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THERE ARE ADVISERS AND PROFESSIONAL PLANNERS – KNOW THE DIFFERENCE
MONEY BASICS
with MARTIN HESSE
NOT that long ago, “financial advice” was essentially a euphemism for the aggressive selling of financial products by life insurers. You went to an adviser or broker if you wanted to invest or take out an insurance policy. The adviser chose a product from the limited range available, convinced you that it was right for you, and you signed on the dotted line. The dotted line, in the case of investment products, was a contract that bound you to contribute a specified amount over a specified term. This business model enabled the life company to offer the adviser, who had some product training, but needed very little in the way of financial qualifications, a lucrative commission based on the
whole amount contributed over that period, which was a huge incentive for the adviser to sell as many products as possible. And if you broke the contract by stopping your contributions or wanting to withdraw your savings early, that pre-paid commission would be clawed back from you, in the way of a penalty. It was a recipe for disaster: advisers mis-sold financial products on a massive scale because they were operating in their best interests, not yours. Many things have changed. Investing has become democratised through, among other things, the emergence of the asset management industry, which offers a mind-boggling choice of non-contractual collective investments. And it
has become easier to invest directly in the stock market, through low-cost, accessible online platforms. Importantly, the regulators clamped down on advice and the sale of financial products, through the Financial Advisory and Intermediary Services Act of 2002 and, more recently, the Treating Customers Fairly regime. This has made it harder for an adviser to sell you a product without first properly assessing your circumstances and financial situation. However, the scenario I described at the outset persists. There are still far too many advisers who have minimal qualifications and are, to put it bluntly, little more than salespeople. Fortunately for you, the
