Financial "adviser" has my neighbour

Hi all,

Sorry for the rant - this got to me today and I thought I'd share.

Long story short - September last year my 83yr old female neighbour/friend told me she had got a financial adviser. I asked how and she said a lovely young lady came to an "over 65's women interested in investment" day at the local pub. Alert sounded, so I said good for you - it's something I'm interested in so I would like to see the docs/proposal when the adviser prepares it. I finally saw the docs yesterday and was not horrified but very disappointed by what is being proposed. The adviser came to visit her today and I sat in on it. A few key points from her:

1. It's a dangerous time to be invested!
2. She can pick the best active managers, doesn't go for the "best" one from last year but goes for consistent outperformers.
3. There's research evidence showing conclusively that active beats passive. I brought up SPIVA, the mathematics etc. but no that's irrelevant. You need active now because of the "danger" in the market.
4. My neighbour needs to diversify away from Australian shares, so she needs to sell her shares in Aussie blue chip shares (CBA, BHP etc.) and use that money to buy Fidelity Australian Equities Fund....

I queried about why my neighbour would sell her Aussie blue chip shares to buy an index hugging active Aussie share investing fund that charges a whopping fee. Why not just AFIC or an ETF like VAS. Apparently because the Fidelity fund is far superior....Active beats passive.

The original plan the "adviser" sent was to diversify internationally, but that didn't happen in the plan she was going to implement. I said I didn't understand why she would shuffle the cards and only improve the diversification to 90% Aus and 10% International, at which the adviser said that it was only 3% international. I said maybe my maths is wrong and made her go through it, she was wrong...

She also recommended putting a large component of the money into the Schroder Real Return CPI Plus 5% Fund Wholesale Class:

https://www.schroders.com/getfunddocument/?oid=1.9.902961

I did some looking into it and was very unimpressed. My argument is that why would my neighbour invest money into something like that (some junky bonds and fixed interest, 30% shares in Australia and Internationally, lots of cash and fixed interest) with high fees (0.9%) that had no track record of hitting its mandate when she could achieve the same by just adding bonds to her portfolio and tweaking the share investment. Again - active managers are better, dangerous market etc.

I then also brought up the large amount of money sitting in the Yarra Enhanced Income Fund:

https://www.yarracm.com/wp-content/uploads/2020/04/Yarra-Enhanced-Income-Fund-Direct-Mar-2020.pdf

My neighbour has had this for as long as the fund has existed, and the adviser was happy to leave the money there. I said look at the credit rating of the things its invested in, more than half is in BBB- debt or worse. How can you sit there and tell me about risk management and dangerous times and leave a large chunk of money in that fund? She said capital gains tax, so I countered why is this not the first one to go then before selling other shares etc.

She tolerated me until then, but that ****** her off. She said she was happy for me to email her and she would provide more information about what we discussed, I said I'm not really interested in the reports she'd said as I'd rather do my own research. I then left saying for me a financial adviser to someone like my neighbour should be trying to make it as simple as possible, and to be a person that my neighbour could contact once a year to discuss re-balancing and whenever she was starting to panic and thinking of doing something stupid and that's it.

I went in hoping that maybe she would be receptive to switching to low fee index funds, and making it more simplified and diverse. That was not the case, it was a classic "you need me because I'm the gun fund picker" approach, mixed in with making things seem highly technical and lots of chicanery to make it seem like you needed her. But once I actually questioned the choices it became apparent there was no thought process behind it.

Not sure what I hope to achieve with this post - but wanted to get it off my chest! If anyone has any thoughts that I could share with her (not advice as I've told her) I'll show her this thread. I know it's none of my business, but at the same time it is because when you see the sharks circling someone what are you supposed to do? The charge was $4500 a year for nothing except some copy and paste and cursory understanding of her predicament. The "adviser" didn't even take into account spending habits. If my neighbour had enough money to last forever regardless I wouldn't care, but she's right on that borderline where losing $4500 a year to an adviser + paying an extra 0.7%+ in fees for closet indexers and suspect active managers could push her over the edge. She's aiming to spend $65K a year, that's pretty much 10% gone in just management/adviser fees before even getting to accounting fees and CGT events.

 

With the greatest respect to your neighbour @Ross36 but in my view at the age of 83 she doesn't need or require complicated investments, gun stock pickers or any other bumph.

What she does need is simplicity, a steady income to spend and enjoy for the rest of her years - hoping she has quite a few left.

The $4.5k could provide her a bloody good holiday each year or possibly a couple of them. She may prefer to spend the dosh that way rather than funding the lease of the adviser's Ferrari or BMW (or Nissan 120Y - highly unlikely.)

 

If I remember correctly it was the Datsun 120Y as I used to own a Datsun Skyline

Dont know much about new cars nowadays

 

I know zilch about cars (obviously) and it'll remain that way. Good get though.

 

If you think the advisor has done something wrong (such as not taking into account her client's expense) you should report her. The rules are now stringent. I personally think financial advisors are a bit of a waste of time and would never recommend someone uses one, but each to their own.

 

Agree 100%. I'm in a hard spot though as I definitely don't want to be "advising" her. She inherited the money and portfolio, and although switched on doesn't understand finance or investing. I'm going to have a look around for an adviser to recommend to her after I do my due diligence on them.

