I usually try to keep my ranting on my blog to a minimum, but I have been so saddened by the story of the 71 year old lady from WA who is faced with losing her home to a high risk investment strategy that was probably never appropriate for her (ABC report here).
Over a number of years, on a nurse’s wage, she has amassed 11 investment properties (in addition to her home), owes over $3 million on the various mortgages and has seen her superannuation balance fall from $500,000 to almost zero. Instead of enjoying a comfortable retirement on a passive income, she is still working full time in an attempt to keep her head above water.
The article focuses on responsible lending practices among the financial institutions involved (and it does appear that some may have fallen short of their duty). However, that is not my point here. I would like to have a conversation around the value of professional financial advice.
By way of research I have attended a number of wealth creation through property seminars. The content is slick, evangelical and very compelling. Consistently missing are warnings about what can go wrong.
Due to a quirk of the law, Property is not considered to be a “financial product”. This means that whilst dealers in property can look and feel like financial advisers (they ask for your financial information, make predictions about tax savings and may prepare you a “financial plan”), they are not bound by the same rules and regulations that apply to advice around financial products (such as shares or insurance for example).
Another key factor is how the seminars are funded and the promoters paid. It is important to note that most are put on by developers or licensed real estate agents who will receive profit or commission on the properties they recommend. They may also receive commission on any loans they help organise.
Seeking advice from a professional financial adviser means that you will be told about the costs and risks of any strategy before you commit to it. We are bound by law to make sure that what is recommended is likely to achieve your objective and to make reasonable assumptions about what can impact on the chances of success. There should never be a possible outcome where a client is carrying such a terrible burden as the lady in the article.
Professional advisers are also bound to fully disclose fees as well as payments received from third parties. Through this, clients are able to make sure that their adviser is working only for them and is not being given incentives to make particular recommendations.
It is easy to look at financial advice as unnecessary or expensive. However when making such a huge financial commitment to a long term strategy it should seem like a small price to pay to make sure you fully understand what you are getting in to. Could you afford not to?
If you would like a second opinion on a strategy or investment you are considering, I would love to have a chat.
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© Summation Strategies 2018.
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