been created. Most people do not have the time or ability to survive these financial disasters or follow through with legal action. Even the experts say it is still very much a case of buyer beware.

Deakin University senior lecturer in financial planning and superannuation Adrian Raftery says if your adviser is acting like a salesperson — walk away.

“Good advisers recommend investment strategies, not investment products. Products should never be the focus of the advice,’’ Mr Raftery says.

“Also avoid advisers who ‘cold call’, particularly those who chase you several times a day, and be extremely cautious of those that run introductory seminars. They are doing this to drum up business and there have been a number of shonks who run these all the time.”

Every adviser must provide a Financial Services Guide to prospective clients. These documents give details about their qualifications, licence, rates and if they are linked to any big product providers such as banks and life insurance companies.

“If they don’t give you an FSG then walk away as they are noncompliant with the law and likely to be noncompliant in other areas too,’’ Mr Raftery says.

“A good adviser will also take the time to go through this document rather than just give it to you as an afterthought or in a goodie bag to take home.

“I also suggest avoid any adviser that charges a commission or a percentage based on your assets. Similarly don’t go for advisers who promise the highest returns — higher returns generally relate to higher risk.”

And don’t be a sheep and follow an adviser blindly because “everyone else” is.

“The biggest scams happen when everyone gets caught up in the herd mentality. Take the time to read any fine print and always challenge anything you don’t understand,” Mr Raftery says.

Consumer group CHOICE says it’s still a case of consumers safeguarding themselves.

“Be prepared before you even start looking for a planner; you’ll get better advice if you can be precise about what you need,’’ Choice spokesman Tom Godfrey says.

Prepare a household budget, list of assets, liabilities and short, medium and long-term financial goals, he says.

But also take some time before visiting a few financial advisers to learn about the different investment markets.

“Read books, magazines, newspapers, look at websites, watch specialist TV programs and even go to a free Centrelink financial planning seminar. And think about how much risk you’re prepared to take when investing,’’ he says.

The next step is a bit more difficult, however.

“Our results show that finding a good planner is a bit of a lottery,’’ Mr Godfrey says.

CHOICE studied the quality of advice provided by banks, large financial planning chains, small planning companies and stockbrokers.

Stockbrokers recorded a much lower score than other types of advisers: 69 per cent of their plans were graded “borderline” or worse.

Planners who worked for a fee or a combination of fee and commission often provided better advice than those who worked on a commission-only basis.

Although most commissions have now been banned on new product recommendations, it might be worth considering if you want to take on an adviser who used to take commissions.

Based on the CHOICE survey and a study by the Australian Securities and Investments Commission, consumers are up to six times more likely to get bad advice from an adviser who accepted commissions.

ASIC says to make sure you understand the different types of payment methods. These vary significantly depending on what type of advice and pay structure you agree to.

“The first meeting with an adviser is usually free. During this meeting you and the adviser can discuss your advice needs and the adviser can give you an idea of what they can do to help,’’ ASIC’s MoneySmart senior executive Miles Larbey says.

“The adviser will also be able to tell you how much the advice will cost.” 

ALL ABOUT FEES

Statement of advice: If you go ahead with an adviser, they will prepare a statement of advice which documents the advice, strategies and any financial products recommended. The cost for preparing one will be billed to you or, with your permission, deducted from your investments. You’ll pay between $200 and $700 for simple advice and $2000-$4000 for more detailed advice, ASIC senior executive Miles Larbey says.

Implementation fee: If you accept the recommendations there may also be a fee for putting the advice into action. It usually covers the cost of administration and can be negotiated with your adviser. It can be paid upfront or deducted from investments.

Ongoing advice fees: If you agree to pay for ongoing advice this usually covers regular newsletters, reports on your investment portfolio, an annual review with your adviser, information and seminars. According to Mr Larbey, many companies offer tiered services, depending on how much ongoing advice you want.

Annual fee disclosure: Anyone receiving ongoing advice must also be given an annual statement disclosing all the fees, charges and services received. Some commissions may not be included in this annual statement.

Commissions: Commissions are banned on any new investments and superannuation products entered into after July 1, 2013. However, advisers are allowed to keep receiving commissions from products sold before this time. These commissions will continue to be automatically deducted from your investments until you end that product or end your relationship with that adviser, Mr Larbey says.

Original article published in The Herald Sun on 3 January 2015