Funny you mention that - my neighbour said she randomly bumped into her at a fancy restaurant one night while holidaying in Tasmania. I said "who do you think paid for that holiday and restaurant?". The adviser is entitled to earn her money and spend any way she likes, but that was a bit rich given my neighbour had been waiting months to get the adviser to help her even though she had already paid the commission.

I'm not sure whether what the adviser did was wrong or just very sub-optimal and careless. Overall it was very unimpressive, but I don't think it was blatantly scheming to take her money and I'm sure she could find ways to defend her recommendations.

For people interested in this sort of thing I agree, but most people aren't and many do need guidance. I haven't been impressed by the two instances of advisers I've seen so far though.

 

A difficult situation. I don't envy you one bit.

 

Whoa! Just struck me. The lady paid the commission before she was provided any SOA? I didn't think that was permitted but I could be wrong.

 

Yeah, probably not a battle you can win here.

She just needs an industry fund. 4.5k a year for nothing, put aside the retail funds MER. Problem is who is going to set up the industry fund for her and advise on income stream and other considerations. Some have advisors on the payroll I suppose.

 

Everything about this situation doesn't feel right to be honest. I think it might be worth speaking to the Australian Financial Complaints Authority. This is from the AFCA site:

"ASIC can ban a financial adviser if they have done the wrong thing, such as:

• failing to act in the best interests of their client
• charging for services they have not provided
• providing false or misleading information
• giving advice that is not appropriate
• not being honest"

I think a lot of what she did fits in with this, if not on purpose than due to negligence. Nothing about the adviser gave me the vibe that she knew what she was talking about.

Nailed it. I "know" what she needs, but I'm sure not going to tell her. I think she's just overwhelmed. Her son (who lives in England and she pays the rent for - he's 50) is telling her to buy gas stocks because that's the future. Her broker - yep she has one she calls to place the orders for her - is telling her that she shouldn't sell banks because dividends are coming soon, but she could sell after that. This adviser is coming in and shoving numbers and acronyms in her face to justify fancy actively managed funds. Then I'm telling her that she needs to take a step back and get this right - she's won the game already but she needs to be careful of people who are trying to leach her money from her. The right structure is what matters and is complex, the investing side is easy to me.

Anyway - I've contacted Fortitude Private Wealth to see if I can speak to them about her situation. They seem to be highly regarded and if Pistol Pete Thornhill trusts them I imagine they must be good.

 

Doubt they will take it on. Hard to get good advice on small balances unfortunately. The system doesnt work IMO.

 

Sounds like a scam to me. Financial advisor turns up to home interested in Bingo and then happens to sell financial advice.

Selling now is not a good idea unless you are buying something equivalent OR you know certainly that what you are selling / buying will under / over perform. Otherwise your 83 year old friend will realise said losses.

That being said, I do think a portfolio if all Australian banks could be risky, particularly in the short term. I also think global diversification is important.

Finally, I'd advise the lady that she can save herself the fees and go for ETF equivalents. Unfortunately I'm guessing you are not licensed to give advice Well I would ask the advisor to prove she is licensed and is not receiving kickbacks from the chosen funds. I'd also show the performance comparison between active and passive in general and discuss Warren Buffet's bet with a hedge fund manager.

Good luck and thank you for caring.

 

Good on you @Ross36. Between the FA and her family it sounds like the old saying 'when a person with money meets a person with experience, the person with the money will get an experience and the person with expereince will get the money.

Connecting her, as your'e in the process of doing, with a competent advice for her situation is the go here. Well done.

 

This is a big problem I'm seeing that was highlighted in the australian newspapers best advisers rankings - the people who don't need good help because they have 5+ million are the ones who can get it because they have the minimum funds required. People with under 1 million are left swimming in shark infested waters....

I'm being very careful to say "what I would do is...." or "i would tell my mum to do....". As you've pointed out I'm not licenced to advise.

Did that in front of the adviser - she countered with the "dangerous times need active managing" garbage. I then brought up Buffets guidance for his wife - a passive ETF. Why would he not put his own wife in active or his own company if it was so good? That brought the sound of crickets....

Thanks - fingers crossed I can get someone good for her.

 

This sounds odd. Does your neighbour have any trusted family members that could assist her? Is there evidence the advisor is authorised to give advice? ABN checked? Touting to give financial advice to over 65s in a pub?
If this 83year old has managed so far without unsolicited advice she might be best doing what she been doing? So many cases of elder abuse go unreported. Many issues with this and red flags.
Report the concern and checks can be made. Often these people have a history. Meanwhile suggest your neighbour hold off making decisions for awhile there is no urgency. Scammers always pressure to make quick decisions. Run a mile.

 

I told her that - there's nothing overly wrong with what she's invested in. It's heavy on cash, about 50%, which is what worries her with the low interest rates. The shares themselves are all direct but are the aussie blue chips with a mix of 10 different resources, banks and industrials. It's pretty much index weighted.

I think the biggest issue is seeing the value go down rapidly. She's spending a lot, so the cash is dropping, combined with the issues in the market probably have her worried. I think she just needs someone she can talk to who will make her feel ok about it.