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The Banking Royal Commission is uncovering serious breaches of customer trust in the financial advice industry and the distrust this is creating has far reaching implications beyond the obvious adviser-client relationship.
Sadly, for the majority of professional financial advisers whose advice and recommendations can be demonstrated to be in their clients’ best interest, they suffer by association with those advisers who have behaved in ways described by the Royal Commission as either “dishonest”, “illegal”, “fraudulent”, “negligent”, or “incompetent”?
In this post I want to highlight just two components of the impact of distrust in the financial advice industry.
The first is how this growing distrust in the financial advice industry will negatively impact the confidence in and relationship with existing clients and their financial advisers.
Retention of clients becomes an issue for honest and professional financial advisers because of this distrust. Clients start to doubt their financial advice strategies, the fees they’re being charged, and this opens the door for them to look for other ways to invest, grow and protect their financial assets.
That’s fine, so long as the alternative advice they discover beyond the financial advice industry is: in their best interest; tailored to their specific situation; aligned with their propensity for risk and a host of other considerations.
There will always be other self-proclaimed financial experts with get-rich-quick strategies ready to pounce on clients of financial advisers who are questioning the trust they have in their existing financial plan.
The second is how this growing distrust in the financial advice industry will negatively impact the confidence and willingness of everyday people, already struggling financially, to seek professional financial advice to help them grow and protect their financial assets.
My dad worked hard as a laborer for almost fifty years. Together with my mum, they built and owned our family home. They raised five children. Sadly, mum passed away from illness in her early fifties, but dad struggled on working. When he finally retired in his sixties, he had nothing financially in place for retirement, other than owning the family home in a small country town, and now relies on the aged pension.
My point is, this was never dad’s plan. The problem is, dad never had a financial plan.
I fear the real cost of distrust in financial planning, and in financial institutions in general, is the cost of client confusion.
If potential and existing clients of financial advisers are confused about whether they can or cannot trust financial advisers, who do they turn to for help and advice on how to grow and protect their assets and financial position?
Sadly, without a financial plan in place, more people will end up in similar situations like my dad and despite working for years, end up needing some form of social security or totally relying on social security in their later years.
Surely that’s not a plan.