In this week's podcast we’re going to be talking about dodgy financial advisers ripping off unsuspecting and trusting members of the British public. Be warned I might get a bit vitriolic on this one No swearing though, well, there might be in my head, but none over the mic! Few things get me more riled than reports of people being badly advised, either due to incompetence or more usually by advisers with malicious intent.

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But first…

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Introduction

Let’s frame the discussion today by considering what actually goes on between an adviser and client. When I’m talking to clients I am asking about their money, obviously, but also about their family, their health, their hopes and dreams for their future. In the process I get to know more about many of them than their own kids do.

I don’t know an accountant who will ask about a client’s detailed medical health, or a church pastor who will ask about the state of their bank balance, or a doctor who asks about their hopes and dreams for the future. I get to discuss, in great detail, all these things and much more. This, if anything, is the difference between financial advice and financial planning. I believe, and regular listeners will know this well by now, that money is only there to fit around your life, enabling you to do the things that you want to do. It is a means to an end and never, ever an end in itself.

Keep that in mind as we look at the signs that your adviser might be ripping you off. If you are ever suspicious that your adviser might have something other than your own best future in mind, alarm bells should be ringing.

Let’s dive in. Rather than the usual what you need to know followed by what you need to do, I’ll look at each of these signs that your adviser is ripping you off, and then what you should do about it.

Signs of adviser dodginess

1 – Hesitation to disclose their status

It is required by law that advisers disclose their status to you at the first meeting. This means that they will tell you whether they are restricted in the advice they can give you or whether they are independent. Take care here, as some restricted advisers will use words to the effect of:

“We have scoured the whole market for the best providers and whittled the field down to a panel of best of breed providers and plans”

Sounds good doesn’t it? But the fact is that advisers are either restricted or independent. I would say that Independence is the gold standard, but being restricted certainly doesn’t make an adviser a crook! Beware the adviser that seeks to hide or obfuscate their status though.

Action point: Ask the specific question – is your adviser restricted or independent?

Look for the answer in the documentation they must give you – it should be clear, up front and centre. One last thing on this: you should be happy that the person you are speaking to and the company they represent are authorised and regulated by the Financial Conduct Authority. You can do this by checking the online register of firms and individuals.

I did a screencast showing you how to do this back in video Episode 271. You can search by the adviser’s name, or by his or her registration number (ask them for it) or by the firm name and postcode.

Action point: search the register for both the firm and the adviser before you meet them

2 – Hesitation to disclose fees

The very first clients that came to me via MeaningfulMoney (Hi to Mark and Chris in East Sussex!) had three or four meetings with an adviser before he even spoke to them about fees. And this despite repeated requests from my clients for clarity. In the end it was only when they refused to sign forms that the adviser disclosed what were in fact massive initial fees. My clients kicked the adviser out of their house.

Since the Retail Distribution Review came into effect 18 months ago, commission has been abolished on investments and pensions and some life insurances. This means that the amount your adviser is paid is now agreed between you and them, and not between them and the companies whose products they sell.

A confident adviser who is good at his job will not have any hesitation in talking to you about his fees. He should explain them to you carefully and clearly and gain your agreement, ideally with a signature, before he embarks on any chargeable work for you.

It is possible for you to pay your adviser via the products he arranges for you, if there are any. This isn’t commission.

For example if you make an investment of £100,000 and agree (say) a 2% fee with your adviser, either he can bill you £2,000 when the work is done, or the £2,000 can be taken from your investment and paid to the adviser. It’s your money either way. Some clients just prefer not to write a cheque for advice. Others want to keep their investment to a round number, and don’t want their £100,000 to become £98,000!

At Jacksons we give clients the choice of how we’re paid. Either way works for us!

But if your adviser is cagey in any way about what they will be paid and when, your spidey-sense should be tingling. Fees and charges should be covered in the first meeting without fail.

Action Point: Ask your adviser how much they will be paid, by what method and when in the process the payment will become due. Don’t proceed any further until you have this in writing.

