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
 
It's not the first time this type of investment has gone belly up, In other ones there were few if any financial advisors involved, just the investors themselves. One of those was a Polish property investment fund, people who took a chance off their own instincts and it most certainly didn't work out. I guess if smart individuals can lose money, then so can advisors but of course Brendan is correct in that if the return is promising high returns for a very simple investment then we need to be very switched on and even then there's no guarantee. Yes, I've got caught in a few things but by having enough pokers in different fires it made the pain that bit easier to take. However, pain is pain and it stings. What will happen with Dolphin and the investors? Very little I'm afraid. A bit like Fungi, the dolphin has gone (sunk).
 
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?
 
cremeegg said:
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.
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If they're a fee-based Authorised Advisor by definition they cannot benefit from commission and any payable is repaid to the client
 
ATC110 said:
If they're a fee-based Authorised Advisor by definition they cannot benefit from commission and any payable is repaid to the client
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This is not correct

Consumer Protection Code - Restriction on the term independent
The term ‘independent’ may only be used by an intermediary in its legal name, trading name or any other description of the firm where:
a) the principal regulated activities of the intermediary are provided on the basis of a fair analysis of the market; and
b) the intermediary allows the consumer the option to pay in full for its services by means of a fee.
The term ‘independent’ may only be used in any trading name or other description of a regulated activity where the intermediary:
a) provides the regulated activity on the basis of a fair analysis of the market; and
b) allows the consumer the option to pay in full for the regulated activity by means of a fee.
Where a regulated entity does not provide all of its regulated activities in an independent capacity, it must explain the different nature of its services in a way that seeks to inform the consumer. It must ensure that there is no ambiguity about the range of services that it provides in an independent capacity.

To apply for authorisation as a Broker/Retail Intermediary, the applicant must submit a completed application form. This combined application form covers the following registrations and authorisations:
▪ Insurance Intermediary under the Insurance Mediation Directive, 2005.
▪ Investment Intermediary under the Investment Intermediaries Act, 1995.
▪ Mortgage Intermediary under the Consumer Credit Act, 1995

The terms Authorised Adviser and Multi-agency intermediary are no longer in use
 
The only professional financial advice I sought was because of a disagreement between Revenue and me. I like to think of such advisors being like the Covid Vaccine with the cure along with some discomfort. Money well spent though!
 
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:
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.
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I'll tell ya one thing NRC, the more I learn from this forum the more confused I get. And I'll tell ya another "ting" there's some great advice on this forum.
 
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
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.
 
Marc said:
www.businesspost.ie

Ian Guider: We have never been serious about tackling financial wrongdoing

The scandal involving the venerable stockbroker reminds us that, in most cases of economic wrongdoing, there are no real consequences for those who gain unfairly
www.businesspost.ie www.businesspost.ie
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Don't subscribe to the SBP so can't read it but that problem is a global one. HSBC made more money from the money laundering they were fined for than the fine itself. Same for all the other financial scandals. It is a net gain for these institutions.
 
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