The risks of going to a financial advisor

Brendan Burgess

Brendan Burgess

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People often recommend on askaboutmoney that people should take professional advice on their investments.

That will work out some of the time. But it's very risky.

1,828 Irish investors invested €150m in Dolphin Trust on the advice of brokers.

Dolphin Trust collapse - Wealth Options broker

I'm one of the 1,800 Irish suckers who took the German Property Group (formerly called Dolphin Trust) bait. :confused: Although initially hesitant about investing, I was convinced when my broker sent me the following assurance from Wealth Option Trustees (WOT):- "We hold first...
askaboutmoney.com

It seems now that they have lost their money.

We keep pointing out on Askaboutmoney that if a product is offering 8% or 13% guaranteed return, run a mile.

But the brokers had no trouble recommending this product.

Brendan
 
Completely lost for words here.

Financial advisers are required to carry professional indemnity insurance which investors can make a claim against in situations like Dolphin Trust.

All things being equal you should always be better off taking advice than DIY investing as you can’t bring a claim against yourself. Suggesting that taking financial advice is risky is irresponsible.
 
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The problem with Financial Advisors is that Financial Advisor is a misnomer.

They should be forced to call themselves what they are, Retailers of Financial Products

Possibly some might be allowed call themselves Financial Advisors if they passed some very high bar, such as never accepting commissions from the providers of financial products.
 
OK, so if an investor gets bad advice from an investment advisor, they go to the Financial Services Ombudsman.

What would the complaint be?

That they lost all their money?

I would expect that the documentation which the broker gave them had a lot of risk warnings.

Brendan
 
Keep those pokers hot...

Currently there is an expert,on radio ads, warning us about the perils of inflation on our savings and pitching another "wheeze-du-jour"

Before that it was a €17m property investment vehicle...

And something about "peak oil"

A question to be asked of all advisors is...." If you have the expert knowledge on the products and rules of the game , then why not selfishly apply them for your own benefit ad infinitum. Why is it necessary to SELL advice as a business? Could it be that in a goldrush it's better to sell shovels than prospect for gold?
 
There is a selection bias here. A frequent AAM contributor is probably so financially literate that they probably don't need a financial advisor to tell them things like pay off mortgage, max out tax-relieved pension contributions, etc.

But knowledgeable people tend to underestimate the ignorance of everyone else on the same topic. So for a lot of people this basic advice could be worth paying for.
 
NoRegretsCoyote said:
A frequent AAM contributor is probably so financially literate that they probably don't need a financial advisor
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Hi NRC

My point is that if someone has found Askaboutmoney and sought suggestions on their investment options, they are much more likely to get good, independent suggestions than by going to a commission broker.

The vast majority of people fall into easy enough categories.

And, as there are no right answers, on Askaboutmoney, they will get different points of view.

Most of us will say - pay down your mortgage before making investments in property or shares.
Most will say -"You need 6 months emergency cash" , but I will say that this is grossly excessive - the person can make up their own mind.
I will say "Don't start a pension until you have bought a house and got your mortgage under control" others will say the opposite.

If they go to an advisor who is on commission, and most are, they will end up with the product which pays most commission.

If they have complex investment needs e.g. , if they are domiciled outside Ireland, they should go to a fee based advisor.

Brendan
 
Brendan Burgess said:
My point is that if someone has found Askaboutmoney and sought suggestions on their investment options, they are much more likely to get good, independent suggestions than by going to a commission broker.
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I agree!

I've only ever gone for professional advice on niche tax topics that a generic financial advisor just wouldn't be able to help on.
 
Anyone can be called a financial advisor, whether it is someone giving advice on personal finance or someone out to screw clients out of money. And it is near on impossible for ordinary people to tell the difference. And there are plenty of wolves in sheep's clothing too.

The quickest way to reduce this problem is to ban commission on investment products. So no allocation rates, lower management fees and if you want to pay for the product out of the contribution, it's taken straight out of the contribution amount.

You also get promoters of things like Loan Notes and geared property investments making promises of returns. I lost a client recently because another broker promised him 8% in a geared property scheme. I did highlight to him that his Global index fund returned 6% last year and 30% the year before but this obviously wasn't sexy enough. I can't and won't make any promises to clients as I have zero ability to alter the global stock markets in my client's favour.

While a lot of people on this site can look after their own investments, there are a huge amount of people who can't. With no return on deposits, these people are looking for a return and are being told to go into this investments in guaranteed* investments that will earn them 5% a year.

I would say to anyone dealing with a financial advisor to ask them how they are getting paid and ask them if they would be happy to do it on a fee basis. Get this in writing. If they don't give you a straight answer, they are hiding something and don't use them. Also ensure that their fees are clear on their statement of suitability. The current requirements allows brokers to bury the commissions and for things like executive pension, they don't have to disclose them at all. A good advisor has no problem in disclosing them.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)



* a guarantee is only as good as the person giving it. An insolvent nursing home in Galway won't be in a position to honour the guarantees it has given.
 
