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You've got to be kidding

Recently, I encountered someone I know who has been played off a break by a sneaky financial institution. And he's paying big time because of his ignorance or his gullibility.

They used to be secret

At the moment the financial advice industry is going through some real soul searching with the predominant form of pricing coming in for plenty of criticism.

For a long time financial planners did not charge upfront fees but took commissions paid to them by fund managers, which nowadays are dominated by the banks.

Now they're just sneaky

Eventually these secret commissions were exposed and new regulations meant that charges were to be made clear to customers. But after what I saw from one of this country's biggest banks, the craft of conning customers has been taken to a new art form by the professional salespeople of many of our financial institutions.

Read this story

Lately, reacting to criticism and to some clean skin financial advisers who are charging a 'true fee for service' and are rebating any commissions given to them by fund managers, some banks say they are charging fee only but it is virtually a commission paid to them by another name.

The bank in question refunded a 0.3% commission and then charged an ongoing fee of 0.8% which meant this retiree, who had $1.5 million to invest, was being charged $12,000 every year for ongoing advice. The bloke would be lucky to receive a day's work for that advice per annum.

$12,000 a year plus a fee, and more!

By the way, the bank charged over $3,000 for the plan, to prove they were fee for service, but the bank adviser then recommended a sister company's products!

The actual amount of ongoing commission that the bank was racking in was not shown. What they did show was some convoluted method of calculating what the charge would be. That to me borders on the deceptive.

Kick the honest guy in the butt

The irony is that this poor patsy went to a genuine fee for service adviser who planned to charged him less than $2000 for the plan and about $1200 a year for ongoing advice. By way of comparison he also went to a smooth talking bank salesman (sorry, I mean financial planner) and was given the sweet talk that big corporations can do so well.

What is interesting is that the advice from both advisers was very similar but the one big difference was the price!
They don't want to lose their big profits

Over the years, the Federal Government and the Australian Securities and Investments Commission (ASIC) have tried to clean up the industry but some of the biggest players in the industry have a vested interest to keep muddying the waters so customers can't compare apples with apples.

The adviser can be swayed

You see, commissions paid to non-bank advisers for recommending their funds can sway a decision between funds X or fund Y. The industry always tells us that past performance is no guide for future performance and so advisers can argue they think fund Y will do better in the future. However, the real reason for recommending the fund could be the size of the commission!

Go for the honest broker

Genuine fee only advisers with no link or loyalty to any bank or insurance company are more likely to be unbiased. And if they give back to their clients any commissions paid by funds then they'll select funds that will do the best for their clients. The commission becomes unimportant and the likely performance of the fund becomes super important, as this will mean customers will want to come back and recommend the adviser to others.

Don't fatten up their profits

Super salesmen of the past have dined out on the old line: "There's a sucker born everyday!" When it comes to your wealth building and even your retirement nest egg, make sure you don't wind up as a super sucker.

Published on: Monday, August 10, 2009

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