3 – Getting in touch after not speaking to you in ages

This one is a classic. If financial advice is done right, then you and your adviser should be meeting regularly. Life changes too fast for your adviser to arrange something for you and then not see you for five years. The regular review is an intrinsic part of the process. If you build a house you need to maintain it if it is to remain habitable. Likewise a financial plan needs tweaking and maintaining if it is to remain fit for purpose.

An adviser then, who gets in touch after not speaking to you for five years has only one thing in mind. He has a plan to sell you something, and that’s it. After that you won’t hear from him again for five years.

Ask yourself whose interests does this guy have at heart? Nobody but his own, that’s whose.

Now it may be that you agreed with your adviser that you wouldn’t keep in touch, and that’s fine. As long as everyone knows where they are then all is well. There may also be a good reason for an adviser to get in touch after a period of silence. Maybe some legislation  has changed and it affects your plan. If you have agreed not to meet though, even this would be a bit weird.

All I’m saying I guess is to keep your guard up. Start from the assumption that something might be out of line.

Action Point: Demand a clear answer for the question of why your adviser is getting touch after so long. If it’s to let you know of a “fantastic new opportunity” – be very wary.

4 – Talking about products too quickly

Earlier I was talking about money not being an end in itself but a means to an end. This isn’t necessarily the case for the adviser. Too many advisers still get paid when you take out a product of some kind. While most commission has been abolished, it is still available for certain types of life insurance and mortgages. There’s nothing wrong with commission per se, but it has been known to sway an adviser’s recommendation in the past 😉

The point of this, erm, point is to say that if your adviser is a bit too keen to talk about product then they may be looking out for their own rather than your best interests.

If your adviser seems like he is in a rush to talk about a particular product; if – God forbid – he calls you with the specific intention of talking to you about a product, then run away.

A product, no matter what kind and how good it might be, is only a tool which can be used to help move you towards your goals. If those goals are never talked about, or are brushed past too quickly, then how can your adviser know if they are using the right tool for the job?

Action point: Look for an adviser who has a clear process of advice, taking in goals, risk analysis and full financial planning, before a product is even mentioned.

5 – Rushing you for a decision

Entrusting your money to the care of someone you have just met is a huge thing. Even if you take the adviser out of the equation, any decision involving large amounts of money should be pondered carefully, weighing up benefits, costs, disadvantages and details so that once the decision is made and executed, you can be satisfied you gave it your best shot.

There is never any excuse then, for an adviser to rush you for a decision. Their job is to put you at absolute ease, to cover all those points for you and present them in an easy-to-understand manner so that you can frame your decision.

If your adviser seems like he is in a hurry, you need to question his motives. His targets, and the heat he is getting from his sales manager don’t matter to you. You owe him nothing.

Action point: Take your own time to make a decision and if there is even a hint of pressure from the adviser, again he is putting his own needs first, and you should call him out on it.

6 – Churning

Churning is the process of cancelling one financial product and replacing it with another, usually without any clear benefit to the client, but instead to justify fees.

My colleagues and I saw a shocking example of this the other day where a client with an investment bond was told that it was underperforming – though against what measure I’m not certain – and recommended to exchange the investment for another very similar product. There seems to have been no consideration given to the option of switching funds within the first product, something which can be done usually at no cost. Nope, the bond was underperforming, and that was that. The adviser earned over £2,000 on money he was already looking after.

It was too late for this client, but hopefully you can be on your guard against this sort of thing. An understanding of platforms, wrappers and funds helps here, and I covered this in some detail back in Session 11. In this case, there was no platform, so what the client had was a wrapper, the investment bond, with funds held within it. If he had understood that there were many different funds available within the wrapper he already had, he might have headed off another huge fee for the adviser to recommend a sideways move into a very similar arrangement.

There are plenty of reasons why it may be a good idea to move from one platform, wrapper or fund at any given time. The financial services market is evolving all the time and so there may be something newfangled available which serves your needs better than the plan you already have. Or maybe the cost of life insurance has come down and you can take advantage of the new pricing to save some money.

