by Olivia Long

Here’s a sobering story – and yet another example of why a small minority (and I repeat minority) of advisers in the SMSF space continue to give our industry a bad name. It involves an elderly couple I met recently who had worked hard to build their nest egg to live comfortably in retirement. Nothing flash, mind you; but enough to be comfortable.

Having not been involved in investment markets during their working lives, they entrusted their adviser to set up their retirement portfolio with two key aims – capital preservation and a steady income stream.

Now, this is not one of those shock, horror stories where a naïve couple get 'persuaded' to gear up into risky investments. No, their adviser set up a financial plan along the lines requested. But that’s where the firm’s work ended – but, surprise, surprise, not the invoicing.

The couple have been paying $11,000 a year for quarterly portfolio reports that are just that – literally little more than updated versions of the first report. They contain no strategic advice, no stock selection or recommendations, no commentary of what’s happening in the wider economy or investment markets, and no mention of government decisions that affects their status as retirees. I suspect the reports are updated by the receptionist between phone calls.

What’s compounded the problem is that their portfolio has been going backwards over the past several years – despite the strong market recovery. Even they finally worked out they’re not getting value for money and have moved on.

Hopefully, the Federal Government’s decision to introduce a register of financial advisers will help provide practical assistance to consumers like the couple above about how to find financial advice they can use and, and perhaps more importantly, trust. The register requires specific information such as an adviser’s areas of specialisation, relevant qualifications, professional accreditation and professional association membership, all of which should make the consumer’s decision that much easier.

The problem I often find is that all too often trustees deal with various types of advisers without having a proper understanding of the scope of services they provide. A stockbroker is just that, a stock selector. Nothing more, nothing less. But trustees often misinterpret their broker, someone they might have been dealing with for years, as being a financial adviser.

The financial adviser’s role is to offer more holistic advice with a focus on the long-term strategy for the SMSF’s investment portfolio. Stock selection is just one part of this. But what we see is some advisers trying to be a jack of all trades, doing everything themselves with average investment performances often the end result.

In my opinion the best financial advisers are those who outsource components of their advice to specialists in the field – such as stock selection, mortgage broking, insurance, and property investment. The adviser’s role is to ensure these investments fit the overall strategy that they have devised with their trustee client.

Fees and charges should be no different. They are often based on a case-by-case basis and it would be good to see advisers offering greater transparency so clients can benchmark what they are paying.

The register is no panacea. I suspect it might not have helped the couple above until it was too late. In my view nothing can replace the inquisitive trustee, the one who keeps asking questions until he or she are satisfied with the answers, holding all their advisers to account. Ultimately it will be this bottom-up pressure, more than anything that government can do, that will drive professionalism in our industry.