Welcome to the Asset Financial Planners Directory

Meeting your match

By FIONA MOORE

The final instalment in our three-part Good Advice series, Personal Investor traces the

experience of four disillusioned consumers in their quest for quality financial advice.

Good financial advice remains one of the hardest things to find. Almost four months ago, the financial planning industry of Australia underwent its biggest test and failed.

In a damning report on the results of a joint shadow shopper survey conducted by the Australian Consumers' Association (ACA) and the Australian Securities and Investments Commission (ASIC) in February, the financial planning industry was labelled "structurally corrupt" by the ACA chief executive officer Louise Sylvan.

The third of its kind in eight years, the survey involved 53 consumer volunteers who each approached three financial planners to seek a comprehensive financial plan.

The survey received 124 plans, which were then assessed by industry experts. Only two of these plans were regarded as "very good" with a further 23 plans considered "good".

Overwhelmingly, 51 per cent of the plans were graded "borderline" through to "very poor".

Planners were found to be placing their own interests ahead of clients by either ignoring their clients' needs or simply producing generic financial plans with careless errors and insufficient attention to detail. Recommendations of investments without justification were also a problem.

The report provoked a storm of media reaction. The only thing people on either side of the debate could agree on was the demand for financial planning was increasing and would continue to do so.

So the dilemma for investors is how to find an adviser that will do the job for them.

There are good advisers out there, Personal Investor talks to and consults with a lot of good, professional advisers. There are also a lot of product floggers masquerading as advisers. The trick is sorting out the good from the bad.

Adding to this challenge is the fact that there is no brand or qualification or rating service that gives consumers absolute piece of mind. There is an independent rating service known as Adviser Ratings where advisers pay $250 to be rated and the information is then published on a web site. Now hundreds of planners are listed on this web site (www.adviserratings.com.au).

According to Sylvan, the results of the ACA/ASIC survey demonstrated that for the consumer, the task of identifying a good financial planner in Australia was like "a throw of the dice", with no guarantees that a planner would deliver either good service or good advice.

That is true. But investors can improve their odds by doing their own homework, taking the time to understand what financial advisers can - and can't - do for you.

Personal Investor approached four of the disillusioned shadow shoppers from the ASIC/ACA survey and put them in contact with a financial planner that would (hopefully) demonstrate what proper financial planning was all about.

Clearly the consumers were probably more cynical than average about financial planning given their bad experiences. The financial planners were aware that these clients had had bad experiences and were part of the shadow shopper exercise.

One of the defences mounted by the financial planning industry is that financial planning businesses often are not set up to cost-effectively service people who do not have reasonable assets to invest, and as a result many planning practices expressly target higher net worth clients for that reason.

However, Sylvan says, all consumers have the right to have their wants met by planners, and that while financial planners are not positioned to serve all consumers, the industry must look at ways to better educate the whole community in what it does.

"Maybe there should be two faces to a firm," she suggests. "A side that is dealing with the individuals with a bit of money and another side for those with not enough money who can be handled differently."

Possibly the key message here is to understand your own needs. If you're a salaried employee you probably wouldn't contemplate going to a "big six" accounting firm to get your tax return done. They could do it - but it would be expensive - and they would probably explain that a small suburban accounting firm could do the same job for a fraction of the price. You could also get the Tax Pack and do it yourself if your affairs are straightforward.

A consistent message from Personal Investor over the years holds true - consumers need to do their own homework - both on investment markets and when finding a financial planner.

"It is not rocket science," says Sylvan. "Consumers do have a bit of a responsibility to do that."

Unfortunately, two of the shadow shopper participants dropped out during the process. The first was because the financial planner they were matched up with did not make house calls, and despite the financial planner offering babysitting services at his office, the shadow shopper was unwilling to take advantage of this.

The other shadow shopper did not proceed because they failed to complete the relevant fact-find information before the initial meeting, and with no information on the person the financial planner was unable to assist. However, two couples - one in Melbourne, the other in Adelaide - did go through the whole process and this is what they found.

Sixth time lucky

Two professional IT consultants and project managers, 40-year-old Karen Szymczyk and her husband 39-year-old Jacek recently moved to Melbourne from Brisbane with their two children, Sebastian, three, and Urshula one.

Before their involvement in the ASIC/ACA survey, the Szymczyks had consulted two financial planners. Karen met her first planner while running her own consultancy business in Brisbane. She says while he was pleasant enough, she did not trust him.

"He was also on the sleazy side and seemed more interested in kissing me on the lips than actually helping me through my financial situation," she recounts.

Five years later, three of which were spent living in the United States, Karen and Jacek saw another financial planner. Initially, they thought they were seeing an accountant due to the CPA description in the advertisement. This suited the Szymczyks who after spending three years in the US were keen to understand GST implications and any other tax changes that had been made while they were away.

However, the accountant turned out to be a planner as well, one who was quick to recommend that they invest in a Zurich international shares product as well as in timber plantations and vineyards.

"We didn't like him," says Karen. "And certainly not his enthusiasm to get his hands on the money we specifically told him we had saved to build our first house."

The next three planners the Szymczyks saw were part of the ASIC/ACA shadow shopper survey and either were lacklustre or failed to answer questions in a timely manner or to disclose commissions.