There must always be one factor in place though to make any product change a good thing – there must be clear benefit to you in churning the plan. Not benefit to the adviser, but to you. Usually the benefit is reduced cost, either in the premiums you are paying or the ongoing costs of the product. But it can sometimes be in your interest to move your money around even if the cost is higher. In this case there must be clear, tangible other benefits though, such as increased level of insurance cover, or more features to the plan – features that you can use and benefit from.

Action Point: If your adviser is recommending that you move money sideways, demand a cost and benefit analysis of doing so.

7 – Asking you to sign blank forms

Be very, very wary if your adviser asks you to sign any blank forms. Think of it like signing a blank cheque. You wouldn’t do it would you? I have heard countless stories of clients being asked to sign blank withdrawal forms for their investment, ‘just in case they are needed’ – says the adviser. Only the client find that the adviser has withdrawn their funds for them and swanned off to Antigua. Obviously this latter bit is pretty rare, but still.

If you want to withdraw some of your money and a form is needed, the adviser can damn well bring one round for signature at that point.

Same is true for taking out an investment. You should read all the forms carefully and make sure the information on them is correct before you sign them. If you take the time to read the declaration before you sign, and you should, you’ll see that you are signing that the information is correct. Thats tough to do when there is no information on the form.

I can’t think of any legitimate reason why an adviser would ask you to sign a blank form other than for their own convenience.

Action Point: Make sure everything you sign is fully completed before you do so.

Summary

I’m sure that none of the points I’ve covered are a surprise to most folk listening. I’m also sure that there are plenty more I could have included. If you know of any, then let me know in the comments – maybe I’ll put together a part two of this subject.

I feel very strongly about this. It should be a given that advisers always have their clients’ best interests at heart, but despite the regulator’s attempts to clean up the market, incompetent advisers and outright crooks will still  be around.

Trust your spidey sense. If something feels wrong in an advice situation, think very carefully about what that might be and if necessary confront your adviser. No matter how uncomfortable you might be with confrontation – and I wrote the book on that – this is your money we’re talking about. Don’t let discomfort be a factor in you being ripped off.

If in doubt, seek third party input from a family member or trusted friend. Have them accompany you to the meeting and get their opinion.

Finally, if you have a specific situation you want me to comment on – send me an email from the website.

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Had an email from Aaron Browne about bad advice he received:

My worst financial advice was at the height of the property boom.  I already had a mortgage for c£45k, personal loan for £5k and multiple credit cards 1 with a balance of -£3k and others with available balance of £3k I also had an overdraft of around -£1k so to say I was in a financial mess would be an understatement.  However around this time I thought it would be a good idea to look into getting another mortgage for another property.  I went to a mortgage adviser who started filling out the paperwork as soon as I sat down and by the time I left had the forms ready for a mortgage of around £100k.  At this time I was earning £16k per year!!!  This experience spurred me to pay off my debts (using the Dave Ramsey plan) and I am now in a much better situation financially.

Well done Aaron for dragging yourself out of that situation, despite the system's best efforts to keep you there.

This week’s reviews

[This is where I read the reviews from iTunes – will you be name-checked next week?!]

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News

Weight. 1/2 lb gone – down to 17st 3lbs – painfully slow but creeping in the right direction. I'm adopting an eating plan which I know works and the running is still going well. Knee holding up but still only running 1.5 miles at a time.

Still need Boyaxxa’s postal address from the competition the other week. If you left me an iTunes review in the name of Boyaxxa, email me via the contact form here so I can send you your book

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Next Session Announcement

Next time we'll be going through an investing glossary. In a bid to make your own financial planning as easy as possible, I want to cut through the sometimes impenetrable jargon that the industry seems to delight in putting in the way. If you have a question on this subject, or any other financial query that you want answering here on the show, then the best way to do that is to leave me a voicemail at meaningfulmoney.tv/askpete

Outro

That's it for this session of the MM podcast, I hope it was helpful. If I missed anything or if you have any questions, please leave them comments section below.

I hope you enjoyed this session. Thanks for listening – I'll talk to you next time.