Financial adviser’s undergo “remediation”

It’s been a big month for financial advice in Australia. Big 4 CEO’s have all returned from Canberra and now sit uncomfortably on their leather chairs in their corner offices. The advice regulator has continued the barrage with the timely release of a report admonishing the big instos for hiring each other’s bad apples.

As luck would have it, I caught up with an old pal this week, who had recently finished up a stint at one of our beloved major advice networks looking after a process called ‘remediation’. For those who don’t haunt the financial advice news services, or indeed missed the above recent ASIC report on major licensees’ pretty embarrassing long term record (which was a recurring theme in this month’s Parliamentary enquiry), remediation is the act of sifting through the history books in an attempt to satiate the recent and ongoing public baying for answers.

Client files are examined on a number of key criteria, including whether the client was given reasonable and correct advice, was recommended the right product for their needs, was given the correct and relevant documentation including Product Disclosure Statements, Financial Services Guides and even, wait for it, Statements of Advice. File notes are checked for authenticity and relevancy (if available…) and finally, confirmation is sought as to whether the promises made for ongoing service have been fulfilled. Fun stuff.

Why did you quit I asked? Horrible job, he says, and hated every minute of it. Was there much to do? By his count, 10 years was conservative and you wouldn’t expect much change from $100M!

Huge amounts of expensive (read: lucrative) subcontracting created through issues finding and keeping staff, locating advisers for comment and questioning and above all else, if the wrong thing had been done, trying to ascertain the dollar amount for ‘remediation’. Then of course, you had to find the client!

On the plus side, you can be sure that this whole ordeal will create, and this is me being an optimist here, a financial advice world with more oversight from within our ‘pillars of financial fortitude’. Fortunately this also means that, without the creamy commission structures of old and potential for sales driven bonuses, the best and hungriest salesmen advisers will need to look elsewhere in the murky world of finance for the six figure salary with little to no effort.

Furthermore, as minimum education standards are lifted across the industry, one holds a glimmer of hope that I may be able to proudly announce being a ‘financial adviser’ and not immediately be ejected from my next weekend BBQ. Not holding my breath!

A quick Google search yields remediation to be ‘the action of remedying something, in particular of reversing or stopping environmental damage.’ Fair to say that this climate will take some time, and shareholder capital, to properly change.

Tim Fuller

Head of Operations at Nucleus Wealth
Financial adviser seeking to make quality investment solutions more accessible to everyday Australians.
Tim Fuller

Comments

  1. ceteris paribus

    What a sad industry this has tended to be.. When they serve their clients faithfully and with care, planners offer tremendous assistance to the financially naive.

  2. CraftsmanMEMBER

    All planners I have dealt with (even those recommended by friends) sprout bullshit. Always pushing their product onto you. I then spend time getting financially sharp and now know what they could never tell me (how to make money without them taking a cut).

  3. My then wife and I went to see a financial adviser just after we got married. He wanted to charge an upfront fee of $3000, plus an ongoing fee of around 1.5% of funds under management to get us involved in leveraged sharemarket speculation.

    It would’ve had to have performed exceptionally well to justify the fees, and I wasn’t happy with borrowing lots of money to gamble on the stock market so we politely declined. A friend of mine had just paid off his small townhouse at the time. He has 3 kids and wanted to move to a bigger place, but his wife went to a financial adviser who advised her to remortgage the house and invest in leveraged sharemarket speculation, and that’s what they did despite my friends misgivings.

    The GFC happened a few years later. I had no sharemarket exposure and was ok, while my friend, after being very happy with the initial profits from his investment, was wiped out. Nearly ten years later he and his family are still living in the same small townhouse with now teenage kids, and have almost paid off the mortgage that they used to fund their exploded sharemarket speculation. They have lost hundreds of thousands of dollars, and how they are still married I do not understand.

    I also noted at the time that the parking garage of the advisers building was full of Porsche’s and BMW’s while I was driving a Camry, and concluded that perhaps the people making the most money out of the financial advice racket were the financial advisers, not the punters like me.

    I woulnd’t trust a financial adviser with $0.01 of my cash. They are sharks, waiting to feast on chumps.

    • “and how they are still married I do not understand.”

      For better or worse?? A foreign concept to many women in the scenario you describe.

    • “I woulnd’t trust a financial adviser with $0.01 of my cash. They are sharks, waiting to feast on chumps”

      Plenty of these types out there. The real issue is that the general public has such low levels of financial literacy, they can’t identify the good from the bad.

    • $3,000 up front is cheap, I have done plans with $8,000 up front. 1.5% ongoing is steep but that might be due to the gearing recommendation.

      • “$3,000 up front is cheap, I have done plans with $8,000 up front.”

        What a load of self congratulation BS. Why should there EVER be an upfront Charge ?
        An hourly charge is all it’s worth with an estimate given likely complexity if any.
        – — and never pay ongoing fees – – an excuse for rape !

      • You have no idea how many hours it takes to do proper product research, satisfy all legal requirements, complete audit and preparing paperwork for a single plan. Completing the simplest advice document alone takes at least 4 hours excluding research (market rate for this is $150 p.h). Most plans I come across take 8+ hours excluding research.
        $3,000 barely cover costs, stop being butt hurt.

    • Correct on all counts: you hand over your hard earned cash and they in turn insist you drop your pants and bend over.

      However, all is not lost: I think it highly doubtful the industry, as it stands, will survive the next financial crisis. It’s not only the banking industry that will face a monumental overhaul, the financial advice industry will meet the same fate. Grab yourself a bottle of something special and stow it away for the big day.

      Just make sure it’s not Liebfraumilch — it may sound as if it should go well with Schadenfreude but it really doesn’t :/

  4. I dealt with some remediation clients a while back. I can confirm that dealing with these can make your head explode, especially when you see the fees some advisers charge for absolutely no service. Explains why I drive a Ford Fiesta and those bastards drive an Aston.

  5. thomickersMEMBER

    “Huge amounts of expensive (read: lucrative) subcontracting created through issues finding and keeping staff, locating advisers for comment and questioning and above all else, if the wrong thing had been done, trying to ascertain the dollar amount for ‘remediation’. Then of course, you had to find the client!”

    Haha I know the lucrative subcontracting programme you are talking about!
    Base salary is $120,000 but i think you can ask for up to $160,000 base and you’ll get the role 🙂

    biggest issues are the types of people doing the investigation (subcontracting work) work:
    -super strict compliance people who have never given advice and read every word but their overall interpretation does not understand the holistic picture of advice.
    -2nd rate advisors who have burnt out and were getting put under performance management by their bosses/people within the bank. Conducting the work allows them to burn the 1st rate planners and punish the managers who created the boiler room culture.

    All I can say is…. LOL!