How to trust your financial adviser again after the First Guardian scandal
Retirement dreams for many Australians came crashing down recently, with the collapse of investment funds First Guardian and Shield Master. According to reports, some lost as much as $500,000 or more in superannuation, with little time left until retirement to rebuild.
So how did this happen? It was a two-part disaster. First, the scheme itself was an alleged Ponzi scheme. The operators took money for themselves and used new investors' cash to create a fake track record of stability.
But that fraud needed a way to find victims. That's where some compromised financial advisors came in. Motivated by huge commissions, they used their trusted position to funnel thousands of clients and their life savings directly into the trap - sometimes using aggressive sales tactics.
Does that mean you can’t trust your financial advisor? Not at all. There's always going to be some percentage of dodgy operators in every industry. First Guardian and Shield Master simply shopped their dodgy product around until they found a few unscrupulous advisers who were either willfully blind or knowingly complicit.
But there are plenty of principled advisers out there who want to help you reach your financial goals. So how do you filter out the bad actors? By exercising a little discernment next time you meet with an adviser.
How to properly vet your financial adviser
Here are some ways to vet your next financial adviser, whether you’re talking about super or any other investment, to ensure they have your best interests in mind:
- Ask about their philosophy. A good first step is simply to ask your advisor how they view their relationship to you. A good one will talk about partnership, education and your long-term goals - not just returns.
- Confirm exactly how they are paid. Advisors must document their fees and commissions, and the good ones will make sure you understand everything. Ask questions and don’t proceed until you’re crystal clear.
- Ask about their investment options. Do they compare different products to find the best fit for you, or are they limited to a pre-selected menu of choices?
- Check the ASIC register. The ASIC maintains a public Financial Advisers Register where you can search your adviser to verify their credentials and disciplinary history, if any.
At the end of the day, your adviser is there to help you reach your long-term goals. If anything seems off, you’re well within your rights to shop elsewhere.
One place you can usually find an advisor is through your current super fund. While their advisers probably won’t recommend a competitor’s product, they can help you work out your goals, recommend investment strategies and understand the overall landscape. It also gives you the opportunity to put the tips above to the test - and get a better sense of whether or not you’re comfortable where you are.
If you’re not, here are some other super funds you can look at.