A gripping day in the ongoing Royal Commission on Tuesday that saw the focus on poor advice shift from the major banks (and of course AMP) to a smaller, ‘independent’ player in the space named Sam Henderson.
Interestingly, Sam has built quite a name for himself in the ‘independent’ advice space over the years, with regular appearances on Sky Business, the AFR, the Today Show and Money magazine. As the successful owner of a boutique advisory firm in Sydney with a number of financial advice awards under his belt, $170m under management and a recent equity sale to an Italian fund manager this guy presented himself as a bit of a role model for aspiring wealth managers across the country.
Safe to say he had his toughest day in the office ever, as an aggrieved client decided to volunteer her experience with his practice and in so brought to light a number of somewhat startling revelations.
There is a lot to go through here, so I will focus on the raison d’etre first, being the actual advice.
Predominately the biggest issue here was advice to roll out of a fairly rare ‘deferred benefit’ public service scheme, which brought with it the consequences of the client missing out on the benefit which amounted to half a million dollars. Not ideal.
The direction to then inject these funds into a new ‘Henderson Maxwell Accounting’ originated SMSF and then invested into a ‘Henderson Maxwell Investments’ managed account share portfolio compounded this poor advice. In addition to this, the recommendation included using an third party managed account platform that Sam himself was an equity holder in, added the last of the icing on the cake.
All this, for $5000, which included the client moving from a current fee structure of $2,700 to $14,600 per year with setup fees of $6000. Sound familiar?
Exacerbating the whole situation was the fact that his assistant pretended to be the client a number of times in dealing with the donor fund, his non-existent Masters degree on regulatory client documentation and finally a series of emails with the Financial Planning Association in an ensuring investigation that could be described as less than complimentary about the client.
It’s difficult to think of anything else that could have gone wrong.
Now I feel for Sam a little bit, as public service funds are often confusing and generally have a number of subtle benefits not normally found in other superannuation products that are available to the general public. When a client walks in with significant funds in one of these schemes, you need to be prepared to get the facts straight. The fact that the fund repeatedly told his assistant the deferred benefit would be lost shows some serious lapses in their research process.
In the past, I have found that often a client is better off to just remain where they are for these reasons, and use the advice opportunity to find other facets of a client’s financial life that may need attention.
Carelessness on this point aside, the remainder does present itself with an unholy trinity of inadequate research, cookie-cutter advice and poor professional judgment that all too often plagues the advice industry, and clearly, it’s time is up.
As the Royal Commission saga moves from discovery to action, and the public demand more client-centric advice that is driven by their best interests, a new dawn approaches for advisers who wish to continue to do the right thing and in turn will be very successful.
The next step will be managing the client expectation that good quality advice, without the commissions and aligned interests, simply cannot come cheap.
Tim Fuller is Head of Operations at Nucleus Wealth.
The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance.
Tim Fuller is an authorised representative of Nucleus Wealth Management, a Corporate Authorised Representative of Integrity Private Wealth Pty Ltd, AFSL 436298.