Is your Financial Planner Ethical?

This is a very important question that every financial planning client would definitely like to know the answer to. But in practice, how would a client know (until it’s too late and they have paid the financial price for it)?

There are numerous ways unethical financial planners can rip off and fleece clients. A few of the common methods include;

  • Over-servicing.
  • Putting clients into high commission investment products – e.g. $5 billion was ‘invested’ into tax-effective agricultural investments because the commissions were often as high as 10%.
  • Overcharging e.g. $3,000 for a pro-forma (template) financial plan drafted by a financial planning support person.
  • Taking annual financial management fees for performing minimal work. For example, one retired client was charged annual advisory fees by their financial planners of $5,000 per year for advising them to keep $500,000 in a term deposit.
  • Misappropriating (stealing) client funds.

It’s laughable that there is currently no legal obligation for financial planners to act ethically when dealing with their clients. The Government has moved to correct this deficiency by enacting the Corporations Amendment (Professional Standards of Financial Advisers) Act 2017. The Act aims to raise the education, training and ethical standards of financial advisers providing personal advice to retail clients on more complex financial products.

Unfortunately, the ethical obligations under the new Act only apply from 1st January 2020. This should be of concern to the 95% of financial planners who are ethical and put their client’s interests first. And clearly, a worry for current financial planning clients.