Gordon Gekko said:
The worrying thing is the number of people who don’t come to a site like AAM and get pointed in the right direction. Shocking.
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Marsupial said:
Because this latest Greenman news, coming hot on the heels of my other dud investments in Blackbee, Dolmen and Solar 21, means that he has now hit the jackpot!
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Were you on askaboutmoney at the time you made these investments? Did you not ask? Were there not warnings here?
 
Brendan Burgess said:
Were you on askaboutmoney at the time you made these investments? Did you not ask? Were there not warnings here?
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But why would I have needed the services of AAM when I had the services of a recommended, professional Qualified Financial Advisor - and was still reeling from the dud investments sold to me by another "Professional Qualified Financial Advisor" who had charged me €1,000 for the benefit of his superlatively useless advice?

How can any would-be investor differentiate between the woods and the trees?

What assurance would I have had that the advice offered here would have been any better than that offered elsewhere? And what comeback would I have had if someone here had (deliberately or inadvertently) sold me a pup?
 
Marsupial said:
why would I have needed the services of AAM when I had the services of a recommended, professional Qualified Financial Advisor
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Marsupial said:
What assurance would I have had that the advice offered here would have been any better than that offered elsewhere?
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Good points.

When you go to a financial advisor you get one person's opinion. He might be incompetent or dishonest or biased by the payment of commission.

The opinions on askaboutmoney are unbiased for the most part. And you will get both sides of the argument.

In particular, you will be alerted to clearly bad investments and unregulated products.
 
Brendan Burgess said:
In particular, you will be alerted to clearly bad investments and unregulated products.
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From, in many cases, unknown sources using a pseudenonym.

How could I be sure, for example, that one (or both), of my former, Highly Qualified QFAs weren't already here, strongly endorsing their own recommendations?! :confused:


(I mean no disrespect whatsoever to you, the site, which I love, or to the many wise, experienced and helpful contributors here, but I trust that you see my point?)
 
Marsupial said:
unknown sources using a pseudenonym.
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A lot of posters here do post under their own name:
Liam Ferguson
Marc Westlake
Steven Barrett
Myself
Ger Sheehy

Others who post under a handle, are regular posters and you can assess the quality of their posts here fairly easy - The Duke, Tom Edison to name but two.

On the other hand, if your QFA advises a product which gives 8% a year and a new user comes on Askaboutmoney saying that this is the best thing since sliced bread, then you would be right to be suspicious.

But you wouldn't even need to be suspicious, such a post would be responded to very quickly by the more frequent posters.
 
Marsupial said:
How could I be sure, for example, that one (or both), of my former, Highly Qualified QFAs weren't already here, strongly endorsing their own recommendations?!
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You might have a case if you were talking about a different medium/forum like Reditt, on personal finance. Moderation is poor due to the lack of knowledge of the moderators and posting in your own name puts a target on your back. The place is full of QFAs (both admin staff and advisors) who constantly downvote accurate/factual replies (without offering an answer) because they just don't fit in with their way of thinking or the information the've been given is just wrong and they're too lazy to check it. The intention is to mislead and confuse. But, you can tolerate it because of the block function.

Here, I think, the anonymous suspicious accounts go through some sort of vetting. I mean, have you not seen those posts where Brendan puts on his Canadian Mountie hat and tracks down those who fluff up financial services and products?
 
Insurance intermediary dies with €3.7m of client funds missing.

www.irishtimes.com

At least €3.7m in unaccounted client funds discovered in Athlone investment firm, court hears

Provisional liquidators appointed to Strand Investments and Finance Ltd after forensic accountant’s review identifies serious financial irregularities
www.irishtimes.com www.irishtimes.com

Appears to be a tied agent.

Does that mean that if he told me that he had invested my €20k in Irish Life, that Irish Life is responsible?

Clients were provided with falsified certificates purporting to evidence their investments and falsified statements showing that interest was accruing on investments that did not exist.

There were inadequate business and accounting records and it appears steps were taken to modify certain banking and accounting records with a view to concealing the true financial position of the company. It has not yet been possible to reconcile the true financial position or the scale of misappropriation of client assets, the review found.

Initial analysis of available information shows, however, that it appears 45 clients were impacted by misappropriation and at least €3.7 million of client money is unaccounted for. These are, however, only preliminary figures.
 
Brendan Burgess said:
Does that mean that if he told me that he had invested my €20k in Irish Life, that Irish Life is responsible?
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Sounds like the judge is at least alerting the Investment Compensation Scheme to the issue?
The judge ordered that papers in the case also be served on the Insurance Compensation Fund and on the Garda National Economic Crime Bureau.
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Seems surprising that someone didn't twig this and blow the whistle earlier? In the past I've placed unit linked business via a (trusted and trustworthy) broker but I also received online portal access from the ultimate underwriters to track my investments. That wouldn't have been available to me if the broker had been acting the maggot.
 
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