In one experience, the couple found the financial planner simply insulting. Karen says after she raised concerns over their superannuation savings given that she was now at home full-time looking after the children, the planner's response was to not worry as one of them would die and the remaining partner would then get all the super.

By the time the Szymczyks were recommended to Ian Heraud of Heraud Harrison, they had had enough and were not hopeful in any way of finding a good financial planner.

"I don't know how you get to a financial planner that is competent," says Karen.

Heraud says this scepticism towards financial planning quickly became apparent. "It was much more difficult than normal on the basis that they were so sceptical," he says of the experience. "And to have a bad run like they did is not a fair representation of the industry."

Heraud initially contacted the Szymczyks and sent them some information about his business and a fact-find information form to fill in before the initial meeting. This would assist Heraud in understanding their needs and goals.

On receiving this information, Karen says she found the linen paper and gold embossing of Heraud's stationary a bit of a "put-off", saying she was concerned over who was paying for it. The city location of his business also raised similar concerns.

However, it was not until the second appointment that Heraud really started to differentiate himself from the previous five planners the Szymczyks had seen.

"The differences were more the intangible stuff," says Karen. "I felt Ian was focusing on us and our plans and it was relevant to our goals. Also, he did not offer us financial products."

Heraud says in every other previous experience the Szymczyks had with a financial planner they had tried to sell them something, a strategy that he firmly disagrees with.

Further differentiating Heraud's advice was that it was based on solid projections that acknowledged that the couple would be living longer and therefore would need more superannuation. They received a 22-page financial plan that was explained to them page by page.

"We were treated like humans, not like cash cows," says Karen. "And as a result of the intangibles, we are going through with the tangibles with Ian."

Someone who listens

Before the ASIC/ACA survey, 49-year-old Dianne King and her husband 52 year-old Philip had never been to see a financial planner.

Both married for the second time eight years earlier, the couple were basically starting again financially and wanted to make sure they were on the right track. They were building a new house in Adelaide and wanted to know whether they should sell their other house or rent it out. They were also keen to be debt free.

The first planner they visited was tied to a bank and the Kings found he did not really do any work tailored to their need, generating a template-type plan.

While the second planner did provide a financial plan for a fee of $330, he was keen to get the Kings involved in margin lending, requiring them to borrow more money to achieve adequate equity levels so that they could then borrow money to buy shares.

The third planner also generated a financial plan for a fee of $1500. Although the plan looked comprehensive, it required the Kings to put all their superannuation, investments and insurance through this planner for which he would either take a set fee or a 1 per cent commission, whatever was less.

Dianne says all three of the planners did not take the current structure of their investments into consideration, and were more interested in setting up new investments that cost money.

She says the difference with David Middleton, senior consultant with Prescott Consultants and introduced to the Kings through Personal Investor, was two-fold. First, he listened and second, because he did listen, he understood that the Kings wanted to be debt free and to have enough superannuation and to know if they were on track to do so.

"He told us you can get there and you'll be debt free," says Dianne. "He said you just have to knuckle down. And because David stayed within the boundaries we were working in at the moment, that was the difference from the others [financial planners]."

Middleton says the Kings were initially sceptical when they came to see him, with Philip, in particular, closed and not willing to volunteer information.

However, he says, after discussing with them their financial goals, Middleton did not write a financial plan for them, but rather told them that by saving more, they could reach their financial goals.

He says planners need to ask themselves two questions when a prospective client comes to see them. Can they make the lives of these people better and can the planner make money for his business?

In this case given that the Kings did not need a financial strategy as well as the special circumstances surrounding the introduction of the two parties, Middleton says, neither option was likely. Dianne says the whole exercise has been very educational, but potentially costly had the couple had to pay for the four visits themselves.

She says it has proved to them that not everyone needs a financial planner. The fact that Middleton suggested they just be more diligent and did not feel the need to "be in our pockets" demonstrated to the couple that they were on the right track.

The reluctant consumer

"The client has to be pro-active, particularly in the process. If they're not motivated, then they can't expect to get the outcome they want." Sylvia Dickson, of Melbourne-based planning firm Dickson Bonacci, agreed to service one of the disillusioned shadow shoppers also involved in the ACA/ASIC survey.

After contacting the potential client, explaining how her practice worked including that it was a fee-for-service business, she sent him information on the business and a fact-find document to be filled in before the initial appointment.

To Dickson's surprise, she did not receive this information back, and on calling the client the day before the initial appointment, he said that he had not been to the post office to pick up the documents.

Dickson says while she has experienced such behavior before, she did not expect a person who had experienced such obvious difficulty in finding a good financial planner, and who had accepted the opportunity to have one identified free of charge, to act in such a manner.

"I find it really frustrating," she says. "Often people are really quick to criticise the industry, but sometimes they don't treat us with the same professional respect."

She says this experience has emphasised to her the real lack of understanding that consumers have for financial planners and what they do.

"If they [consumers] want a professional outcome, they need to approach it as they would approach any other professional," says Dickson. "I think there is a bit of a disconnect at the moment."

She advises consumers to be prepared when seeking a financial planner, and to gather all the relevant financial information to put the adviser in the best possible position to be informed. An overview of what they want to achieve and their attitudes to risk and past experiences are also important.