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What do the Banking Royal Commission Findings Mean for You?

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Raffi Pailagian
MBA, BSc, DipFP
Financial Planner / Managing Partner

Australians thought they were safe investing with Financial Planners who worked for the ‘majors’.  Well, the Banking Royal Commission findings certainly turned that belief on its head!  The turmoil this has created has resulted in substantial structural change in the industry.  But will this change ultimately benefit those it was intended to help? Let’s unpack how some of the changes might impact you.

Big Banks & Institutions are Leaving Financial Planning

As a result of the changes recommended by Kenneth Hayne, most of the “Big 4” banks and larger financial institutions have begun to withdraw from their Financial Planning businesses, scaling down the number of advisers and in some cases shutting down those divisions altogether.  This is largely due to the increased requirement for transparency, which aims to ensure advisers are genuinely independent, and their advice is not influenced by anything other than the best interests of the client.  Great news for the clients of financial advisers and planners who are not institutionally aligned, not so great for those tied to the bigger institutions.

You Might be an Orphan

With the large institutions withdrawing from Financial Planning, many of their clients will be left as ‘orphans’.  In other words, when their Financial Planner leaves the business, they will find themselves with nobody managing their insurance, investment or retirement portfolios and ensuring their financial goals are being met.

If you have become an orphan, you might feel like you never want to see another financial adviser ever again. Who could blame you – the Banking Royal Commission findings have no doubt left a bad taste in your mouth. Or, perhaps you are wondering what you should do now?

Why Do I Need a Financial Planner?

Given all the media attention, it’s not surprising that there is a great deal of distrust of financial advisers in the community.  A recent survey suggests 49% of consumers believe financial advisers were more interested in making themselves rich than helping their clients.[i]

Yet 79% of people recognised, rightly, that Financial Advisers have expertise in financial matters that they don’t have.  The problem, not surprisingly, is one of trust.

A genuine financial adviser is not just someone who sells a client a product, or suite of products and is never heard from again.  A good financial adviser will provide valuable ongoing monitoring, advice and assistance to clients throughout their business relationship.  And do so impartially.  Some key areas a financial adviser can help are:

Insurance Claims

If the worst happens and you have to make an insurance claim an adviser will  help you successfully navigate the sometimes confusing paperwork.  They will go in to bat for you at a time when you and your family are likely to be stressed and under pressure, helping to make sure your claim is dealt with quickly, efficiently and fairly.

Market Volatility

In a volatile market, where large swings in investment can be caused by little more than a Tweet, you need someone with their finger on the pulse to avoid significant value being wiped off your investment or superannuation portfolio.  Monitoring the swings of the financial markets can be a full-time job, and movement is often difficult to predict, even for a specialist.  Your financial adviser can provide informed advice and guidance in relation to the management of your investments, and reduce the risk of losses through inactivity.

Your Changing Needs

Everyone has an underlying ‘risk profile’ – that is, your attitude to risk –  which makes you more or less risk averse than average.  However, as your life circumstances and needs change, so does your attitude to risk.  When you are young you may be happy with high risk/high return investments, as you have time to weather any storms.  As you take on more responsibilities – like a family – the balance of your risk profile may begin to change, becoming more conservative.   As retirement nears, you are likely to prefer a move to more stable investment strategy, limiting risks to the portfolio you may have spent years building.  A good adviser will ensure that the products he or she is recommending meet your everchanging goals, objectives and attitudes to risk.

Risk Profiles are complicated and a very important element in any investment strategy, so we will discuss them, and the issue of risk vs return in an upcoming article.

Why Independence Should be Important to You

There is some resistance in the community to paying a fee for independent financial advice.  In fact, cost is the single biggest reason for not seeking advice.[ii]

However, there are two ways in which a financial adviser can be remunerated for providing you with advice – product commissions or charging a fee.

The problem with Commissions is that they become what is known as Conflicted Remuneration – a term you have no doubt heard used a lot if you have followed the Banking Royal Commission in the media.

Conflicted Remuneration

This refers to commission an adviser may earn on a particular product which may influence the choice of financial product they present to their client.  This type of income was identified in the Ripoll Report of 2009 as the leading cause of poor financial advice provided to clients.[iii]

Paying a fee for financial advice means that you can be reasonably confident your financial adviser is recommending a product based on its features and suitability, not the one that provides them with the most attractive commission package.  In an upcoming article we’ll discuss the difference between general and personal advice and how this also impacts product choice.

So, whilst paying a fee may seem like it costs you money, the independence, increased transparency and flexibility it provides will in most cases outweigh the cost in terms of investment returns.

What Can you do About it?

If you have been left without an adviser, there’s no need to panic, but you do need to take action to ensure you are not left exposed.  Manly Financial Services is an experienced team of professional Financial Advisers and we are not institutionally aligned with any product providers.  We would be happy to review your current situation, identify any potential risks, or just provide a second opinion.  If you would like the peace of mind of knowing your financial goals are safe, please contact us on 02 9976 3388 or click below and we’ll be in touch.

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