Doing better. We all want to do better. Across the board. Whatever it is, there’s someone out there claiming they can best whatever we’re currently doing. Doing better can come in close quarters from someone we trust, or it can come from a cold call.
Here’s a couple of stories of doing better.
The Trusted Professional
It’s tax time. You’re sitting with your accountant. Nothing out of the ordinary. You’ve done this many times before. Saved you a few bucks in recent years. Trust established. They ask about your superannuation. You’re not that familiar with it. Never really been a financial person, but it’s built into a decent sum over the years. Between the pair of you, there’s over half a million bucks with industry funds as you near retirement.
The accountant starts talking about a self managed super fund. Sounds complex, but the good thing is they can set it up. They can keep it in order. And they know of some investments that will do better than your boring industry funds.
It’s a bit of a whirlwind, but soon enough you’re in elite company: the proud owners of a self managed super fund. An SMSF. There’s a lot of documentation. You don’t understand any of it, but the accountant says it’s all good and it’s been ticked off by a financial adviser somewhere on the Gold Coast. You don’t know a lot, but after a while you notice you seem to be paying a lot of tax because there’s a lot of income. Anyway, the professionals are in charge.
By chance you have a conversation with a local guy you know. Happens to be a financial adviser. You mention a few details about your shiny SMSF, and his eyebrows continually move northward as the conversation goes on. One particular thing the adviser says is “it’s strange you’re paying so much tax, given your age, it should be in a pension.” The adviser agrees to take a look.
At the meeting with the adviser, it’s clear something isn’t right. He’s not quite sure what these investments are, but they seem high risk and there’s no evidence of any risk profile. There’s a lump in your throat. After some digging, he comes back to you. Most of what you’ve invested in appears to be loans to companies with high interest rates. This explains all the income and the tax. There’s one other thing, many of the entities you’ve lent to appear to be related parties in some way. One of the entities is registered to the same office as your accountant.
You don’t really know where your money is, nor who is even in control of these companies. Now you’ve got a phone call to make. You still really don’t understand what questions you have to ask your accountant.
You could do better.
The Global Investment Company
The phone rings and on the other end of the line is a Private Wealth Adviser or Private Client Director. That’s an exclusive sounding title. You may have vaguely heard of the company they work for, so there’s some name recognition there. They’re a huge advertiser, so if you don’t have an ad block on your web browser that might be where you’ve seen them. Alternatively, if you’ve ever read a national weekend newspaper you might have seen one of their branded economic updates, strategically placed in the financial section. At a glance, the ads do look impressive.
Somewhere along the line they’ve partially qualified you as a client they want: you have enough money. Even if they’re wrong, that’s ok because this is a numbers game, they will swing and miss more times than they hit. But when it comes to closing, the money is important because if you have enough, they can pitch to you as a wholesale client. That means their compliance obligations towards you are significantly reduced. They can quickly onboard your money into their system without any rigorous assessment of you or your circumstances. It’s all about churning those dollars over.
The conversation will quickly turn to investment returns. Whatever you got last year, well, they did better. Best portfolios. They can get you better returns. It’s all very positive. Whoever is managing your money now, they’re doing you an injustice. Even if you turn them down, there will be another phone call at some point. Maybe this time next year.
After hanging up, you’ll google them. You find they’re a global company. Clients all over the world. Manage a couple of hundred billion, which is impressive. The main guy seems to be in the media a lot. More credibility.
They are legitimate, but…
If you kept digging, you’ll find they’ve been sued in the US for their cold calling activities and hit with damages for breaching their fiduciary duties, they’ve even been accused of elder abuse. Why? Because they are shameless. They’re like the terminator “I’ll be back”. Where they can get away with it, they keep pressuring people until they turn their money over. In some cases, they’ve called people for over a decade just waiting for them to break.
If you find their sales executives’ profiles on professional networking sites, you’ll find boasts of making 250 cold calls a day to hit their sales targets.
Why are their investment returns better? Increased risk. They won’t compare your current portfolio with a similar portfolio they run, they’ll compare your portfolio with the most aggressive portfolio they run. The overwhelming majority of their clients are in the same portfolio and it’s all stocks. There’s no accounting for you, your risk tolerance, your circumstances, your goals, what you need your money for. It’s straight into stocks and fingers crossed they go up, which is why they breached their fiduciary duty for making unsuitable recommendations in the US.
Luckily in Australia you qualify as a wholesale investor, and these guys know they don’t have to worry about any fiduciary duty. That’s important because if you actually need some advice, they also aren’t financial advisers, so they can’t give it to you anyway. It’s in their fine print somewhere.
You could do better.
This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.
