Who’s The Man In The Suit?

As a 57-year-old, Donna McKenna just wanted to know how much she needed for retirement and if she’d have enough.

In other words, when could she stop working and fill her days with fun stuff like spending time with family, travel, plus all the other things she’d sacrificed during her very demanding career as a Fair Work Commissioner.

To help clear the fog, she went looking for an independent financial adviser who wasn’t tied to a big institution. Meaning, she didn’t want a parent company telling her adviser to shove their products, down her throat. She didn’t want the wholesaler telling the retailer what to do, like the banks.

Understandably, when she saw Sam Henderson hosting, ‘Your Money, Your Call’ on Sky TV, she naturally assumed she couldn’t do much better than him for advice.

But the advice she got in return, as she described it, was ‘risible’. It was more than laughable, it was disgraceful.

In short, Henderson wanted Ms McKenna to roll her money out of her current super fund where she stood to gain an extra $500,000 once she turned 60, into another product, which…wait for it…he owned!

I.e. Henderson wanted to be both the wholesaler and the retailer and collect a clip on both. This made his advice biased and a blatant conflict of interest.

But it gets better. He was also voted the Association of Financial Advisers (AFA), Financial Adviser of the Year in 2016. Plus, he also boasted of having a Master of Commerce degree, which he didn’t. It was a lie. He started the his Master’s degree but never finished it.

But it doesn’t stop there either.

The AFA tried to resolve this issue (McKenna vs Henderson) in secrecy and suppress any information from leaking out, because…get ready…of the potential reputational damage to Henderson and the AFA.

(Don’t worry, I had to read that statement a couple of times myself to make sure I had it right).

In the end, the cover-up became worse than the crime.

So how do you know if you can trust the man in the suit?

Butchers and Dietitians
At Suncow, we believe there are two types of advisers – Butchers and Dietitians.

A butcher will sell you whatever he has on offer (products), while the dietitian will recommend what’s best for you (pathways). In other words, the butcher has a bias and the dietitian doesn’t.

The butcher also prefers commissions because the more he sells the more he makes. The dietitian prefers fee-for-service.

So what sort of adviser do you think Sam Henderson was?

Sadly, he was both. The most deceitful type. He was a butcher masquerading as a dietitian. A commission-based adviser positioning himself as an independent, fee-for-service adviser.

And unfortunately, there are a few of them around.

So how do you know if the man in the suit is a butcher?

The Two Problems
Last week I said the two biggest problems in our industry are ‘vertical integration’ and ‘incentives’.

Vertical integration is where an adviser is both the wholesaler and the retailer. i.e. biased and has a conflict of interest.

Incentives for mine, are worse. By law, an adviser must disclose any incentives, but the problem is an adviser can still hide them. Worst of all, an adviser can say he’s ‘independent’ (i.e. doesn’t belong to a corporate) even though he might still be pushing a certain product because he’s being incentivised.

Therefore, if an adviser says he’s ‘independent’, ‘not aligned’ to any banks, or ‘doesn’t belong’ to a big corporate, it doesn’t mean a squirt. In fact, I would argue its worse because he’s able to promote whatever he likes, potentially.

(I’ve just made the banks look a little bit better, haven’t I? Sorry)

But don’t despair.

Incentive Detectors
Trying to find hidden incentives can be ‘needle and haystack’ stuff. The truth is, we could have a Royal Commission into almost any industry and it would dig up some nasty surprises.

Therefore, my suggestion would be to focus on the advisers behaviour more than the incentives. And here’s why. It’s very easy for someone to lie about their thoughts, it’s much harder for them to lie about their feelings. Eventually true feelings surface.

Consider a child. Ask them what they’re thinking and they’ll probably tell you what you want to hear. Ask them how they’re feeling, and you’ll most likely move a little closer to the truth.

Some Clues
Here’s a few things I’ve seen and heard over the years that might help determine if an adviser is incentive driven.

An adviser may show his true colours this way…

1. Wants your signature to go ahead asap
2. Wants control of all your money, even if it’s just a cash a/c.
3. Insists on investing all your money asap.
4. Insists on putting all your non-super investments on a platform or in a wrap a/c. Huge rip-off!
5. Pressures you into borrowing one of his or her products. E.g. buying a property ‘off-the-plan’ that only he or she has ‘exclusive’ access to.
6. Convinces you his or her product is the ‘best’ and therefore you should transfer everything over so it’s under his or her management.
7. Churning insurance policies because he’s found something better, but most likely hasn’t.

And here’s another behaviour which is subtle, but in my opinion speaks volumes. If an adviser feels compelled to use big words all the time to try and impress you, it usually means one of two things: (i) his ego is more important than you, or (ii) big words are all he has. i.e. he’s all hat and no cattle.

The main point to remember is this; if an adviser is hard nosed about ‘product’, he’s more likely to be a butcher than a dietitian.

To that end, I should also say this. As our clients can attest, we rarely wear suits. Meaning, we don’t think any more or less of someone who does, especially other advisers. There is no denying, a nicely cut suit or a beautiful dress with matching shoes can look stunning.

The Suncow brand is deliberately low key for a reason, we just like the down to earth approach. A steak sandwich and a cold beer would mean more to me than champagne and caviar. And if I was asked to cook the steak, I couldn’t be happier. We’d be friends for life.

So long as the respect is there for both sides, that’s all that matters. In fact, if more people had of started that way, there probably wouldn’t have been a Royal Commission either.

Have a great weekend!

Adam

p.s. sorry this is longer than usual, the Royal Commission did it to me Your Honour.

Back paddock – did you know a crocodile can run down a horse over 40m from a standing start and a kangaroo can outrun a greyhound over any distance?

And how about this one. If a cheetah runs at top speed for more than 45-50 seconds they run the risk of cooking their own brain?

(I never wanted to be a cheetah anyway).

Source: David Attenborough